2010 (9) TMI 276 - HC - Income Tax

Unexplained income and expenses - AO stated that trading account on account of unreliability of figures of consumption of raw material, production of finished products and claim of bogus expenses under various heads which the assessee had not been able to explain satisfactorily - depreciation claimed by the assessee company without considering the fact that most of the branches and units of the assessee company did not work for extra shift particularly in view of the fact that Profit and Loss of each branch is to be computed independently - account books of the assessee were rejected - Held that - The department has not been able to show that addition in the trading account and disallowance of extra shift had no basis at all - No questions of law raised in the appeal require consideration of the High Court - appeal is dismissed

Summary

Issues:
1. Deletion of addition to trading account due to unreliability of figures.
2. Deletion of disallowance of depreciation claimed without considering extra shift work.

Analysis:
1. The first issue raised by the CIT, Kanpur was whether the ITAT was correct in law in deleting the addition of Rs.3 crore to the trading account due to unreliability of figures of raw material consumption, production of finished products, and claim of bogus expenses. The ITAT had rejected the account books of the assessee and deleted the said addition. The CIT argued that there was sufficient evidence to justify the addition and that the best judgment assessment by the Income Tax Officers should not be challenged. However, the High Court found that the department failed to demonstrate that the addition and disallowance had no basis at all. Consequently, the High Court dismissed the income tax appeal, upholding the decision of the ITAT.

2. The second issue pertained to the deletion of the disallowance of Rs.10 lacs claimed as depreciation without considering the extra shift work. The CIT contended that most branches and units of the assessee company did not work extra shifts, so the disallowance was justified. However, the ITAT disagreed and allowed the depreciation claim. The High Court noted that after rejecting the account books, there is an element of guesswork involved. The department failed to establish that the disallowance of depreciation for extra shift work had no basis. Ultimately, the High Court found no merit in the questions of law raised by the CIT and upheld the decision of the ITAT, leading to the dismissal of the income tax appeal.