2004 (5) TMI 19 - HC - Income Tax

Rejection of book results - Assessing Officer has rejected the book results of the assessee on the ground that the average cost of production has been increased to Rs. 5,400 P.M.T. as against Rs. 4,217 P.M.T. No justification has been shown for this increase. Even the wages have also been increased. The assessee has also shown no justification for it. Therefore, invoking the provisions of section 145(2), the book results were rejected and additions have been made on the ground of low gross profit shown in the books - What should be the addition after rejection of the book results is basically a question of fact - We see no perversity in the impugned order especially when the Assessing Officer, Commissioner of Income-tax (Appeals) and the Tribunal, all the three authorities have given findings of fact against the assessee. - reference application stands rejected

Summary

Issues:
1. System of accounting for deducing profits
2. Application of section 145(2) by Assessing Officer
3. Continuation of the same accounting system by the assessee
4. Maintenance of records for consumption of furnace oil and coal
5. Production record maintenance
6. Explanation acceptance for increased consumption
7. Tribunal's finding on excessive shortage
8. Discrepancy in shortage percentage
9. Estimation of sales without evidence of suppression
10. Gross Profit (G.P.) rate application discrepancy
11. Tribunal's misdirection in law
12. Applicability of section 145(2) based on past years' accounting pattern

Analysis:

1. The first issue revolves around the system of accounting maintained by the assessee. The Tribunal was questioned for holding that the true profits could not be deduced from the accounting system. The Assessing Officer rejected the book results due to an unexplained increase in the cost of production and wages, leading to low gross profit, invoking section 145(2).

2. The second issue concerns the correct application of section 145(2) by the Assessing Officer. The Tribunal was challenged for upholding the application of this section without proper justification, impacting the assessment of the assessee's profits.

3. The third issue questions the Tribunal's decision to disregard the long-standing accounting system of the assessee. The Tribunal was criticized for not acknowledging the continuity of the accounting practices accepted by the Revenue for over 25 years.

4. Issue four pertains to the maintenance of records for the consumption of furnace oil and coal. The Tribunal was accused of faulting the assessee for not keeping daily records of consumption, which was deemed impractical for the business type, without considering the historical practices.

5. The fifth issue involves the Tribunal's finding on the absence of production records. The Tribunal's conclusion that no production records were maintained was challenged as lacking factual basis, potentially impacting the assessment of the business operations.

6. Issue six questions the Tribunal's refusal to accept the assessee's explanation for increased consumption of resources like furnace oil, electricity, and wages. The Tribunal's decision was contested for not considering the feasibility and historical practices of the business.

7. The seventh issue focuses on the Tribunal's determination of excessive shortage without substantial evidence. The Tribunal's finding was criticized for lacking factual support, potentially affecting the assessment of the business's operations.

8. Issue eight concerns the discrepancy in the shortage percentage identified by the Tribunal. The Tribunal was accused of misstating the shortage percentage, impacting the accuracy of the assessment presented before the Tribunal.

9. The ninth issue challenges the Tribunal's estimation of sales without evidence of sales suppression or production understatement. The Tribunal's decision to estimate sales at a specific amount was questioned for lacking factual basis or justification.

10. Issue ten addresses the discrepancy in applying the Gross Profit (G.P.) rate. The Tribunal's decision to deviate from the G.P. rate applied in previous years and by the Assessing Officer was contested for not aligning with past practices and assessments.

11. The eleventh issue questions the Tribunal's potential misdirection in law. The Tribunal was criticized for potentially basing its conclusions on irrelevant inferences and overlooking essential aspects of the case record, impacting the fairness of the assessment.

12. The twelfth issue revolves around the applicability of section 145(2) based on past accounting patterns. The Tribunal's decision to apply section 145(2) was challenged for inconsistency with previous assessments and accounting practices, potentially leading to unfair treatment of the assessee.

In conclusion, the High Court rejected the reference application, finding no grounds for directing the Tribunal to refer the questions to the court. The decision was based on the factual findings of the Assessing Officer, Commissioner of Income-tax (Appeals), and the Tribunal against the assessee, indicating no apparent perversity in the impugned order.