2002 (7) TMI 64 - HC - Income Tax

During the course of assessment proceedings for the relevant assessment year the Assessing Officer, invoking a proviso to section 145(1) of the Act, rejected the books of account maintained by the assessee and estimated the turnover of the assessee-firm at Rs. 40 lakhs as against Rs. 38,76,081 declared by the assessee. Applying a gross profit rate of 13.36 per cent, the rate declared by the assessee in the immediately preceding assessment year, the Assessing Officer made an addition of Rs. 3,45,180, as extra profits, to the declared income of the asses see. - in the instant case, non-maintenance of stock register, coupled with the fact that unaccounted sales were detected during the course of search, in our opinion, is a relevant factor to sustain the view of the Assessing Officer. We do not find any legal infirmity in the view taken by the Tribunal that the disclosures/surrender of Rs. 5 lakhs by the assessee at the time of search, as its unaccounted sales, constitutes sufficient material for the Assessing Officer to base his satisfaction that the books of account of the assessee are not correct and complete. In so far as the estimation of the sales/ gross profit rate is concerned, it being a best judgment assessment, based on past years results cannot be said to be arbitrary.

Issues:
1. Surrender of income during search under section 132(4) of the Income-tax Act.
2. Rejection of books of account under section 145(2) of the Act.
3. Estimation of turnover and gross profit rate by the Assessing Officer.
4. Appeal to the Commissioner of Income-tax (Appeals) and subsequent appeal to the Tribunal.
5. Tribunal's decision on sustaining trading addition and deleting balance addition.
6. Arguments regarding the correctness and completeness of accounts by the assessee.
7. Legal interpretation of section 145(2) and best judgment assessment by the Assessing Officer.
8. Justification of the Tribunal's decision based on the findings of fact.

The judgment pertains to an appeal by the assessee under section 260A of the Income-tax Act, 1961, against the order of the Income-tax Appellate Tribunal, Delhi Bench, concerning the assessment year 1991-92. The assessee had surrendered a sum of Rs. 5 lakhs during a search conducted in 1990, which was credited to the profit and loss account for the relevant year. The Assessing Officer rejected the books of account and estimated the turnover of the assessee-firm, making an addition to the declared income. The Commissioner of Income-tax (Appeals) and the Tribunal dealt with the matter subsequently, with varying decisions on the trading addition made by the Assessing Officer.

The Tribunal partially upheld the trading addition but deleted a balance addition, emphasizing the unaccounted sales admitted by the assessee during the search. The Tribunal noted that the reduction of the surrendered income by the assessee was not permissible, as it was considered a device to lower the income surrendered. The Tribunal agreed with the Commissioner of Income-tax (Appeals) on the sustenance of the trading addition but found the balance addition unnecessary and ordered its deletion. This led to the appeal before the High Court.

The High Court analyzed the legal provisions, specifically section 145(2) of the Act, which empowers the Assessing Officer to make a best judgment assessment if accounts are deemed incomplete or incorrect. The Court upheld the Tribunal's decision, stating that the absence of a stock register, coupled with unaccounted sales, justified the rejection of the books of account. The Court found no legal infirmity in the view that the disclosures made by the assessee during the search provided sufficient material for the Assessing Officer's satisfaction regarding the accounts' correctness. Additionally, the Court deemed the estimation of sales and gross profit rate as a best judgment assessment based on past results, not arbitrary.

Based on the factual findings by the Tribunal, the High Court concluded that no substantial question of law arose from the case. Consequently, the appeal was dismissed as lacking merit. The judgment underscores the importance of maintaining accurate accounts and the Assessing Officer's authority to make best judgment assessments based on the available material, even in cases of surrendered income during searches.

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