2019 (7) TMI 1154 - HC - Income Tax

Rejection of its books of account - imposition of Gross Profit Rate at 1.03% (with the corresponding Gross Profit Margin of 7.98%) based upon the previous assessment years returned and accepted rate - HELD THAT - There was a steep down turn in the declared gross profit margin; the net profit increased only by rupees one lac or as against, the turn over increased by more than 100%. This clearly seems to have alerted the AO to examine the record and based upon his assessment of the ledger and other documents available on record rejected the books of accounts. All that the ITAT did in this case was to correct the error evident on the face of the record, in the Revenue s appeal, evident in CIT (A) order. The Court is also satisfied that the main ground of the assessee of denial of opportunity to appear before the ITAT, is unpersuasive and cannot be accepted. A notice of hearing clearly was served on 24.07.2013; the hearing was to take place on 02.09.2013. There is no document relied upon by the assessee to show that he was incapacitated; he was prevented from instructing his counsel to appear before the ITAT on the date of hearing fixed for that purpose on which he was aware. For these reasons, the ground of denial of opportunity is also unsubstantiated. The Court is of the opinion that the ITAT s findings are pure findings of fact and do not call for any interference. No substantial question of law arises in this appeal.

Summary

Issues:
1. Rejection of books of account and imposition of Gross Profit Rate based on previous assessment years.
2. Justification of rejection of books of account by the Assessing Officer.
3. Appeal against the rejection of books of account by the CIT (Appeals).
4. Consideration of the case by the ITAT.
5. Correction of errors by the ITAT and denial of opportunity claim by the assessee.
6. Final decision of the High Court on the appeal.

Analysis:
1. The primary issue in this case revolved around the rejection of the assessee's books of account and the imposition of Gross Profit Rate based on previous assessment years. The question of law raised by the appellant was whether this rejection and imposition were justified. The Assessing Officer rejected the books of account due to discrepancies found during the assessment, despite the statutory auditor certifying their accuracy. The AO imposed Gross Profit Margin and profit rate based on previous return years, resulting in a tax liability assessment of ?1,32,74,503.

2. The assessee appealed this decision, and the CIT (Appeals) analyzed the grounds of appeal exhaustively. The CIT concluded in favor of the assessee, highlighting that the discrepancies in the books of account were reconciled during the assessment proceedings. The CIT emphasized that the statutory auditor did not identify any specific defects in maintaining the books of account. The non-maintenance of a stock register was deemed insufficient grounds for the rejection of books of account under Section 145(3) of the Income Tax Act.

3. Subsequently, the case was brought before the ITAT by the Revenue. The ITAT observed that the books of accounts were unreliable, noting a significant decline in the gross profit margin compared to the previous year. The ITAT corrected the errors identified in the CIT (A) order and dismissed the grounds raised by the assessee regarding denial of opportunity to appear before the ITAT.

4. The High Court affirmed the ITAT's findings, considering them as pure findings of fact that did not warrant interference. The court rejected the substantial question of law raised in the appeal, ultimately dismissing the appeal based on the decisions and reasoning provided by the ITAT.