2015 (6) TMI 1257 - AT - Income Tax

Rejection of books of accounts - Addition by applying NP @0.73% by invoking provisions u/s 145(3) - HELD THAT - We are also of the opinion that the graph of the business profit is always not a straight line but it fluctuates year to year. The reasons for the fluctuations as given by the assessee that there was higher expenditure of electricity stated to be main ingredient for the manufacturing of steel products and MS Ingots. It is also worth to mention that the AO has not given any specific reason for rejection of books of accounts. When the day to day consumption register was maintained and the sales/purchase were stated to be verifiable by supporting bills/vouchers hence in our opinion as well; the invoking of the provisions of section 145 that too in a cursive manner was not appreciable in the eyes of law. For this legal proposition few case laws have been cited but keeping brevity in mind same are not to be discussed in detail. We therefore uphold the view taken by the ld. CIT(A). This ground is dismissed.

Summary

Issues:
- Whether the ld. CIT(A) was justified in deleting the addition made by the AO by invoking provisions u/s 145(3) of the Income Tax Act, 1961?
- Whether the order of the ld. CIT(A) is erroneous both in law and on facts?

Analysis:
1. Issue 1 - Addition under Section 145(3):
The appeal filed by the Revenue challenged the deletion of an addition of Rs. 38,67,710 made by the AO under section 145(3) for the assessment year 2007-08. The AO based the addition on the low production compared to previous years and a net profit rate of (-) 0.01%. However, the ld. CIT(A) allowed the appeal of the assessee, stating that the AO did not provide specific findings to justify the addition. The ld. CIT(A) emphasized the genuineness of payments and lack of evidence for unrecorded sales or purchases. Referring to legal precedents, the ld. CIT(A) concluded that the AO failed to establish the necessity for invoking section 145(3), leading to the deletion of the addition.

2. Issue 2 - Error in the Order of ld. CIT(A):
The Tribunal noted that the matter was previously remanded back to the ld. CIT(A) due to insufficient findings. The assessee argued that proper accounts were maintained, audited, and verifiable, with detailed records of transactions. The AO's invocation of section 145(3) without specific reasons was contested, especially considering the fluctuating nature of business profits. The Tribunal concurred with the assessee, highlighting the lack of justification for rejecting the books of accounts and the availability of verifiable records. Citing the importance of electricity expenditure for manufacturing, the Tribunal upheld the ld. CIT(A)'s decision, dismissing the appeal of the Revenue.

In conclusion, the Tribunal upheld the ld. CIT(A)'s decision to delete the addition under section 145(3) and dismissed the appeal of the Revenue, emphasizing the importance of providing specific justifications for invoking provisions and the need for verifiable records in assessing income tax liabilities.