The rejection of accounts based on insufficient grounds is subject to judicial review, and the validity of such rejection must be established based on relevant material and facts.

1. These two references have been made by the Madras Bench of the Income-tax Appellate Tribunal, as directed by this Court on the application of the assessee, who is the same in both these cases. ITR. Case No. 55 relates to the assessment year 1961-62, while the other reference relates to the assessment year 1962-63. The assessment for the year 1961-62 is governed by the Indian Income-tax Act, 1922, while the assessment for the year 1962-63 is governed by the Income-tax Act, 1961. The question referred in ITR. Case No.55 of 1967 is:- "Whether the Tribunal was justified in applying the proviso to S.13 of the Indian Income-tax Act, 1922, to the facts of the case?."

The question in the other reference is practically the same, the only difference being that instead of the proviso to S.13 of the Indian Income-tax Act, 1922, it refers to the proviso to S.145 of the Incometax Act, 1961.

2. The assessee is a private limited company doing business in hill produce. For the assessment year 1961-62 it declared a loss of Rs. 9,354/- in respect of its trade in arecanut, pepper, ginger and turmeric. The Income-Tax Officer accepted the books of account of the assessee in respect of pepper, ginger, and turmeric except in respect of arecanut. The gross profit disclosed by the assessee's accounts in arecanut were Rs. 9,958/- But the Income tax Officer estimated it at 4.5% of the turnover, and added Rs. 19,646/ -in fixing the gross profit in arecanut. Thus, the assessee's total income was fixed at Rs. 10,385/

3. For the assessment year 1962-63, the assessee declared an income of Rs. 2,676/-. The books of account of the assessee were accepted for this year also in respect of the assessee's business in pepper, ginger and turmeric; but they were rejected in respect of arecanut. As against a gross profit of Rs. 19,789/ -disclosed by the assessee's books of account, the Incometax Officer estimated it by adding at Rs. 36,568/-; and the assessee's total income was fixed at Rs.39,444/-.

4. The assessee filed appeals before the Appellate Assistant Commissioner against both these assessments. The appeals were dismissed by him, holding that the proviso to S.13 of the 1922 Act applied in one case, while the proviso to S.145 of the 1961 Act applied in the other case, and that the rejection of the accounts in respect of arecanut business was justified. The assessee filed further appeals before the Income-tax Appellate Tribunal; but the appeals were dismissed on the same ground by a common order dated 16th December 1964. In dealing the assessee's contention that there was no ground for invoking the application of the above provisos, the Appellate Tribunal stated as follows:

"The main defect in the assessee's books is that the purchases are supported only by its own bought notes. No doubt, this is a common feature in this line of business as purchases are made mostly from agriculturists who do not have their own vouchers. But the fact remains that it is not possible to verify the particulars mentioned in the bought notes as in most cases the parties cannot be traced. The assessee's accounts are therefore such that the income, profits and gains cannot be properly deduced therefrom. This is sufficient for the application of the proviso to S.13".

It is clear from the above finding that the only ground on which the Appellate Tribunal held that the proviso to S.13 of the 1922 Act would apply to the case was that the assessee's purchases are supported only by its own bought notes in respect of arecanut. Admittedly, the sellers are agriculturists from whom it is not possible in the ordinary course of business to have vouchers. It is also admitted that maintenance of bought notes by the purchasers is the common feature in this line of business. Therefore the fact the the assessee did not obtain bought notes from the sellers is not a defect by itself or something which the assessee could have helped in the ordinary course of its business. There is no case that the