2016 (3) TMI 364 - AT - Income Tax

Estimation of profits - rejection of books of accounts - Held that - When there was no error or mistake pointed out by the Assessing Officer in respect of other businesses, rejection of the entire books of account is not justified. Even with regard to trading in bullion, the assessee-company purchased gold bullion to the extent of ₹ 1,85,34,411/- from M/s Gajaanand Jewellery Mart Pvt. Ltd, Coimbatore. The ledger account appearing in the books of account of the assessee shows sale of ₹ 2,23,39,087/-. The Assessing Officer has not considered the opening balance of the bullion for the year under consideration. The Assessing Officer has not considered the profit on sale of the bullion. When the assessee purchased bullion to the extent of ₹ 1,85,34,411/-, the sale consideration on sale of bullion would be more than ₹ 1,85,34,411/-. If there is a stock of gold bullion in the earlier assessment year which was taken as opening balance for the year under consideration, then naturally the sale of such bullion has to be reflected in the ledger account of the assessee-company. In those circumstances, by considering the profit ratio of the assessee, this Tribunal is of the considered opinion that rejection of books of account is not justified. Merely because there was an error in the annual report, as rightly submitted by the ld. Counsel for the assessee, this will not have any impact on the profit of the assessee. When the assessee has recorded the entire purchases and sales of the bullion in the books of account, this Tribunal is of the considered opinion that estimating profit after rejecting the books of account is not justified. Accordingly, the orders of the lower authorities are set aside and the addition made by the Assessing Officer is deleted. - Decided in favour of assessee

Summary

Issues:
Assessment of profit in various businesses based on clerical errors in the annual report.

Analysis:
The appeal concerned the assessment of profit in different business segments of the assessee, particularly focusing on clerical errors identified in the annual report. The Assessing Officer rejected the books of account due to clerical errors found in the annual report, estimating profits at 2% for bullion trading and 4% for other businesses. On appeal, the CIT(A) adjusted the profit estimates for different business segments. The key contention was whether rejecting the books of account solely based on clerical errors was justified.

The ld. Counsel for the assessee argued that the clerical errors were limited to bullion trading and did not impact other business segments. It was highlighted that despite discrepancies in the ledger account of the seller for bullion trading, the assessee's books accurately recorded purchases and sales. The counsel emphasized that the errors were clerical in nature and did not affect the overall profitability. Therefore, rejecting the books of account and estimating profits based on these errors was deemed unjustified.

Contrarily, the Departmental Representative contended that discrepancies in gold bullion transactions raised concerns about overall profitability. The Assessing Officer's estimation of profits was based on these discrepancies, with the CIT(A) making adjustments after considering the nature of the businesses involved. The representative argued that the profit estimates were reasonable and warranted no interference.

Upon review, the Tribunal acknowledged the diversified nature of the assessee's businesses, noting that errors were isolated to gold bullion transactions. It was observed that no mistakes were identified in other business segments. The Tribunal emphasized that rejecting the entire books of account was unwarranted, especially when accurate records existed for other business activities. Additionally, the Tribunal highlighted the importance of considering opening balances and sale profits in bullion trading to determine accurate profitability. Ultimately, the Tribunal concluded that the rejection of books of account based on clerical errors was unjustified. The lower authorities' orders were set aside, and the addition made by the Assessing Officer was deleted, thereby allowing the appeal of the assessee.

In conclusion, the judgment focused on the appropriate assessment of profits in various business segments in light of clerical errors, emphasizing the need for a balanced and accurate determination without unjustly rejecting books of account based on isolated discrepancies.