The question of whether the income, profits and gains can or cannot be properly deduced from the method of accounting regularly adopted by the assessee is a question of fact, and the only question of law that can possibly arise is whether there is any material for the finding.

JUDGMENT :

Sikri, J.

This is an appeal by special leave granted by this Court on November 5, 1962, and arises in the following circumstances. The appellant filed a return showing an income of Rs. 78,350 for Assessment Year 1954-55. The Income Tax Officer in his assessment order dated February 26, 1958, did not accept the trading accounts and added Rs. 75,000. He came to the conclusion that the profits disclosed in comparison with the earlier years were too low and there were no day-to-day stock details for the purpose of verification. Another factor which he took into consideration was the ridiculously small withdrawals for personal expenditure in the partners' accounts. Shri R.S. Sanghvi had only withdrawn Rs. 6900 and Shri C.T. Shah had only withdrawn Rs. 6300.

2. The assessee appealed to the Appellate Assistant Commissioner, who by his order dated October 16, 1958, accepted the appeal and deleted the addition of Rs. 75,000, but as the closing stock of Eveready Torches was under-valued to the tune of Rs. 4490, he only allowed a reduction of Rs. 70,510. He accepted the contention urged on behalf of the assessee that in view of the fact that the assessee had to deal in hundreds of items of goods of various sizes and varieties, it would mean a very heavy task to keep a stock account. He came to the conclusion that "if the sales made on commission basis are excluded on the balance sales the average profit margin would go up to about 5 = per cent which cannot be said to be unreasonable or inordinately low". He further stated that the Income Tax Officer had not been able to cite any case where the profit margin disclosed was higher than that revealed by the books of the assessee. He could find out no defect in the accounts as such or any suppression of sales. He further remarked that the purchases were vouched, the sales were vouched and the parties involved in these transactions were identifiable.

3. The Income Tax Officer appealed against the above decision to the Income Tax Appellate Tribunal, which restored the addition made by the Income Tax Officer, less the above sum of Rs. 4490.

4. It was pointed out to the Appellate Tribunal that the Appellate Assistant Commissioner had lost sight of the fact that even in the preceding year goods from the National Carbon Company Ltd. did figure in the trading account of the respondent, and that if these goods are eliminated from the accounts, the margin of profit in the preceding year was 11.3 per cent as against 5.8 percent in the year of account, as worked out by the Appellate Assistant Commissioner.

5. The Tribunal observed that:

"Since the respondents were doing business in the main on a whole-sale basis there should have been no difficulty in tallying quantities in respect of major items of the trading account. In the absence of such a tally the fall in the margin of profits cannot be satisfactorily explained by a proper analysis of the trading account. The fall in the margin is all the more difficult to explain in view of the fact that the respondents also had quota of imports worth about Rs. 8,00,000 which would have given them a handsome margin of profit. We are, therefore, satisfied that the proviso to Section 13 was clearly applicable to the trading results in this case and having regard to the nature of business and the availability of imported materials the margin taken by the Income Tax Officer seems to be quite reasonable."

6. The assessee applied for a statement of the case to the Income Tax Appellate Tribunal, under Section 66(1) of the Indian Income Tax Act.

7. The Appellate Tribunal, by its order dated December 19, 1960, rejected the application on the ground that their conclusions in the order were essentially findings of fact and based on adequate and proper material on record and did not give rise to any question of law.

8. The assessee applied to the High Court under Section 66(2) of the Indian Income Tax Act, but the High Court, by its order dated October 3, 1961, dismissed t