2013 (10) TMI 163 - HC - Income Tax

Rejection of books of accounts - Computation of net profit - books of accounts rejected due to non maintenance of records of wages paid to labors, description in stock records and value of stock - Held that - Decision of all the three authorities below on rejection of books of account is on facts which is not required to be interfered with by this Court as cogent reasons have been given by all the authorities below in rejecting the books of accounts under section 145(3) of the Act - No substantial question of law arises - Decided against assessee.

Summary

Issues:
- Challenge to rejection of books of account under section 145(3) of the Income-tax Act
- Justification for estimating profit based on industry average
- Requirement of maintaining site-wise books of account
- Alleged errors in rejecting books of account
- Comparison of net profit with preceding year

Analysis:

Challenge to Rejection of Books of Account under Section 145(3):
The appellant, a Government Civil Contractor, challenged the rejection of its books of account under section 145(3) of the Income-tax Act for the assessment year 2004-05. The Assessing Officer found deficiencies in maintaining proper books of account, leading to the rejection of the books. Despite the appellant's explanations and submissions, all authorities - Assessing Officer, CIT(A), and ITAT - upheld the rejection. The rejection was based on factors like unverifiable purchases, low work-in-progress value, and lack of site-wise records. The court noted that the authorities provided cogent reasons for rejecting the books, leading to the dismissal of the appeal.

Justification for Estimating Profit Based on Industry Average:
The Assessing Officer estimated the appellant's total income at Rs. 49,22,645, higher than the declared income of Rs. 24,87,520. This estimation was based on industry averages and comparisons with similar activities. The appellant contested this approach, arguing that the gross profit fall was not sufficient justification for rejecting the books of account. However, the court found that the rejection was not solely based on this ground, and upheld the authorities' decision to estimate the profit based on industry averages.

Requirement of Maintaining Site-wise Books of Account:
The appellant argued that as a Government contractor with work at multiple sites, maintaining site-wise books of account was impractical. They maintained that they followed the mercantile method of accounting and submitted audited reports. The court, however, found that the appellant's failure to provide site-wise details and other necessary records justified the rejection of books under section 145(3).

Alleged Errors in Rejecting Books of Account:
The appellant contended that the rejection of books of account was erroneous, citing an increase in net profit compared to the previous year. They also referenced a decision by the Allahabad High Court regarding book rejection. However, the court held that the reasons provided by the authorities for rejection were valid and supported by evidence, distinguishing the present case from the cited decision.

Comparison of Net Profit with Preceding Year:
The appellant highlighted the increase in net profit compared to the preceding year, arguing against the rejection of books of account. However, the court maintained that the rejection was justified based on the overall deficiencies in maintaining proper records and the inability to provide necessary details during the assessment proceedings.

In conclusion, the court dismissed the appeal, stating that no substantial question of law arose, and upheld the rejection of books of account under section 145(3) based on the findings and reasons provided by the authorities.