2006 (10) TMI 84 - HC - Income Tax

Tribunal is right to decline to permit the assessee to produce additional evidence (stock register) before it for the first time Accounts disclosed by assessee rejected as stock register was not produced tribunal is justified in sustaining the adhoc addition

Issues Involved:
1. Whether the production of a stock register at the time of the hearing of the appeal constituted additional evidence.
2. Whether the Tribunal was legally justified in sustaining the ad hoc addition of Rs.13,000 in the trading account without recording a finding of rejection of books of account.

Detailed Analysis:

Issue 1: Production of Stock Register as Additional Evidence
The Tribunal had to determine if the production of the stock register during the appeal constituted additional evidence. The stock register was not produced by the assessee before the Assessing Authority or the Appellate Assistant Commissioner. It was only attempted to be introduced before the Tribunal. According to Rule 18 of the Income Tax (Appellate Tribunal) Rules, 1963, additional evidence can be filed only with an application stating the reasons for such filing. The Tribunal noted that no such application was filed by the assessee. Thus, the Tribunal declined to permit the production of the stock register, considering it additional evidence. The court found no illegality in the Tribunal's approach and upheld this decision.

Issue 2: Justification of Ad Hoc Addition of Rs.13,000
The second issue revolved around whether the Tribunal was justified in sustaining an ad hoc addition of Rs.13,000 without rejecting the books of account. The assessee had not produced the stock register, leading the Assessing Authority to infer that no stock register was maintained. The gross profit rate declared by the assessee was 4.2%, which was lower compared to the 6-7% rate of a comparable case, M/s United Trading Company. The absence of the stock register made it impossible to verify the stock position, justifying the ad hoc addition under Section 145 of the Income Tax Act, 1961. The Tribunal reduced the initial addition from Rs.15,000 to Rs.13,000 and sustained the disallowance of Rs.2,000 out of traveling expenses while deleting the disallowance of Rs.1,000 towards other miscellaneous expenses.

The court referred to several precedents:
- Pandit Bros. v. CIT [1954] 26 ITR 159 (Punj): The court held that low profits alone do not justify rejecting the account books unless there is material evidence of falsity.
- S. Veeriah Reddiar v. CIT [1960] 38 ITR 152 (Ker): The absence of a stock register alone was not sufficient to reject the accounts.
- Ashoke Refractories P. Ltd. v. CIT [2005] 279 ITR 457 (Cal): Books of account cannot be rejected merely due to the absence of a stock register without a finding that the accounts are incomplete or incorrect.
- CIT v. Rajni Kant Dave, [2006] 281 ITR 6 (All): The court held that unless defects are pointed out in the prescribed books of account, mere absence of additional books cannot justify invoking Section 145.

However, the court distinguished these cases based on the specific facts of the present case. The assessee had not maintained the stock register, profits were low, and there was a voluntary surrender of Rs.30,000 as unexplained cash credit. These factors justified the ad hoc addition.

The court concluded that the Tribunal was justified in sustaining the ad hoc addition of Rs.13,000 and in treating the stock register as additional evidence. Both questions were answered in the affirmative, in favor of the Revenue and against the assessee. No order as to costs was made.

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