2014 (6) TMI 1008 - HC - Income Tax

Best judgement assessment - Invoking provisions u/s 145(3) - application of profit rate of 3% on the estimated sale - AO has disbelieved the Account book submitted by the assessee mainly on the ground that sales are not supported by proper vouchers - Held that the sales are controlled and regulated by Excise Department and as there is no discrepancy in the stock register maintained and the Excise Department did not find any discrepancy - AO committed an error in disbelieving the Account book only on the ground that sales vouchers has not proper - there was no sufficient ground with the AO for invoking provisions u/s 145(3) - Decided in favor of assessee

Summary

Issues:
1. Tenability of an order passed by the Income Tax Appellate Tribunal regarding deduction to the respondent.

Detailed Analysis:
The respondent, a firm engaged in retail sale of liquor, submitted a return of income showing a total income. The Assessing Officer applied a profit rate on estimated sales, resulting in a net profit. The Tribunal found that the Assessing Officer disbelieved the accounts due to lack of proper sales vouchers. However, the Tribunal noted that sales were regulated by the Excise Department, with no discrepancies found. The Tribunal held that the absence of sales vouchers alone could not justify rejecting the accounts. The appellant claimed the net profit was reasonable based on prevailing trade rates, and the absence of cash memos was a common practice in the liquor trade. As the Assessing Officer did not identify any defects in the accounts, invoking Section 145(3) of the Income Tax Act was deemed unjustified. The Tribunal's approach was considered reasonable, and no substantial question of law was found, leading to the dismissal of the appeal.

2. Discrepancy in sales vouchers and rejection of accounts by the Assessing Officer.

Detailed Analysis:
The Assessing Officer disbelieved the accounts due to lack of proper sales vouchers. However, the Tribunal found that the Excise Department regulated sales without discrepancies in stock. The Tribunal held that the absence of sales vouchers alone was insufficient to reject the accounts. The appellant's claimed net profit was considered reasonable based on trade rates, and the absence of cash memos was deemed a common practice in the liquor trade. As the Assessing Officer did not identify any defects in the accounts, invoking Section 145(3) of the Income Tax Act was deemed unjustified. The Tribunal's approach was considered reasonable, leading to the dismissal of the appeal.