2010 (12) TMI 838 - AT - Income Tax

Erroneous decision - We have gone through the order of Tribunal minutely and found nowhere the comments in respect to detailed finding given by learned CIT(A). At one or two points the Tribunal has observed that learned CIT(A) was not correct in holding that provisions of s. 145(3) are not applicable. How the learned CIT(A) is not correct, no finding has been given by the Tribunal. Regarding the GP rate also, the Tribunal has observed that order of the AO seems to be correct. However, regarding the finding of learned CIT(A), the only observation that the learned CIT(A), in our considered view, was not justified in accepting the trading result declared by the assessee . How the trading result accepted by the learned CIT(A) are not correct, no finding or discussion has been made by the Tribunal. - a mistake has been crept in the order of the Tribunal by not taking into consideration the vital aspect of the case and various case laws - the order of the Tribunal is recalled in toto to decide the same afresh after hearing both the parties afresh.

Issues Involved
1. Acceptance of the tax audit report under Section 44AB in the absence of books of account.
2. Deletion of trading additions made by the AO.
3. Sustaining the addition on account of unexplained bank entries.
4. Validity of invoking provisions of Section 145(3) of the Income Tax Act.
5. Compliance with procedural requirements under Sections 142(1), 143(2), and 131 of the Income Tax Act.
6. Consideration of past history and comparable cases for estimating gross profit.
7. Relevance of the Voluntary Disclosure of Income Scheme (VDIS) in the assessment year.
8. Rectification of the Tribunal's order under Section 254(2).

Detailed Analysis

1. Acceptance of the Tax Audit Report under Section 44AB
The primary issue was whether the tax audit report under Section 44AB could be accepted in the absence of books of account. The Tribunal noted that the books of account were claimed to be destroyed in a fire, but the tax audit report was prepared based on these books. The Tribunal found that the AO rightly rejected the audit report because the books of account were not produced for verification, and discrepancies were noted during the survey.

2. Deletion of Trading Additions
The Department objected to the deletion of trading additions totaling approximately Rs. 7 crores made by the AO. The Tribunal upheld the AO's decision to make these additions, noting significant discrepancies in stock and cash during the survey. The Tribunal found that the AO's estimation of gross profit rates was justified, although it acknowledged that the rates applied might be on the higher side.

3. Sustaining the Addition on Account of Unexplained Bank Entries
The assessee objected to the addition of Rs. 2,00,000 on account of unexplained entries in the Bank of Baroda. The Tribunal upheld this addition, noting that the assessee failed to explain the source of the deposit satisfactorily.

4. Validity of Invoking Provisions of Section 145(3)
The Tribunal upheld the AO's invocation of Section 145(3) due to the non-production of books of account and discrepancies found during the survey. The Tribunal disagreed with the CIT(A)'s finding that the AO should have issued notices under Section 142(1) instead of Section 143(2) or summons under Section 131.

5. Compliance with Procedural Requirements
The Tribunal found that the AO had complied with procedural requirements by issuing notices under Section 143(2) and calling for the books of account. The Tribunal disagreed with the CIT(A)'s finding that the AO should have issued notices under Section 142(1) for calling the books of account.

6. Consideration of Past History and Comparable Cases
The Tribunal noted that the AO had rightly ignored comparable instances furnished by the assessee, as the assessee could not establish that these cases were genuinely comparable. The Tribunal found that the past history of the assessee was the best guide for estimating gross profit.

7. Relevance of the Voluntary Disclosure of Income Scheme (VDIS)
The Tribunal acknowledged that during the financial year 1997-98, the VDIS was in operation, leading to a significant increase in turnover. However, the Tribunal found that this did not justify the discrepancies found during the survey or the non-production of books of account.

8. Rectification of the Tribunal's Order under Section 254(2)
The assessee filed a miscellaneous application pointing out various mistakes in the Tribunal's order. The Tribunal agreed that certain vital aspects and case laws cited by the assessee were not considered in its original order. The Tribunal found that this constituted a mistake apparent on record and decided to recall its order in toto to decide the matter afresh.

Conclusion
The Tribunal upheld the AO's rejection of the books of account and the additions made, but acknowledged that certain aspects and case laws were not considered in its original order. Consequently, the Tribunal decided to recall its order and rehear the matter. The appeal of the assessee was allowed to the extent of recalling the Tribunal's order for a fresh hearing.

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