2014 (6) TMI 509 - HC - Income Tax

Rejection of books of accounts u/s 145(3) - estimation of sale and income Held that - The Tribunal was rightly of the view that the AO being not satisfied with assessee s reply because apart from not submitting the consumption ratios, even the inventory of the opening and closing stocks was not furnished - The AO held that the trading account prepared by the assessee was incorrect and incomplete and could not be relied upon - he was applying the ratio of 1 3 between grocery contention and sales holding that it was a reasonable basis - the AO held that the ratio of 1 3 was to be applied for estimating the sales made by the assessee - Taking into account the value of the purchases, opening and closing stock, the consumption by the assessee was worked out to Rs.38,77,186/- and the sales were estimated at 3 times this figure at Rs.1,16,31,558 - this was in excess of the declared sales of Rs.92,25,262/- by Rs.24,06,296/-, the difference in two figures was added to the total income as undeclared sales. The assessee had not maintained proper books of account and the same were rejected u/s 145(3) of the Act - The claim of wastage in each year depends upon various factors and cannot be applied uniformly unless the comparable circumstances are analyzed and found to be identical - This would primarily be a question of fact - there is no weight in the plea that the claim of wastage allowed to the assessee in the subsequent year be adopted thus, no substantial question of law arises for consideration Decided against Assessee.

Summary

Issues Involved:
1. Misreading and mis-appreciation of law and evidence.
2. Whether the Tribunal should have dealt with each and every aspect/pleadings of the appellant.
3. Erroneous, perverse, and unsustainable orders.
4. Allowance of 15% wastage.
5. Ignorance of material evidence.
6. Failure to refer to relevant pleadings and evidence on record.

Issue-wise Detailed Analysis:

1. Misreading and Mis-appreciation of Law and Evidence:
The appellant claimed that the Tribunal misread and misappreciated the law and evidence. However, the court found no merit in this argument. The Assessing Officer (AO), CIT(A), and the Tribunal had all sustained the rejection of the books of account under Section 145(3) of the Income Tax Act, 1961. The AO noted that the assessee was not maintaining any stock register of daily consumption and failed to provide inventory of opening and closing stock, thereby rendering the trading account incorrect and incomplete.

2. Tribunal's Duty to Address Every Aspect/Pleading:
The appellant argued that the Tribunal, as the final court of fact, should have addressed each and every aspect/pleading. The court, however, noted that the AO, CIT(A), and Tribunal had consistently found that the trading results did not present a true and correct picture of the state of affairs of the assessee. The Tribunal's findings were based on substantial evidence and past history of the assessee, which showed a pattern of under-reporting food sales.

3. Erroneous, Perverse, and Unsustainable Orders:
The appellant contended that the orders were erroneous, perverse, and unsustainable. The court disagreed, stating that the findings of the AO, CIT(A), and Tribunal were not shown to be erroneous or perverse. The rejection of books of account under Section 145(3) was justified due to the lack of proper maintenance and the manipulation of trading results.

4. Allowance of 15% Wastage:
The appellant argued for the allowance of 15% wastage, as allowed in subsequent years. The court found that the claim of wastage depends on various factors and cannot be uniformly applied without analyzing comparable circumstances. The AO had validly rejected the claim based on the assessee's failure to maintain proper records and the inconsistency in the figures of opening stock, closing stock, and sales.

5. Ignorance of Material Evidence:
The appellant claimed that the Tribunal ignored material evidence. The court noted that the AO and CIT(A) had considered all relevant evidence and found the trading account to be manipulated. The Tribunal upheld these findings, and the court found no indication that material evidence was ignored.

6. Failure to Refer to Relevant Pleadings and Evidence:
The appellant argued that the Tribunal failed to refer to relevant pleadings and evidence. The court observed that the AO had provided multiple opportunities for the assessee to furnish the required details, which were not complied with. The CIT(A) and Tribunal had also reviewed the evidence and found the trading results unreliable.

Conclusion:
The court concluded that no substantial question of law arose in the appeal. The rejection of the books of account under Section 145(3) was justified, and the claim of wastage could not be uniformly applied without proper records. The appeal was dismissed, affirming the findings of the AO, CIT(A), and Tribunal.