2016 (4) TMI 1122 - AT - Income Tax

Rejection of books of accounts - variations with respect to month-wise consumption of raw material vis- -vis finished products - provision of section 145(3) invoked - Held that - On identical issue in A.Y.2008-09, an elaborate discussion has been made by the Tribunal and after considering the factual matrix, it was concluded that for invoking the provision of section 145(3) of the act to reject the books of accounts, by the Assessing Officer, it can be done only when, the Assessing Officer is not satisfied with respect to the correctness of completeness of the accounts maintained by the assessee. We find that the assessee duly explained the alleged variations with respect to month-wise consumption of raw material vis- -vis finished products and the same were disbelieved by the Assessing Officer without finding any fault therein. The rejection of books of accounts by the Assessing Officer is inconsistent with the requirement of section 145(3) of the Act, thereby, we affirm the stand of the ld. Commissioner of Income Tax (Appeals) in deleting the impugned addition - Decided in favour of assessee

Issues:
1. Rejection of books of accounts under section 145(3) of the Income Tax Act, 1961.
2. Addition of undisclosed production and sales not reflected in the books of account.
3. Correctness and completeness of accounts maintained by the assessee.

Issue 1: Rejection of books of accounts under section 145(3) of the Income Tax Act, 1961:
The case involved a dispute where the Assessing Officer rejected the books of accounts maintained by the assessee under section 145(3) of the Act. The Assessing Officer raised concerns about the variation in production compared to raw material consumption in certain months. However, the Tribunal found that such variations were adequately explained by the assessee, and the rejection of accounts was based on surmises and conjectures. The Tribunal emphasized that the Assessing Officer must not reject accounts unless there are genuine concerns about their correctness or completeness. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to delete the addition made by the Assessing Officer, concluding that the rejection of accounts was unjustified.

Issue 2: Addition of undisclosed production and sales not reflected in the books of account:
The Assessing Officer had added a substantial amount to the returned income, alleging that there was extra production that was not accounted for in the books of account. The Tribunal noted that the assessee had maintained statutory quantitative records for raw materials and finished goods, which were audited by the Central Excise authorities. The assessee explained that the variation in production and consumption was due to the diverse nature of finished products manufactured. The Commissioner of Income Tax (Appeals) accepted the assessee's explanation and deleted the addition. The Tribunal affirmed this decision, emphasizing that there was no justification for the Assessing Officer to reject the books of account under section 145(3) of the Act.

Issue 3: Correctness and completeness of accounts maintained by the assessee:
The Tribunal analyzed a previous order related to the same issue in a different assessment year. It was concluded that the rejection of books of accounts by the Assessing Officer was unwarranted as the explanations provided by the assessee regarding production and consumption were reasonable and supported by statutory records. The Tribunal reiterated that the Assessing Officer must have valid reasons to reject accounts under section 145(3) of the Act. As the Assessing Officer's actions were deemed inconsistent with the legal requirements, the Tribunal dismissed the Revenue's appeal on this issue.

In conclusion, the judgment focused on the Assessing Officer's decision to reject the books of accounts under section 145(3) of the Income Tax Act, 1961, and the subsequent addition made to the income of the assessee. The Tribunal emphasized the importance of valid reasons for rejecting accounts and upheld the decisions of the Commissioner of Income Tax (Appeals) to delete the additions, ultimately dismissing the Revenue's appeal on these grounds.

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