2008 (3) TMI 44 - HC - Income Tax

Since there is defect has been pointed in the books of account, books of account can not be rejected merely on the ground that the assessee failed to produce the quantitative details - Moreover, the appellant s income was 100% exempt and there could not have been any tax liability and higher income being declared. Thus, no purpose of the revenue has been served by making such additions. Keeping in view all these facts, additions as made by the AO deleted.

Summary

Issues:
1. Appeal under Section 260A of the Income-tax Act, 1961 against the order of the Income-Tax Appellate Tribunal regarding trading addition.
2. Rejection of books of accounts under Section 145(3) of the Act and addition of Rs.20,83,752.
3. Deletion of the trading addition by the Commissioner of Income Tax (Appeals) and subsequent appeal by the revenue challenging the deletion.
4. Justification of rejecting books of accounts and making additions by the revenue.
5. Upholding of the order deleting the addition by the Tribunal.

Analysis:
1. The revenue filed an appeal under Section 260A of the Income-tax Act against the order of the Income-Tax Appellate Tribunal, challenging the deletion of a trading addition of Rs.20,83,752. The main issue was whether the Tribunal was correct in upholding the order of the Commissioner of Income Tax (Appeals) in deleting the said addition due to the lack of quantitative details of raw materials and finished products produced by the assessee.

2. The Assessing Officer rejected the books of accounts of the assessee under Section 145(3) of the Act, resulting in the addition of Rs.20,83,752. The Commissioner of Income Tax (Appeals) deleted this addition, stating that the AO rejected the books without pointing out any specific defect and that the appellant was not obligated to maintain records of raw material consumption for each product. The Tribunal upheld this decision, emphasizing that no defect was found in the books of accounts.

3. The revenue argued that the books of accounts were rightly rejected, and additions were correctly made under Section 145(3) as the manufacturing records did not allow verification of the declared Gross Profit Rate (GPR) of 25.38%. However, both the Commissioner of Income Tax (Appeals) and the Tribunal found no specific defect in the books of accounts and ruled in favor of deleting the addition.

4. The High Court, after hearing arguments from both sides, dismissed the appeal by the revenue. It was concluded that no substantial question of law arose for determination as the additions were made without pointing out any specific defect in the books of accounts, as per the findings of the Commissioner of Income Tax (Appeals) and the Tribunal.

In summary, the judgment revolved around the rejection of books of accounts, the addition of trading amounts, and the subsequent deletion of such additions based on the lack of specific defects found in the books of accounts. The High Court upheld the decisions of the lower authorities, ultimately dismissing the revenue's appeal.