2013 (3) TMI 672 - HC - Income Tax

Assessment u/s 143 144 - The AO during the course of assessment made additions without rejecting the books of account. CIT (A) held that the AO ignored the basic facts by making addition for opening stock purchases and other expenses in as much as the opening stock and purchases are part of trading account as shown in the audited accounts and that therefore they cannot be rejected without rejecting the books of account. - HELD THAT - CIT (A) s order upheld relying on the decision of hon ble Supreme Court in BRIJ BHUSHAN LAL PARDUMAN KUMAR ETC. VERSUS COMMISSIONER OF INCOME-TAX HARYANA HIMACHAL PRADESH AND NEW DELHI-III (AND OTHER APPEALS) 1978 (10) TMI 2 - SUPREME COURT Decision in favor of Assessee.

Summary

Issues:
1. Deletion of addition to opening stock, purchases, and trading expenses.
2. Deletion of addition to loan from Jivan Bank and Kotak Bank.
3. Requirement to reject books of account before disturbing expenses and purchases.
4. Validity of the order under Section 144 of the Act.

Deletion of addition to opening stock, purchases, and trading expenses:
The Assessing Officer made an addition of Rs. 62,20,098 but deleted Rs. 57,04,983 based on the audited accounts. The CIT (A) and the Tribunal concurred, holding that additions cannot be made without rejecting the books of account. The CIT (A) referred to the Supreme Court's decision in Brij Bhushan Lal Parduman Kumar v. CIT, emphasizing the need for an honest and fair estimate of income. The Tribunal upheld the deletions, stating that the Assessing Officer added amounts without proper estimation or reason, and the audited accounts supported the assessee's position. The Tribunal found no perversity in the authorities' decisions, dismissing the Tax Appeal.

Deletion of addition to loan from Jivan Bank and Kotak Bank:
The Assessing Officer added Rs. 26,64,814 but deleted Rs. 23,30,814. The CIT (A) allowed the addition of unsecured loans but rejected the additions related to loans from the two banks, considering them part of the audited accounts. The Tribunal agreed with the CIT (A), noting that the Assessing Officer added amounts without proper estimation or justification. The Tribunal upheld the deletions, emphasizing the audited nature of the accounts and the lack of perversity in the authorities' decisions, leading to the dismissal of the Tax Appeal.

Requirement to reject books of account before disturbing expenses and purchases:
The Tribunal held that without rejecting the books of account, expenses, stocks, and purchases cannot be disturbed or rejected. The Tribunal emphasized the audited nature of the accounts and the need for a reasonable nexus between the additions and available material. The Tribunal supported the CIT (A)'s decision to delete certain additions based on this principle, finding no substantial question of law arising from the factual nature of the issue.

Validity of the order under Section 144 of the Act:
The Tribunal held that the order under Section 144 of the Act, being the base judgment order, must be an honest and fair estimate, not arbitrary. The Tribunal supported the CIT (A)'s deletions based on this reasoning, as the Assessing Officer's additions lacked proper estimation and justification. The Tribunal found no perversity in the authorities' decisions, leading to the dismissal of the Tax Appeal due to the predominantly factual nature of the issues involved.