2014 (1) TMI 1880 - AT - Income Tax

Rejection of books of accounts u/s 145 - NP estimation - HELD THAT - Nothing new is brought on record therefore we confirm the view taken by the CIT(A) for rejection of the books of accounts u/s 145(3) of the Act. In such circumstances when the books of accounts are rejected the only way to worked out the income is the estimation by considering the past history of the assessee or any comparable case having similar facts. In the instant case the profit shown by the assessee at 5.38% is higher than the net profit rate of 5% approved by the ITAT in the preceding assessment years but at the same time the AO pointed out certain shortcomings in the maintenance of books of accounts etc. Therefore certain addition was required to take care of possible leakage of income/profit of the assessee. In our opinion the addition sustained by the Ld. CIT(A) at 10 Lac is on higher side. We therefore to meet the ends of justice and considering the peculiar facts of this case deem it appropriate to sustain the addition of 5 Lac which will take care of possible leakage of income/profit of the assessee (if any) on account of shortcomings pointed out by the AO. - Decided partly in favour of assessee

Summary

Issues Involved:
- Appeal against order of CIT(A) confirming assessment under section 143(3)
- Dispute regarding provision of section 145(3) and adhoc addition
- Common issue of trading addition in cross appeals

Analysis:

Issue 1: Appeal against order of CIT(A) confirming assessment under section 143(3)

The assessee raised concerns regarding the assessment order under section 143(3), claiming improper service of notice within the prescribed time. Additionally, the appellant disputed the provision of section 145(3) without justification and raised objections against an adhoc addition of Rs. 10 Lac. The contention was that past history should have been considered for net profit rate application instead of adhoc addition.

Issue 2: Dispute regarding provision of section 145(3) and adhoc addition

The AO identified various defects in the assessee's books of accounts, leading to the rejection of the books under section 145(3). Deficiencies included the absence of stock register, missing purchase details, lack of labor payment records, unsupported deductions, and missing expense vouchers. Consequently, the AO made substantial disallowances, resulting in a significant addition to the net profit.

Issue 3: Common issue of trading addition in cross appeals

The common issue in both appeals revolved around the trading addition. The department contested the relief granted to the assessee, while the assessee objected to the addition sustained by CIT(A). The net profit rates declared by the assessee were compared to the rates approved by ITAT in previous years. CIT(A) upheld the rejection of books under section 145(3) but considered an adhoc addition of Rs. 10 Lac necessary to address potential income leakage due to identified shortcomings.

In conclusion, the Tribunal confirmed the rejection of books under section 145(3) and sustained an adhoc addition to account for potential income discrepancies. The department's appeal was dismissed, and the assessee's appeal was partially allowed, reducing the adhoc addition from Rs. 10 Lac to Rs. 5 Lac to align with the peculiar facts of the case and ensure justice.

This comprehensive analysis covers the issues raised in the judgment, detailing the contentions of the parties, the reasoning of the authorities, and the final decision rendered by the Tribunal.