2013 (6) TMI 155 - AT - Income Tax

Lessor Gross profit - estimation of income - AO enhanced GP by rejecting the books of account invoking the provisions of section 145 - Held that - as per the evidence produced before us, book results along with Audit Report and Tax Audit Report were before the AO. - AO referred to those book results to compare the preceding years results with that of the current year. - order for rejection of books of account can not sustain - Decided against the revenue. Addition of Rs. 20,97,355/- - Held that - AO did not give any finding on the decline in turnover and increase in the raw material cost. - there is nothing except for the reasons, as recorded by the AO with regard to unreliability on the books - Decided against the revenue.

Summary

Issues:
1. Deletion of addition made by AO on account of enhanced GP invoking section 145 of the Income-tax Act.

Detailed Analysis:
1. The solitary issue in this appeal is the deletion of an addition made by the Assessing Officer (AO) on account of enhanced gross profit (GP) by rejecting the books of account under section 145 of the Income-tax Act.

2. The AO estimated the GP at 17% due to the assessee's inability to furnish yield of finished products against raw material consumption, leading to an addition of Rs. 20,97,355.

3. The assessee contended that all required books were furnished for verification when asked by the AO, and discrepancies were reconciled. The decline in GP was attributed to increased raw material costs and reduced export turnover.

4. The Commissioner of Income Tax (Appeals) [CIT(A)] rejected the AO's observations regarding the rejection of books under section 145(1) and subsequently deleted the addition.

5. The Department appealed to the Income Tax Appellate Tribunal (ITAT), reiterating the AO's observations and arguing that the books were unreliable due to missing details.

6. The Assessee's Representative (AR) argued that all necessary details were provided, as evidenced by the certificate accompanying the paper book filed before the ITAT.

7. After considering all contentions and evidence, the ITAT found that the AO's assertion of books being unreliable was not substantiated, as the required documents were indeed submitted.

8. The ITAT upheld the CIT(A)'s decision to reject the AO's findings on book rejection and sustained the deletion of the addition.

9. The ITAT noted the lack of substantial reasons besides unreliability of books to justify the addition, leading to the dismissal of the Department's appeal.

10. Ultimately, the ITAT dismissed the Department's appeal, affirming the CIT(A)'s decision and rejecting the addition made by the AO.

This comprehensive analysis covers the issues involved, the arguments presented by both parties, and the final decision rendered by the ITAT in this legal judgment.