2015 (5) TMI 82 - HC - Income Tax

Rejection of books of accounts - G.P. addition of 1% on uniform basis for AY 2002-2003 to 2007-2008 - Held that - It is not disputed that the assessee s yield commensurate to the industrial GP disclosed by the assessee is comparable and satisfactory. In our considered view, when no palpable inconsistency in the books of account they cannot be rejected merely on the basis of assumption that assessee is not producing quantitative tally. Had there been any quantitative tally, assessee has produced stock register but in the absence of day-to-day stock tally at various places of business by itself cannot be a conclusion to give that assessee is shine away from producing the day-to-day tally. In view of these facts, we see no justification in rejection of books of accounts. The assessee has demonstrated that its yield of rice, bran and faak is as per the industry norm and the GP rate in all the years is favourably comparable. Under these circumstances, it cannot be held that the assessee s book results are unsatisfactory. Merely because a search is carried on it is not automatically meant that assessee is indulging in some nefarious activities. This is the burden of the revenue to prove in this behalf with material and cogent reasons. The ad hoc disallowance, rejection of books and taking support of this fact which we are not able to subscribe the ad hoc addition of 1% of sales is again without any basis whatsoever. Stock tally cannot lead to an ad hoc assumption that 1% of sales are liable to be added in the income of the assessee. - Decided in favour of assessee.

Summary

Issues:
Appeal against rejection of books of accounts and addition of 1% G.P. on a uniform basis for AY 2002-2003 to 2007-2008.

Detailed Analysis:

1. Background and Facts:
The case involves appeals arising from common orders passed by the Income Tax Appellate Tribunal (ITAT) related to the rejection of books of accounts and addition of 1% G.P. for several assessment years. The assessee, engaged in processing and trading of rice, faced additions to income totaling over Rs. 19 crore due to the AO's findings post a search operation in 2007.

2. Arguments and Counter-arguments:
The Revenue contended that qualitative details crucial for determining the cost of rice were not maintained in stock registers, justifying the AO's additions. However, the assessee argued that maintaining day-to-day stock statements based on quality in rice milling is impractical. The ITAT had initially rejected the additions made by the AO.

3. ITAT's Decision and Rationale:
The ITAT upheld the assessee's appeal, emphasizing that the books of accounts were regularly maintained and audited without discrepancies. It criticized the AO's rejection of books based on assumptions and conjectures, stating that the additions were unfounded. The ITAT found no justification for the rejection of books or the 1% sales addition.

4. Judgment and Conclusion:
The High Court affirmed the ITAT's decision, noting that the AO's basis for rejecting the books and adding 1% of sales was legally untenable. It highlighted the industry norms, previous acceptance of GP rates, and the adequacy of records maintained by the assessee. The Court found no errors in the ITAT's orders and dismissed the appeals, concluding that the AO's actions were unwarranted.

In summary, the High Court upheld the ITAT's decision to reject the additions made by the AO, emphasizing the adequacy of the assessee's records and the lack of legal basis for the AO's actions. The judgment provides clarity on the importance of maintaining accurate records in tax assessments and highlights the need for substantive evidence before making additions to income.