2004 (8) TMI 35 - HC - Income Tax

Books of account gross profit rate - AO rejected the books of the assessee by invoking S. 145(2) and applied a GP rate of 25 per cent. on the total sales and made an addition - A perusal of the order of the Tribunal shows that rejection of books of account is not based solely on the absence of stock registers. It has been observed that no quantity-wise details had been maintained and as such it was not possible to compare the input with the output. It was also noticed that the sales at the retail counter were being conducted on the basis of small slips in place of regular sale bills and the accounts were audited on the basis of slips only. These defects coupled with the low gross profit rate as compared to the gross profit rate applied in the earlier years - Tribunal was of the view that the books of account had been correctly rejected. The Tribunal further held that the gross profit rate of 25 per cent. as applied by the Assessing Officer was based on the past history of the case and in the absence of any distinguishing feature the same could not be disturbed. - findings recorded by the Tribunal are pure findings of fact

Summary

Issues: Assessment of income based on gross profit rate and rejection of books of account for assessment year 1996-97.

Analysis:
1. Rejection of Books of Account: The Assessing Officer rejected the books of account of the assessee under section 145(2) of the Income-tax Act, 1961, for the assessment year 1996-97. The reason cited was the inability to compare input with output due to the absence of quantity-wise details and stock registers. The Tribunal upheld this decision, noting that sales were conducted using small slips instead of regular sale bills, making verification difficult. The Tribunal found these deficiencies sufficient to justify the rejection of the books of account. The gross profit rate applied in previous years was also a factor considered by the Tribunal in upholding the rejection.

2. Application of Gross Profit Rate: The Assessing Officer applied a gross profit rate of 25% on total sales due to discrepancies in the assessee's records. The Tribunal supported this decision, emphasizing that the rate was based on past history and no distinguishing features were presented to warrant a change. The appellant contested this, arguing that the declared 22.5% gross profit rate should have been accepted. However, the Tribunal deemed the 25% rate appropriate given the circumstances.

3. Legal Precedent and Conclusion: The court cited the case of Ved Prakash v. CIT to highlight that in cases where the books of account are not verifiable, an element of estimation is inevitable for income determination. The court clarified that determining the gross profit rate is a factual question. It further stated that unless it is demonstrated that the Tribunal's estimation was unattainable, the court does not typically intervene in appellate jurisdiction. Consequently, the court dismissed the appeal, affirming the Tribunal's findings as factual and not warranting legal intervention.

In summary, the judgment upholds the rejection of the books of account due to deficiencies in maintaining records and justifies the application of a 25% gross profit rate based on past trends and the necessity for estimation in such cases. The court's decision emphasizes the factual nature of determining income and the limited scope for legal interference in such matters under the Income-tax Act, 1961.