2012 (5) TMI 86 - HC - Income Tax

Expenses booked on accrual basis and receipts on actual receipt basis and not account for work-in - progress in the closing stock Held that - Assessee has followed mercantile system of accountancy in regard to the expenditure incurred during the year and results were declared on actual receipt - this method is constantly followed by the assesse since last so many years - addition of the amount received in the next year in the month of April should not have been added in the previous year merely on the basis of bills issued and expenditure shown in the assessment year - in favour of the assessee. ITAT deleted the addition made by the AO on account of investment made by the three partners with the assess firm Held that - The three partners are income tax assessees and copies of their returns of income were furnished during the assessment proceedings - contribution made by the partners shown in their respective returns could not be said to be from unknown sources of income - in favour of the assessee. Disallowance on account of the purchases of the material and hire charges of the dumper/tractor Held that - assessee never produced before the Assessing Authority proof of genuine transactions despite of giving repeated opportunities finding of no illegality or perversity in the observations made by Authorities as finding of facts recorded are based on logic and does not require interference against assessee.

Issues:
1. Appeal by Revenue against ITAT order on substantial questions of law.
2. Appeal by Assessee against ITAT order on substantial questions of law.

Issue 1: Appeal by Revenue against ITAT order on substantial questions of law

The Revenue appealed against the ITAT order concerning substantial questions of law. The first question raised was whether the assessee could book expenses on an accrual basis and receipts on an actual receipt basis without accounting for work-in-progress in the closing stock. The ITAT upheld the assessee's method, stating that the assessee followed the mercantile system of accountancy consistently, and the amount received in the next year should not have been added in the previous year based solely on bills issued. The High Court found no illegality in the ITAT's decision, ruling in favor of the assessee on this issue.

The second question raised by the Revenue was regarding the deletion of additions made by the Assessing Officer and confirmed by the CIT(A) on investments made by partners in the firm. The ITAT observed that the partners were income tax assessees, and their returns of income were furnished during the assessment proceedings. Thus, the contributions made by the partners from known sources of income could not be added to the firm's income. The High Court found no error in the ITAT's decision, ruling in favor of the assessee on this issue as well.

Issue 2: Appeal by Assessee against ITAT order on substantial questions of law

The Assessee also appealed against the ITAT order on substantial questions of law. The first question raised was whether the disallowance of expenses on material purchases and hire charges of dumper/tractor was justified under sections 28, 29, and 37(1) of the Income Tax Act, 1961. The ITAT's decision to uphold the disallowance was challenged, arguing that the inference drawn about the transactions' genuineness was erroneous. However, the High Court found no reason to interfere with the ITAT's findings, stating that the concurrent findings of all three authorities were logical and did not require intervention.

The second question raised by the Assessee was about the Tribunal's finding on the sufficiency of opportunities given during the assessment proceedings and whether there was a violation of natural justice. The Assessee contended that the Tribunal's decision was perverse and needed to be quashed. The High Court, after examining the facts, concluded that the Tribunal's findings were justified, and there was no violation of natural justice. Therefore, the substantial questions of law raised by the Assessee were answered in favor of the revenue.

In conclusion, the High Court upheld the ITAT's decisions on various substantial questions of law raised by both the Revenue and the Assessee. The judgments provided detailed analyses of the legal issues involved, ensuring a comprehensive understanding of the case and the reasoning behind the decisions rendered.

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