2015 (1) TMI 615 - HC - Income Tax

Unaccounted income - comparison of assessee with other two concerns connected with the assessee company - rejection of books of accounts - Assessee company is engaged in the business of grey cloth manufacturing and also selling dyed and printed cloth after processing in other dyeing houses on job work basis - ITAT deleted the addition - Held that - Tribunal has rightly held that the books of account, which were sought to be rejected only on the ground of excessive fuel charges, were not according to law and the Tribunal has held that the books of account of the assessee were wrongly rejected and in that view of the matter, the question of Gross Profit will not arise, in our view, while considering the case of other sister concerns or units, the Tribunal has rightly analysed the facts and figures and has rightly held in favour of the assessee. We are in agreement with the same and accordingly we answer the question of law holding that in the facts on record, the Tribunal has rightly deleted the entire addition of ₹ 3,23,01,330/- made on account of unaccounted income generated by the assessee. - Decided in favour of assessee.

Summary

Issues:
Appeal against Tribunal's order for Assessment Year 2001-02 - Addition of unaccounted income - Comparison of profit rates - Rejection of book results - Verifiability of sales and purchases.

Analysis:
The High Court addressed the appeal challenging the Tribunal's order for the Assessment Year 2001-02. The primary issue was the addition of unaccounted income by the Assessing Officer based on comparisons of profit rates and fuel consumption. The Assessing Officer contended that the company generated unaccounted income due to higher fuel consumption per meter of cloth compared to other concerns. The CIT (Appeals) partly allowed the appeal, emphasizing the incorrect comparisons made by the AO and the wrong inferences drawn. The Tribunal, in its order, considered the disparities among concerns, such as machinery, quality of products, and raw materials, concluding that the results were not comparable. It highlighted that the Assessing Officer's rejection of the book results was unfounded, especially regarding sales and purchases verifiability.

The Court examined the arguments presented by both parties and upheld the Tribunal's decision. It agreed that the books of account were wrongly rejected solely based on excessive fuel charges. The Court emphasized that the books of account were not lawfully rejected, leading to the deletion of the entire addition of unaccounted income. The judgment highlighted the Tribunal's correct analysis of facts and figures, supporting the assessee's position. The Court concluded that the Tribunal's deletion of the addition was justified, dismissing the appeals brought by the revenue.

In conclusion, the High Court ruled in favor of the assessee, affirming the Tribunal's decision to delete the addition of unaccounted income. The judgment emphasized the importance of valid grounds for rejecting books of account and supported the Tribunal's detailed analysis of the case, ultimately dismissing the revenue's appeals.