2015 (6) TMI 676 - AT - Income Tax

Rejection of books of accounts - addition on undisclosed income - whether the books of account of the assessee have been rightly rejected u/s 145(3) on the ground that assessee is showing bogus sale of milk in its book in order to suppress the production and sale of various high profit margin products manufactured by it and, therefore, estimation of income is justified? - Held that - No specific defect or discrepancy has been highlighted by the AO nor any enquiry has been made. Further, we have also called for the records and books of account of the assessee to see the nature of entry and recording of transactions. Therefore, under such facts and circumstances prevailing in this year, the finding of the Tribunal in the earlier years will not apply in the impugned assessment year. Otherwise also, if the assessee s books of accounts were not found properly maintained in the earlier years then, it cannot be ipso facto presumed that the books of accounts are defective or not properly maintained in this year also. The principles of res judicata will not apply in such matters. Had it been so, then in assessee s own case, for the assessment years 2009-10 & 2010-11, the department has not only accepted the books of account and book result but also its income from sale of milk. If in the subsequent year, the factum of sale of milk have been accepted then with the same logic, the finding of the assessment year 2006-07 and 2007-08 that there is no sale of milk, cannot be held to be applicable in the impugned assessment year, i.e. A.Y. 2008-09. Each year have to be examined independently based on facts and materials on record, because, the matter pertaining to rejection of books of accounts are factual issues, which need to be examined every year. Thus, in view of our above finding, we hold that books of account and the book result, as shown by the assessee should be accepted and consequentially the estimation of the undisclosed income of ₹ 8,30,742/-, as submitted by the CIT(A) is deleted. - Decided in favour of assessee Addition u/s 69A - Held that - Cash was found from the residence of the Director Jasvinder Bajaj, wherein a sum of ₹ 7,34,000/- was found and ₹ 39,500/- was found from another Director, Shri Swaranjit Bajaj. At the time of search, it was claimed that there was cash in hand in the names of various persons including that of the assessee company, which aggregated at ₹ 32,72,780/-. The reply of the assessee as filed before the AO has not been properly rebutted or examined. Further, from the statement of cash balance of various persons, it is seen that, the availability of cash as per their books maintained and claimed by the assessee appears to be correct. In all the personal Balance-sheets and cash balance as appearing in the cash-book belonging to the family members of the Directors and Director themselves sufficient cash was available, therefore, under these circumstances same cannot be added in the hands of the assessee company, because the amount has not been found from the premises of the assessee company but from the residence of the Directors and the family members. Accordingly, we hold that no addition on account of unexplained cash can be made in the hands of the assessee company u/s 69A of the Act and hence, addition u/s 69A is deleted - Decided in favour of assessee.

Issues Involved:
1. Rejection of books of accounts under Section 145(3) of the Income Tax Act.
2. Addition of Rs. 8,30,742 as estimated undisclosed income.
3. Addition of Rs. 8,73,500 under Section 69A of the Income Tax Act.
4. Validity of interest charged under Sections 234A, 234B, and 234C of the Income Tax Act.

Detailed Analysis:

1. Rejection of Books of Accounts under Section 145(3):
The assessee's appeal concerns the rejection of its books of accounts by the CIT(A) under Section 145(3). The main issue raised was that the CIT(A) erred in rejecting the books despite no defects being discovered during the assessment proceedings. The assessee argued that the books of accounts, including details of milk purchases, sales, and production, were maintained and produced during the assessment. The AO, however, rejected the books based on statements made during a survey operation, which indicated that no inward, production/consumption, or outward registers were maintained. The AO also noted discrepancies in the sales of milk, as no documentary evidence was found during the survey to support these sales. The CIT(A) upheld the AO's decision, citing the lack of documentary evidence and the statements made by the company's director and salesmen. However, the Tribunal found that the AO and CIT(A) did not properly examine the records submitted by the assessee, which included detailed stock registers maintained in "tally" and other documentary evidence. The Tribunal held that the reasons for rejecting the books were not substantiated and directed that the books of accounts and book results should be accepted.

2. Addition of Rs. 8,30,742 as Estimated Undisclosed Income:
The AO made an addition of Rs. 8,30,742 as estimated undisclosed income, following the rejection of the books of accounts. This addition was based on the difference in gross profit rates between the sale of milk and other milk products. The CIT(A) confirmed this addition, stating that the assessee failed to provide the required details during the assessment proceedings. The Tribunal, however, found that the assessee had provided detailed statements of purchase and sale of milk and milk products, which were not properly examined by the AO or CIT(A). The Tribunal noted that the assessee's books of accounts were audited, and no specific defects were pointed out by the authorities. Consequently, the Tribunal deleted the addition of Rs. 8,30,742, holding that the assessee's book results should be accepted.

3. Addition of Rs. 8,73,500 under Section 69A:
During a search at the residence of the company's director, cash amounting to Rs. 8,34,000 was found. The AO added Rs. 8,73,500 under Section 69A, stating that the source of the cash was not explained. The assessee contended that the cash found was part of the total cash balance of Rs. 32,67,379 held by the company and its directors, as per their books of accounts. The Tribunal found that the cash balance was properly accounted for in the books of the directors and family members, and therefore, no addition should be made in the hands of the company. The Tribunal deleted the addition, holding that the cash found at the director's residence could not be added as unexplained cash in the company's hands.

4. Validity of Interest Charged under Sections 234A, 234B, and 234C:
The assessee challenged the interest charged under Sections 234A, 234B, and 234C of the Income Tax Act. The Tribunal held that the levy of interest under these sections is mandatory and consequential. Therefore, the ground challenging the interest was dismissed.

Conclusion:
The Tribunal allowed the appeal partly, directing the acceptance of the assessee's books of accounts and deleting the additions made under Sections 145(3) and 69A. The challenge to the interest levied under Sections 234A, 234B, and 234C was dismissed. The judgment emphasizes the importance of properly examining documentary evidence and maintaining detailed records to substantiate claims made in tax assessments.

← Previous Next →