1996 (2) TMI 167 - AT - Income Tax

Summary

Issues:
1. Rejection of book results under proviso to section 145(1) of the Income-tax Act.
2. Maintenance of proper books of account and documents as per section 44AA and Rule 6F.
3. Correlation of total number of films consumed with total receipts.
4. Application of proviso to section 145(1) and computation of income.
5. Assessment order's compliance with limitation period.

Analysis:

1. The appeal was filed against the CIT(A)'s order enhancing the income by Rs. 2 lacs. The Assessing Officer rejected the book results under proviso to section 145(1) due to discrepancies like the absence of a stock register of raw material and variations in closing stock. The estimation of receipts for X-ray and ultra-sound tests resulted in an addition of Rs. 9,14,675 to the assessee's income.

2. The CIT(A) partially accepted the contentions, acknowledging that the books of account were maintained but raised concerns about correlating the total films used with receipts. The assessee argued that the books were maintained as per section 44AA and Rule 6F, and discrepancies were reconciled. The CIT(A) reduced the addition to Rs. 2 lacs, considering the net profit rate and the results compared to similar cases.

3. The maintenance of proper books of account and documents under section 44AA and Rule 6F was crucial. The assessee demonstrated compliance with the prescribed requirements, and discrepancies highlighted by the Assessing Officer were addressed. The CIT(A) upheld the proviso to section 145(1) due to the inability to correlate films consumed with receipts, despite the maintenance of required records.

4. The proviso to section 145(1) allows computation of income based on the method employed if accounts are correct but the income cannot be deduced properly. However, when proper books are maintained under Rule 6F, income can be deduced accurately. As no errors were found in the maintained books, the addition of Rs. 2 lacs was deemed unjustified, and it was deleted.

5. Regarding the limitation period, the assessment order was considered timely as documents were dispatched before the deadline. The judgment emphasized the statutory requirement of maintaining proper books of account and documents for accurate income computation, ultimately leading to the partial allowance of the assessee's appeal.