2013 (9) TMI 765 - HC - Income Tax

Rejection of books of accounts u/s 145(3) of the Income Tax Act - Rejected the books of accounts and made the addition on estimate basis mainly for the reason that during the assessment year under consideration, the assessee has shown low sale/profit Held that - Books of accounts were properly audited, checked and no specific error was detected. Regarding non-compliance to notices sent to various parties under section 133(6), the assessee explained that the parties might have not received the notice or they were not experts in keeping the accounts in the manner as the A.O. likes. Sales were fully verifiable as the consignments had been dispatched along with forms as required under Sales Tax Act, and copies of challans, mandi tax vouchers, transport bilties etc. were also made available to the A.O. The assessee cannot be penalized specially when its books of accounts were properly audited and relevant vouchers were made available. The assessee cannot be held responsible for not submitting the proper reply by the buyers/commission agents - Profit being low by itself cannot be a ground for rejection of the books of accounts as per the ratio laid down in various judgments Decided against the Revenue.

Summary

Issues:
1. Whether the Tribunal erred in law in rejecting the books of account under section 145(3) of the Income Tax Act 1961?
2. Whether the Department is bound to accept the system of accounting regularly adopted by the assessee in the past?

Detailed Analysis:

Issue 1:
The appeal was filed against the judgment and order passed by the Income Tax Appellate Tribunal, Lucknow, for the Assessment Year 1998-99. The substantial questions of law admitted by the court pertained to the rejection of books of account by the Tribunal. The Assessing Officer (A.O.) had completed the assessment by rejecting the books of account under section 145(3) of the Act, making additions on an estimate basis. The department contended that discrepancies in the assessee's explanation regarding the decline in net sales compared to previous years were not acceptable. The A.O. invoked section 145(3) based on discrepancies and additions made on an estimate basis. The department argued that the A.O. rightly rejected the books of account due to anomalies and discrepancies found during the assessment.

Issue 2:
The department argued that despite following the same accounting system for the past ten years, the books were rejected during the assessment year under consideration. The department cited precedents to support its contention that there was no estoppel in taxation matters, emphasizing that the officer was not bound by the method followed in earlier years. However, upon review, the court found that the books of accounts were properly audited, checked, and no specific errors were detected. The court noted that the sales were verifiable through dispatched consignments and relevant documents. The court held that the rejection of books and additions on an estimate basis solely due to low profits/sales were not valid grounds, citing legal precedents to support its decision. The court concluded that no substantial question of law emerged from the Tribunal's order, thus dismissing the department's appeal.

In conclusion, the court upheld the Tribunal's decision, finding no reason to interfere with the order. The appeal filed by the department was dismissed, and the substantial questions of law were answered against the department.