1. K. S. HEGDE, J.-This is a reference under section 66(2) of the Indian Income-tax Act, 1922. The question of law referred for the opinion of this Court is: "Whether there was material for the Tribunal to apply the proviso to section 13 and to add the sum of Rs. 1,07,000 as income in the manner it has done?"
2. The facts of the case are set out in the statement of the case. The Income-tax Officer as well as the Appellate Assistant Com--missioner had rejected the books maintained by the assessee. They have given some reasons for not relying on the account books maintained by the assessee. In his appeal before the Income-tax Appellate Tribunal, the assessee challenged the finding given by the Income-tax Officer as also the Appellate Assistant Commissioner to the effect that there are grounds for rejecting the accounts maintained by the assessee. The Tribunal being a final fact- finding body was required to consider whether the Income-tax Officer and the Appellate Assistant Commissioner were right in rejecting the book results and in proceeding to assess the assessee on the basis of the proviso to section 13 of the Indian Income-tax Act. Though this question was specifically posed before the Tribunal, as is admitted by it in paragraph 18 of the statement of case, yet, the Tribunal did not go into that question. From its order it appears that it did not consider the question whether a case was made out for not computing the profits and gains of the assessee in accordance a with the method of accounting regularly employed by him. This was one of the main questions that the Tribunal had to decide. It had failed to decide that question. From its order it does not appear that it relied on any material on record for applying the proviso to section 13 to the assessee's case.
3. The proviso to section 13 provides that if no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Income-tax Officer, the income, profits and gains cannot properly be deduced there from, then the computation shall be made upon such basis and in such manner as the Income-tax Officer may determine. Dealing with the scope of this proviso, the Supreme Court in Commis--sioner of Income-tax v. McMillan & Co. ((1958) 33 I T R 182 (SC)), observed that: "The words `in the opinion of the Income-tax Officer' in the proviso to section 13 of the Indian Income-tax Act, 1922, do not confer a mere discretionary power but in their context impose a statutory duty on the Income-tax Officer to examine in every case the method of accounting employed by the assessee and (i) to see whether or not it is regularly employed, and (ii) to determine whether the income, profits and gains of the assessee can properly be deduced therefrom. The decision as to the method of accounting is to be arrived at first by the Income--tax Officer after a careful scrutiny of the accounts whether they be simple or complicated, and the power is to be reason--ably and judicially exercised, which excludes any subjective or arbitrary decision by the Income-tax Officer; but the power so exercised is not clothed with finality and is not excluded from review by the Appellate Assistant Commissioner and in reviewing the order the appellate authority can exercise the same powers which the Income-tax Officer could exercise."
4. We are of the opinion that it is necessary in the interest of justice that the Tribunal should re- examine the question arising for decision in this case afresh.
5. For the reasons mentioned above, our answer to the question referred to us is that the Tribunal's order does not contain any material on the basis of which the Tribunal could have applied the proviso to section 13 of the Indian Income-tax Act, 1922, to the facts of this case. We are further of the opinion that on the material relied on by the Tribunal it could not have added a sum of Rs.
6. 1,07,000 to the income returned by the assessee.