2006 (9) TMI 171 - HC - Income Tax

Difference in the stock inventory figures as well as figures shown in the stock register - Assessing Officer made best judgment assessment, by invoking section 145(1) and accordingly applied the GP rate of 8.5 per cent. as against 6.99 per cent. declared by the assessee held that action of AO was justified held that proviso to section 145(1) can be invoked not only where the method employed is not proper but also where the accounts are not correct and complete

Summary

Issues: Appeal against order passed by Income-tax Appellate Tribunal for assessment year 1990-91 on substantial questions of law regarding assessment additions, rejection of rectification application, invoking provisions of section 145(1) and reliance on Commissioner of Income-tax (Appeals) decision.

Analysis:
1. The appellant filed a return for the assessment year 1990-91, where discrepancies were found by the Assessing Officer related to stock inventory figures, stock register, and selling items below purchase price on the same day.
2. The Assessing Officer estimated sales at Rs. 35 lakhs, applying a GP rate of 8.5% compared to 6.99% declared by the assessee, leading to certain additions. Partial relief was granted on appeal.
3. The main contention raised was the justification of invoking the proviso to section 145(1) of the Income-tax Act, with reference to a judgment by the Rajasthan High Court. The appellant argued that the method of accounting was not found to be wrong, which is necessary for invoking the proviso.
4. The court disagreed with the submission, stating that the proviso to section 145(1) can be invoked not only for improper methods but also for incomplete or incorrect accounts. The Assessing Officer can make a best judgment assessment under section 145(2) if the accounts are found to be incorrect or incomplete.
5. It was emphasized that unless the finding that the accounts were incomplete or incorrect is shown to be perverse, the view taken should not be interfered with. The court highlighted that the judgment cited by the appellant did not support their argument, as even in that case, the assessment was not interfered with despite the proviso not being attracted.
6. Consequently, the court held that the questions raised did not constitute substantial questions of law and dismissed the appeal against the order passed by the Income-tax Appellate Tribunal for the assessment year 1990-91.