1974 (9) TMI 6 - HC - Income Tax

Summary

Issues Involved:
1. Rejection of the assessee's accounts and estimation of income u/s 145 of the Income-tax Act, 1961.
2. Propriety of rejecting detailed books of account and audited statements.
3. Justification for rejecting the books of account and estimating income for a State-owned corporation.

Summary:

Issue 1: Rejection of the assessee's accounts and estimation of income u/s 145 of the Income-tax Act, 1961.

The primary question was whether the accounts of the assessee were liable to be rejected and estimates could be adopted by resorting to section 145 of the Income-tax Act, 1961. The Income-tax Officer (ITO) observed that the sale of fish purchased from Hyderabad resulted in losses due to shrinkage, shortage, and wastage in transit. The ITO noted that the assessee did not maintain proper stock accounts and rejected the books of accounts, estimating the gross profit at 20% for each year. The Appellate Assistant Commissioner (AAC) agreed with the ITO but reduced the profit margin to 15%. The Tribunal upheld the rejection of accounts, citing non-maintenance of details of loss in transit as valid evidence for rejecting the book profit.

Issue 2: Propriety of rejecting detailed books of account and audited statements.

The assessee argued that being a State Government-sponsored corporation, its accounts were subject to internal and statutory audits, and the ITO was not justified in rejecting the audited books of account. The revenue countered that the annual audit reports disclosed significant lacunae in maintaining accounts, and the flat rate of 5% for shrinkage and driage was unacceptable without specific data. The Tribunal found that the assessee failed to produce stock books or municipal certificates to support its claims, justifying the rejection of accounts.

Issue 3: Justification for rejecting the books of account and estimating income for a State-owned corporation.

The court held that the status of the assessee as a State-owned corporation was irrelevant to the scrutiny of its accounts. The assessee was expected to maintain its accounts like any other business. The Tribunal's rejection of accounts was based on the absence of proper stock records and the inability to account for losses in transit. The court found no infirmity in the orders of the revenue authorities and upheld the rejection of accounts and the estimation of income.

Conclusion:

The court answered the reference in the affirmative, in favor of the revenue, and found no inherent infirmity in the Tribunal's orders. The rejection of the assessee's accounts and the estimation of income u/s 145 were justified. There was no order as to costs, and counsel's fee was assessed at Rs. 150.