2014 (3) TMI 394 - HC - Income Tax

Application of Proviso of section 145(1) of the Act - estimation of GP Rate in relation to manufacturing of Dhodha a renowned sweet - Rejection of books of accounts Held that - ITAT upheld the view of the CIT(A), the CIT(A) in estimating total sales, application of G.P. rate and in granting a relief is most reasonable and well discussed and is based on the proper analysis of facts and the circumstances of the case of the assessee The weight of sweets manufactured is estimated after giving a discount of 10% on account of burning losses, pilferage, wastage and other factors like consumption of milk and milk products etc. by the assessee s employees - The weight of dhoda manufactured is taken to 65% and weight of other sweets is taken at 35%. This is being taken at estimated figure since assessee has not disclosed the formula for manufacturing dhoda being a trade secret - the entire issue concerns facts and attending circumstances and there is no legal issue for consideration Decided against Assessee.

Summary

Issues:
Assessment of income tax for the year 1988-89 based on discrepancies in accounts and expenses.

Analysis:
The judgment pertains to an appeal under Section 260-A of the Income Tax Act, 1961, arising from an order passed by the Income Tax Appellate Tribunal regarding the assessment year 1988-89. The appellant, a manufacturer of sweets including Dhodha, was found to have discrepancies in issuing cash memos to customers and in maintaining proper accounts. The Assessing Officer discovered discrepancies in sales to specific parties compared to goods received, leading to suspicions of underreporting. Further scrutiny revealed issues with expenses categorized as "Salary" without proper records, and lack of documentation for raw material consumption. The Commissioner of Income Tax (Appeals) upheld an addition of Rs. 96,170 based on estimated gross profit, which was also affirmed by the Tribunal.

The appellant contended that the revenue's approach was biased and that the accounts were wrongly rejected without sufficient evidence. The substantial questions of law raised by the appellant included challenges to the legality of the orders and the addition made by the ITAT based on presumptions. The CIT(A)'s decision to reject the books of accounts was supported by the AO's observations regarding discrepancies in raw material consumption and manufacturing estimates. The Tribunal upheld the CIT(A)'s findings, emphasizing the reasonableness of the assessment and the absence of legal issues for adjudication.

The Tribunal's decision was based on a thorough analysis of facts and circumstances, concluding that no substantial legal issues were present for consideration. The appeal was dismissed on the grounds of lacking merit, as the entire matter revolved around factual discrepancies and did not raise significant legal questions. The judgment highlights the importance of maintaining accurate accounts and documentation to avoid tax assessment issues and emphasizes the role of tribunals in evaluating the reasonableness of tax assessments based on evidence presented.