2012 (6) TMI 877 - AT - Income Tax

Rejection of books of accounts - section 145 applicability - Held that - No dispute to the fact that the assessee was not maintaining stock register. The vouchers most of them which are self made. Wages registers were not produced. Therefore submissions of the assessee Mr. P.N. Arora are that whatever details required by the AO have been produced before the AO and no defect in the same has been pointed out can not help the assessee since the facts remained that the assessee has not maintained stock register. The assessee has not produced wages register and have maintained the payment vouchers which are without any receipts and are self made vouchers. In such facts and circumstances of the case the results declared by the assessee are not reliable and the books of account cannot be said to be complete and correct and correct income cannot be deduced from such books of account. No infirmity in the order of the ld. CIT(A) who has rightly invoked the provisions of section 145(3)

Summary

Issues:
1. Addition of estimated profit on gross receipts.
2. Rejection of books of accounts by AO.
3. Application of Net Profit rate of 8%.

Analysis:
1. The appellant contested the addition of Rs. 5,12,239 made by the Assessing Officer (AO) based on an estimated profit rate of 8% on gross receipts. The appellant argued that the assessment order and the CIT(A)'s decision were both erroneous and untenable. The appellant maintained that the books of accounts were duly maintained, audited, and supported by vouchers, and there was no justification for rejecting them. However, the Tribunal found that the appellant failed to maintain a stock register, produced self-made vouchers, and did not provide wages registers. Consequently, the Tribunal upheld the CIT(A)'s decision, invoking section 145(3) of the Act to deem the books unreliable and incomplete in determining the correct income.

2. The AO rejected the appellant's books of accounts due to the lack of a stock register, self-made vouchers, and missing wages registers. The AO applied a Net Profit rate of 8% based on a High Court decision and made the contested addition. On appeal, the CIT(A) upheld the AO's decision. The Tribunal concurred with the lower authorities, emphasizing the importance of maintaining complete and accurate records for a reliable income assessment. The Tribunal found no fault in the CIT(A)'s invocation of section 145(3) to address the deficiencies in the appellant's accounting practices.

3. Regarding the application of the Net Profit rate, the Tribunal noted that the AO did not establish a direct correlation between the High Court case cited and the present case. The appellant historically declared a Net Profit rate of 3.87%, accepted by the department in the previous year. Considering the appellant's past performance and the current circumstances, the Tribunal adjusted the Net Profit rate to 5% for the current assessment. Consequently, the Tribunal partially allowed the appellant's appeal, modifying the orders of the lower authorities to reflect the revised Net Profit rate.

In conclusion, the Tribunal partially allowed the appellant's appeal, adjusting the Net Profit rate to 5% and emphasizing the importance of maintaining complete and accurate accounting records for a reliable income assessment.