2017 (6) TMI 15 - AT - Income Tax

Rejection of books of accounts u/s 145(3) - ad hoc estimate of ₹ 1 crore in trading result as the gross profit rate during the year has declined in comparison to the earlier year - Held that - assessee has given very elaborate rebuttal of Assessing Officer s observations and reasoning in its detailed explanation as to why the books of accounts cannot be rejected, relevant portion of assessee s contention has already reproduced above. Based on entire material on record and assessee s explanation, the Learned CIT (Appeals) has accepted the assessee s contention and held that there is no a valid reason or material to reject the books of account and disturb the trading account. Apart from that, we find that the Tribunal in assessee s own case for the A.Y. 2009-10 on similar set of facts has deleted the said ad hoc addition in trading account and also set aside the AO s similar reasoning for rejection of books of accounts. No distinguishing features have been pointed out by the ld. DR before us. Therefore addition deleted - Decided in favour of assessee Delayed payment of Employees contribution to EPF/VPF - Held that - As the payments have been made much before the due date filing of return of income, then we do not find any reason for making any disallowance as the same is covered by the decision of Hon ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd. (2009 (11) TMI 27 - SUPREME COURT ). Thus, the second ground as raised by the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition made after rejecting the books of accounts under Section 145(3) of the Income Tax Act for the Assessment Years (A.Y.) 2007-08 and 2010-11.
2. Deletion of addition made under Section 36(1)(va) of the Income Tax Act in respect of employees’ contribution to EPF/VPF for A.Y. 2007-08.

Issue-Wise Detailed Analysis:

1. Deletion of Addition Made After Rejecting the Books of Accounts Under Section 145(3) of the Income Tax Act for A.Y. 2007-08:
The Revenue appealed against the deletion of an addition of ?1,00,00,000 made by the Assessing Officer (AO) after rejecting the books of accounts under Section 145(3). The AO noted a fall in the Gross Profit (G.P.) rate compared to the previous year and highlighted discrepancies such as the lack of a stock register, unverifiable closing stock, and unsupported purchases/sales. The AO made an ad hoc trading addition of ?1 crore.

The assessee rebutted these observations, explaining that the nature of their business (retail trading through departmental stores) involved numerous items, making it impractical to maintain detailed quantitative details. They maintained stock records on an ERP system and provided a reconciliation of sales and purchases with VAT returns. The assessee argued that the AO's rejection of the books was based on incorrect assumptions and without examining the actual records.

The CIT(A) accepted the assessee’s explanations and noted that the assessee had maintained proper books of accounts and that the AO had not highlighted any specific discrepancies. The CIT(A) referred to a similar case in A.Y. 2009-10 where the Tribunal had ruled in favor of the assessee, stating that the books of accounts could not be rejected on the grounds taken by the AO. Consequently, the CIT(A) deleted the addition made by the AO.

The Tribunal upheld the CIT(A)’s decision, finding no valid reason or material to reject the books of accounts and disturb the trading account. The Tribunal noted that the main reason for the AO’s rejection was the decline in the G.P. rate, which had been adequately explained by the assessee. The Tribunal affirmed the CIT(A)’s order, dismissing the Revenue's ground.

2. Deletion of Addition Made Under Section 36(1)(va) of the Income Tax Act in Respect of Employees’ Contribution to EPF/VPF for A.Y. 2007-08:
The AO added ?2,05,715 under Section 36(1)(va) as the employees’ contribution to EPF/VPF for February 2007 was not deposited within the due date under the respective Act. The assessee contended that the deposits were made before the due date for filing the return of income.

The CIT(A) held that if the payment is made and credited to the government account before the due date of filing the return of income, no addition can be made. The CIT(A) relied on the Supreme Court decision in CIT vs. Alom Extrusions Ltd. (319 ITR 306).

The Tribunal agreed with the CIT(A), noting that the payments were made before the due date for filing the return of income. Thus, the disallowance was not warranted, and the Revenue's ground was dismissed.

3. Deletion of Addition Made After Rejecting the Books of Accounts Under Section 145(3) of the Income Tax Act for A.Y. 2010-11:
The Revenue appealed against the deletion of an addition of ?2,00,00,000 made by the AO after rejecting the books of accounts under Section 145(3). This ground was similar to the one raised for A.Y. 2007-08, with identical reasoning and findings by the AO and the CIT(A).

The Tribunal applied its findings from A.Y. 2007-08 to A.Y. 2010-11, upholding the CIT(A)’s order and dismissing the Revenue's ground.

Conclusion:
In conclusion, the Tribunal dismissed the Revenue’s appeals for both A.Y. 2007-08 and A.Y. 2010-11, upholding the CIT(A)’s orders that deleted the additions made by the AO after rejecting the books of accounts and under Section 36(1)(va). The Tribunal found that the assessee had maintained proper books of accounts and that the AO’s rejections and additions were not justified.