2022 (12) TMI 646 - AT - Income Tax

Rejection of books of accounts u/s 145(3) - Estimating its income at 1% of total turnover - HELD THAT -No stock register has been maintained by the assessee. Even as regards the payment of excise duty, the auditor has mentioned that the assessee is doing the trading activity, however, as per the profit and loss account assessee has adjusted the excise duty from the sales receipts. Assessee has not valued the stock in trade as required under section 145A of the Act. During the hearing, reliance has been placed upon the statement pertaining to the net profit earned by companies in similar line of business - However, apart from the statement, no other data has been brought on record to show that these companies are having business similar in nature to the assessee and merely computation of profit for the year under consideration was furnished. Therefore, the submission of the assessee to adopt the profit percentage of other companies also does not merit acceptance. In addition, there is no data available on record regarding the past performance of the assessee. Thus, no infirmity in the impugned order passed by the learned CIT(A) in estimating the income at 1% of the turnover. As a result, the grounds raised by the assessee are dismissed.

Summary

Issues:
Challenge to impugned order under section 250 of the Income Tax Act, 1961 for assessment year 2004-05. Grievance against estimating income at 1% of total turnover.

Analysis:
The appellant challenged the order passed by the Commissioner of Income Tax (Appeals) confirming the Assessing Officer's decision under section 144 r.w.s. 145(3) for the assessment year 2004-05. The appellant contended that the reasons given for confirming the AO's order were wrong and insufficient. The appellant argued that no inaccuracies were pointed out by the AO, and sufficient evidence in the form of extracts of books of accounts was provided. The appellant also criticized the estimation of income at 1% of total turnover, claiming it was based on guesswork without any findings of incorrectness or incompleteness in the accounts. The appellant further contended that the order was contrary to the provisions of the Act. The only grievance raised by the assessee was against the estimation of income at 1% of total turnover.

The Assessing Officer rejected the books of accounts of the assessee under section 145(3) of the Act due to inaccuracies and incompleteness. The AO disallowed the claim of excise duty and assessed the income at 2% of sales turnover, labor charges, and other receipts. The appellant, engaged in importing crude edible oil, explained its business operations and expenses incurred. The CIT(A) upheld the AO's decision but reduced the estimated income to 1% of turnover. The CIT(A) noted the appellant's failure to maintain stock records, huge cash withdrawals, non-inclusion of excise duty in closing stock, and absence of stock records. The CIT(A) emphasized the mandatory requirement to value stock at year-end and upheld the rejection of books of accounts by the AO. The CIT(A) directed the AO to re-compute income at 1% of turnover.

During the appeal hearing, the appellant argued that companies in a similar line of business earned a net profit margin of 0.01% to 0.07% during the relevant year. However, the Tribunal found discrepancies in the appellant's books of account, including the absence of a stock register and non-valuation of stock as required. The Tribunal dismissed the appellant's reliance on other companies' profit margins without sufficient data and past performance records. Consequently, the Tribunal upheld the CIT(A)'s decision to estimate income at 1% of turnover, leading to the dismissal of the appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision to estimate the appellant's income at 1% of turnover, dismissing the appeal challenging the estimation and confirming the rejection of books of accounts by the AO under section 145(3) for the assessment year 2004-05.