2009 (10) TMI 561 - HC - Income Tax

Income from undisclosed source - additions made by the Assessing Officer was on the basis that no stock book of raw materials and finished goods has been maintained as stated by the partner of the assessee-firm on oath and entries as shown in the return was not reflected in the account books and were not entered in the record of transactions deletion of addition without consideration, not valid Matter remanded

Issues Involved:
1. Rejection of books of account and estimation of gross profit.
2. Excessive quantity obtained and sold.
3. Disallowance of job work expenses.
4. Income adjustments with sister concerns.
5. Difference in valuation of closing stock.
6. Disallowance of trade discount.

Detailed Analysis:

1. Rejection of Books of Account and Estimation of Gross Profit:
The Tribunal held that there were no irregularities pointed out by the Assessing Officer to reject the books of account and estimate the gross profit based on previous years. The Tribunal noted that the assessee did not maintain stock books or separate books indicating raw materials and finished goods. Discrepancies were found in the cash book, and the assessee had undisclosed income of Rs. 10,94,000, which he offered for tax. The High Court found the Tribunal's decision to be perverse and arbitrary, as it overlooked the fact that the partner of the assessee-firm admitted to not maintaining proper stock books and offered to include an income of Rs. 11,50,000.

2. Excessive Quantity Obtained and Sold:
The Tribunal held that the sum of Rs. 2,69,050, considered by the Assessing Officer as excessive quantity obtained and sold, was based on the actual procurement of rava, bran, atta, and ascertaining the actual wastage. The High Court found this finding by the Tribunal to be perverse, as it did not consider the excessive wastage claimed by the assessee.

3. Disallowance of Job Work Expenses:
The Tribunal held that the sum of Rs. 37,080 paid to the sister concern for job work was incorrectly disallowed by the Assessing Officer, who found no evidence to support such a claim. The High Court found the Tribunal's finding to be perverse, as it did not consider the lack of evidence to support the job work expenses.

4. Income Adjustments with Sister Concerns:
The Tribunal held that the sum of Rs. 1,02,420 added to the total income of the assessee was based on the Assessing Officer's finding that purchases and sales from sister concerns were mere adjustment entries to avoid tax. The High Court found this finding by the Tribunal to be perverse, as it did not consider the evidence of adjustment entries.

5. Difference in Valuation of Closing Stock:
The Tribunal held that if the value of the closing stock is increased, the Assessing Officer had to reduce the gross profit in the next year. Therefore, the addition of Rs. 63,999 for the difference in valuation of closing stock could not be added without a cogent reason. The High Court found this finding by the Tribunal to be perverse, as it did not provide a cogent reason for the difference in valuation.

6. Disallowance of Trade Discount:
The Tribunal held that the trade discount of Rs. 1,52,154, disallowed by the Assessing Officer due to the lack of credit notes or evidence showing that such discount had been extended to various parties, should not be disallowed. The High Court found this finding by the Tribunal to be perverse, as it did not consider the lack of evidence for the trade discount.

Conclusion:
The High Court found that the Tribunal's findings were perverse and arbitrary, as they were based on presumptions and contrary to the material on record. The Tribunal overlooked the fact that the assessee's partner admitted to not maintaining proper stock books and offered to include an income of Rs. 11,50,000. The High Court remitted the case back to the Income-tax Appellate Tribunal, Bangalore Bench "B," for fresh disposal in accordance with law, answering all questions of law in favor of the Revenue and against the assessee.

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