“Section 260(1)”

When an assessee possesses sufficient interest-free funds, it is presumed that any interest-free advances or investments made are from these funds, preventing disallowance of interest under Section 36(1)(iii). This principle applies if own capital and interest-free loans exceed the interest-free advances given.

Under the mercantile system of accounting, revenue and expenses are matched on an accrual basis, comparing income earned and expenses incurred irrespective of cash flow. If the Department seeks to substitute an assessee's chosen method of accounting, the burden is on the Department to prove that the existing method is incorrect or distorts profits.

Interest paid by a builder on loans for a construction project, considered as stock-in-trade, is an allowable deduction under Section 36(1)(iii) of the Act. The nature of the expense, whether capital or revenue, is irrelevant for claiming this deduction.

The Assessing Officer must record a specific finding that the method of accounting adopted by the assessee is unacceptable or that the accounts are irregular before rejecting them. Mere high percentage of dead loss in a spinning mill does not automatically lead to an inference of suppressed production or justify an addition by way of estimate if record-keeping of wastage is not feasible.

Action under section 263 is valid where the assessment order is passed without application of mind and without conducting proper inquiry, making the order erroneous and prejudicial to the revenue.

The assessee bears the burden of proving the genuineness of transactions, including the identity, creditworthiness, and genuineness of parties involved in purchases, especially when the parties have migrated or cannot be located.

Depreciation is not allowed on goodwill if it arises from book entries and has no identifiable cost of acquisition. This applies even when goodwill is acquired as part of a scheme of arrangement or amalgamation.

An income-tax assessment cannot be reopened solely based on a change of opinion by the assessing officer regarding the same set of facts that were previously considered.