2020 (7) TMI 603 - AT - Income Tax

Application of provision u/s 145 - whether books of account were produced before the ld AO or not? - HELD THAT - Quantitative difference harped upon by AO is also with respect to the letter submitted by the assessee and the tax audit report. Quantitative difference also with respect to Raw materials and other materials it is necessary to examine the books of accounts of the assessee. In the present case, the whole addition is made by applying the provision of section 145(3). The provisions of Section 145 (3) can only be applied if the assessing officer is not satisfied about the correctness or completeness of accounts of the assessee primarily. Therefore, even without examination of the books of accounts of the assessee which assessee has not produced despite called for by the assessing officer, application of the provisions of Section 145 (3) is premature. As AR has agreed to produce the books of accounts before the assessing officer and the learned DR has also expressed his willingness on behalf of AO to examine it, therefore, in the interest of justice, we set aside the whole issue back to the file of the ld AO with a direction to the assessee to produce books of accounts and vouchers before him for examination. AO is also directed to examine it and then decide the issue, following the order of the Hon'ble Delhi High Court as far as it relates to valuation, and decide the issue on merits with respect to the other grounds. Assessee is directed to produce the books of account before the AO within 120 days from the date of this order by taking prior appointment of the ld AO. - Appeal of assessee is partly allowed.

Issues Involved:
1. Validity of the order passed by the Assessing Officer (AO) in the name of a non-existing company.
2. Sustaining the addition based on auditor comments and invocation of Section 145 of the Income Tax Act.
3. Consistent stock valuation method and its acceptance by the revenue.
4. Incoherent action under Section 145 and estimation of profits.
5. Best judgment assessment based on past net profit ratios.
6. Alleged biased action of the AO and Commissioner of Income Tax (Appeals) [CIT(A)].
7. Non-allowance of enhanced deduction under Section 80IC.

Detailed Analysis:

1. Validity of the Order Passed by AO:
The appellant challenged the validity of the AO's order dated 13.02.2015, arguing that it was passed in the name of a non-existing company due to the amalgamation approved by the High Court effective from 01.04.2013. The appellant cited judicial precedents, including the Supreme Court's decision in Pr. Commissioner of Income Tax vs. Maruti Suzuki India Limited. However, during the hearing, the appellant did not press this ground of appeal. Consequently, this ground was dismissed.

2. Sustaining Addition Based on Auditor Comments and Section 145:
The appellant contended that the addition of ?1,46,76,345/- based on auditor comments was perverse and not objectively appreciated. The appellant referred to ITAT orders for AY 2010-11 and 2011-12, where similar additions were deleted. The AO had invoked Section 145(3) due to discrepancies in closing stock and non-production of books. The ITAT noted that the issue of valuation was covered in favor of the appellant by previous orders, but emphasized that the AO must show latent, patent, and glaring errors in the accounts to invoke Section 145(3). The ITAT decided to remand the matter to the AO for re-examination of books and vouchers.

3. Consistent Stock Valuation Method:
The appellant argued that the stock valuation method was consistently followed and accepted by the revenue in previous and subsequent years. The ITAT acknowledged that the valuation method used by the appellant was in line with Accounting Standard-2 and had been accepted in earlier years. However, due to the AO's specific findings of discrepancies in the current year, the ITAT remanded the issue for re-examination.

4. Incoherent Action Under Section 145 and Estimation of Profits:
The appellant claimed that the AO's action under Section 145 was incorrect as no trading outside the books was detected, and the taxable income could be computed from available records. The ITAT noted that the AO had relied on past net profit ratios to estimate profits, which was not justified without examining the current year's books. The matter was remanded for re-examination.

5. Best Judgment Assessment Based on Past Net Profit Ratios:
The appellant challenged the best judgment assessment based on the net profit ratio of AY 2010-11, arguing that it was not meritorious. The ITAT agreed that the AO should not mechanically reject books and make hypothetical additions without proper examination. The issue was remanded for re-assessment.

6. Alleged Biased Action of AO and CIT(A):
The appellant alleged that the additions were made in a biased manner, violating principles of natural justice. The ITAT did not find explicit evidence of bias but emphasized the need for a fair re-examination of the books and records by the AO.

7. Non-Allowance of Enhanced Deduction Under Section 80IC:
The appellant argued that the CIT(A) erred in not allowing the corresponding enhanced deduction under Section 80IC. The ITAT noted that this issue would become redundant if the additions were deleted. However, if the additions were sustained, the CIT(A) should reconsider the deduction in light of CBDT Circular No. 37/2016.

Conclusion:
The ITAT remanded the matter to the AO for re-examination of the books of accounts and vouchers, directing the AO to follow the High Court's order regarding valuation and decide the issue on merits. The appeal was partly allowed, with specific instructions for the AO to pass the order in the name of Dr. Oetker India Pvt. Ltd.

← Previous Next →