9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (7) TMI 756 - HC - Income TaxRejection of books of account - AO adopted G.P. Rate @15% instead of 14.52% as disclosed - enhanced the addition by estimating the G.P. @23.01%, after considering the past history - HELD THAT - AO was right in invoking the provisions of Section 145(3) in rejecting the book result and estimating the gross profit. The assessee could not lead any evidence to the satisfaction of the AO to prove its genuineness. As regards the adoption of gross profit rate @23.01% the Tribunal has upheld the reasoning given by the CIT(A) wherein the CIT(A) has taken the average of the gross profit rate of the two preceding assessment years after considering the previous history of the assessee. On this issue, we find that the finding recorded by the Tribunal is a concluded finding of fact recorded on the basis of material and evidence on record and warrants no interference. The law as to what amounts to substantial question of law is also well settled. It has been emphasized that the finding of fact recorded by the AO or the first appellate authority or the Tribunal cannot be disturbed by the High Court in exercise of powers u/s 260-A unless such finding is perverse or is such which no person of reasonable prudence could arrive at in the given facts of the case. Undisputedly the powers of FAA in matters of assessment are co-extensive with the Assessing Authority, in so far as the CIT(A) had issued a notice and thereafter made the enhancement on the basis of relevant material, no question of law may arise against such estimation as it would remain a finding of fact. In so far as the enhancement made by the CIT (A) is based on cogent material and evidence, the said finding does not suffer from any error of Law. In M. Janardhana Rao Vs Joint CIT 2005 (1) TMI 14 - SUPREME COURT held that in the exercise of the powers under Section 260-A of the Act, the findings of fact of the Tribunal cannot be disturbed.
Issues Involved:
1. Application of Section 145(3) of the Income Tax Act, 1961. 2. Justification for rejection of books of account. 3. Legitimacy of the Gross Profit (G.P.) rate estimation. 4. Legality of the addition of trading profits. Issue-wise Detailed Analysis: 1. Application of Section 145(3) of the Income Tax Act, 1961: The assessee, engaged in the manufacture and export of woolen carpet rugs, filed its return for the assessment year 2004-05. The Assessing Officer (AO) found discrepancies in the verification of weaving charges and manufacturing expenses, leading to the invocation of Section 145(3) of the Act, which allows the AO to reject the books of account if they are not satisfied with their correctness or completeness. The AO adopted a G.P. rate of 15% instead of 14.52% disclosed by the assessee. The CIT(A) and the Tribunal upheld this rejection, citing unverifiable expenses and incomplete addresses of weavers. 2. Justification for Rejection of Books of Account: The AO noted that while sales and purchases were verifiable, weaving charges and manufacturing expenses were not. Payments to weavers lacked complete addresses and PAN details, making verification impossible. The CIT(A) and Tribunal confirmed the rejection of books, emphasizing the unverifiability of expenses and non-maintenance of proper stock records. The Tribunal found that the assessee failed to justify the decline in G.P. rate and increase in manufacturing expenses. 3. Legitimacy of the Gross Profit (G.P.) Rate Estimation: The CIT(A) enhanced the G.P. rate to 23.01%, considering the past history of the assessee. This was based on an average of the G.P. rates from the previous five years. The Tribunal upheld this enhancement, noting that the assessee could not provide a satisfactory explanation for the decline in G.P. rate and the increase in unverifiable expenses. The Tribunal concluded that the CIT(A) was justified in estimating the G.P. rate based on past records and the nature of the expenses claimed. 4. Legality of the Addition of Trading Profits: The AO added ?1,32,02,742/- to the assessee's income, which was upheld by the CIT(A) and the Tribunal. The Tribunal noted that the assessee did not maintain a systematic stock register, making it impossible to correlate stock consumption and costs. The rejection of books and the subsequent estimation of G.P. rate were based on detailed reasoning and factual findings, not on surmises or conjectures. The Tribunal's findings were supported by the assessee's failure to produce necessary details and evidence. Conclusion: The High Court dismissed the appeal, affirming the Tribunal's findings. It held that the rejection of books and the estimation of G.P. rate were justified based on the assessee's failure to maintain verifiable records and provide necessary details. The enhancement of the G.P. rate by the CIT(A) was based on past records and was upheld as a finding of fact. The appeal was dismissed with no costs, and all questions of law were answered in favor of the revenue and against the assessee.
|
