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"3. We have perused the statement of case and the finding recorded by the Tribunal in the light of observations made in the statement of case and heard the learned counsel. Section 145 as it stood at the relevant time, reads as under :

"145. Method of accounting.--(1) Income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' shall be computed in accordance with the method of accounting regularly employed by the assessee :

4. A perusal of the aforesaid provision goes to show that the ordinary mandate of the statute is that where income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' is returned on the basis of accounts maintained by the assessee by employing a method of accounting regularly, such income is to be computed in accordance with the method regularly employed by the assessee. With effect from 1-4- 1997, by the Finance Act, 1995, the position has been altered by directing that the income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' shall be subject to the provisions of sub-section (2) in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Thus, for the purpose of computing income on the basis of method of accounting adopted by the assessee, the same is confined to maintenance of accounts on cash basis or mercantile system of accounting, i.e., to say, on accrual basis. No other system, even if employed regularly by the assessee, is acceptable for computing the income as per the provisions of the Act. However, this provision ipso facto does not Shri Sunder Das Sonkia vs. ITO mean that rejection of books of account of an assessee must yield to different conclusion in the computation of income as returned by the assessee on the basis of accounts made by him employing any other method of accounting.

5. Be that as it may, the provision which was in force in the accounting period relevant to assessment year in question envisaged that where the accounts are correct and complete to the satisfaction of the Assessing Officer but the method employed is such that in the opinion of the Assessing Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Assessing Officer may determine. It also envisaged that where no method of accounting is regularly employed by the assessee, any income by way of interest on securities shall be chargeable to tax as the income of the previous year in which such interest is due to the assessee, that is to say, on accrual basis. Thus, sub-section (1) deals with method of accounting employed by the assessee with reference to computing income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources' on the basis of method of accounting employed by the assessee. It does not deal with correctness or completeness of accounts, but with any defect in method of account.

On the other hand, sub-section (2) envisaged that where the Assessing Officer is not satisfied about the correctness or the completeness of the accounts of the assessee, or where no method of accounting has been regularly employed by the assessee, the Assessing Officer may make assessment in the manner provided in section 144 of the Act, that is to say, as per best of his judgment.

Shri Sunder Das Sonkia vs. ITO Both these provisions do not envisage that by resorting to best judgment assessment the assessing authority must reach to a different figure of income and profit than what has been disclosed by the assessee. Best judgment is also to be based on the material available on record. Therefore, notwithstanding rejection of books of account, the material disclosed by the assessee along with other material that may be collected by the ITO forms the basis of computation of income. On that basis what conclusion is to be reached is independent of results shown in the books of account, if any, maintained by the assessee. Section 145 only provides the basis on which computation of income is to be made for the purpose of determining the amount of tax payable by an assessee. The provision by itself does not deal with additions or deletions in the income. Therefore, merely because there is some deficiency in the books of account or merely because of rejection of books of account, it does not mean that it must lead necessarily to additions in the returned income of the assessee. What changes in either case is the basis for computing the income chargeable under the head 'Profits and gains of business or profession' or 'Income from other sources'. The result would depend on the other principles of computing the income. Therefore, we hold that merely changing the basis or method of arriving at end-result of working out the computation of taxable income under the Act, necessarily does not result in devising at profits or gains from business or other sources different from one returned by the assessee, where he has returned his income, which is different from the result reached by the assessee as per method of accounting employed by him, by adopting different basis by the assessing authority.