2014 (12) TMI 640 - HC - Income Tax

Applicability of provision of section 145(3) - Income derived from execution of contract work awarded by different departments of the Government Held that - The AO invoked the authority u/s 145(3) being not satisfied about the correctness and completeness of the accounts of the assessee u/s 145(3), the requirement is that the AO must be satisfied about correctness and completeness of the accounts of the assessee - mere submission of vouchers is not sufficient to arrive at the conclusion that the trading result shown by the assessee are true - The rejection of accounts would always be justified when the accounts books are found unreliable, incorrect or incomplete for valid reasons the AO by relying upon several errors and incompleteness in the books of accounts decided to invoke the authority as per Section 145(3) - no plausible reason was extended by the assessee for errors in the vouchers and in other accounts books the Tribunal without examining the errors pointed out by the AO reversed the order of assessment and its affirmance by CIT(A) by relying upon the principle that the vouchers submitted are not required to be treated untrue - The tribunal did not choose to examine the fact that no plausible reason was extended by the assessee to satisfy the Assessing Officer about their truthfulness thus, the order passed by the Tribunal is set aside Decided in favour of revenue.

Issues:
1. Interpretation of Section 145(3) of the Income Tax Act, 1961 in relation to correctness and completeness of accounts.
2. Application of net profit rate by Assessing Officer.
3. Rejection of accounts based on errors and incompleteness.
4. Judicial review of Assessing Officer's decision under Section 145(3).

Analysis:

1. Interpretation of Section 145(3):
The main issue before the court was the interpretation of Section 145(3) of the Income Tax Act, 1961, regarding the correctness and completeness of the accounts of the assessee. The Assessing Officer invoked this provision as he was not satisfied with the accounts maintained by the assessee, pointing out various discrepancies such as the absence of stock register, incomplete attendance records, self-prepared vouchers without proper details, and unverifiable creditors. The court emphasized that the Assessing Officer can reject accounts if they are unreliable, incorrect, or incomplete for valid reasons.

2. Application of Net Profit Rate:
The Assessing Officer applied a net profit rate of 12.5% on the contract receipts due to the perceived low net profit declared by the assessee. This led to an addition of a significant amount to the income return filed by the assessee. However, the Income Tax Appellate Tribunal later deleted this addition after finding the Assessing Officer's decision unjustified, which was based on the objective consideration of the accounts maintained by the assessee.

3. Rejection of Accounts Based on Errors:
The Assessing Officer identified multiple errors and incompleteness in the books of accounts, such as the absence of detailed registers for material purchases and consumption, incomplete attendance records, and unverified creditors. These discrepancies raised doubts about the accuracy and completeness of the accounts, leading to the rejection of the accounts under Section 145(3) of the Act.

4. Judicial Review of Assessing Officer's Decision:
The court reviewed the Assessing Officer's decision to reject the accounts under Section 145(3) and found that the Income Tax Appellate Tribunal erred in reversing the order without adequately considering the errors pointed out by the Assessing Officer. The Tribunal failed to assess whether the vouchers submitted were sufficient to establish the accuracy of the trading results shown by the assessee. As a result, the court allowed the appeal, quashed the Tribunal's order, and affirmed the Assessing Officer's decision.

In conclusion, the judgment focused on the proper application and interpretation of Section 145(3) of the Income Tax Act, highlighting the importance of maintaining accurate and complete accounts to avoid rejection by the Assessing Officer. The court upheld the Assessing Officer's decision in this case, emphasizing the need for valid reasons to reject accounts and the significance of thorough scrutiny in assessing income tax returns.

← Previous Next →