1979 (2) TMI 125 - AT - Income Tax

Summary

Issues:
1. Whether the Assessing Officer's decision to enhance the income returned by the assessee was justified.
2. Whether the Appellate Assistant Commissioner's (AAC) decision to disallow the entire amount of breakage claimed by the assessee was correct.
3. Whether the accounts maintained by the assessee were correct and complete.
4. Whether the Cross Objection filed by the Department is maintainable.

Analysis:

Issue 1:
The Assessing Officer (ITO) enhanced the income returned by the assessee, leading to an appeal to the AAC. The AAC found that the breakage claimed by the assessee exceeded the value of the closing stock, indicating that unsaleable items were not included in the closing stock. The AAC reasoned that the breakage amount should have been fully disallowed, resulting in an increased assessment. The appellant contended that the gross profit shown was fair and no further addition was warranted due to imperfect bookkeeping. The Tribunal found the AAC's reasoning unassailable, emphasizing the lack of stock registers and inventory of closing stock, leading to the conclusion that the loss due to breakage was already reflected in the trading account.

Issue 2:
The AAC disallowed the entire breakage amount claimed by the assessee, leading to a further appeal. The appellant argued that the breakage allowance had been consistent in previous years and the gross profit shown was reasonable. The Department supported the AAC's decision, highlighting the lack of stock records and the arbitrary valuation of closing stock. The Tribunal upheld the AAC's decision, emphasizing the necessity of correct and complete accounts, which the assessee failed to maintain. The Tribunal concluded that the ITO's approach was unfair and not in accordance with the law, directing a reassessment by the ITO to determine the income based on a fair estimate.

Issue 3:
The Tribunal addressed the correctness and completeness of the accounts maintained by the assessee. It was noted that the absence of stock registers, inventory of closing stock, and a cash book rendered the accounts incorrect and incomplete. The Tribunal invoked the proviso to section 145(1) and directed the ITO to compute the income based on his judgment, considering the best available information.

Issue 4:
The Cross Objection filed by the Department was found to be time-barred and not maintainable due to being filed beyond the prescribed date without a petition for condonation. Consequently, the Cross Objection was dismissed, and the appeal filed by the assessee was treated as allowed for statistical purposes.

In conclusion, the Tribunal set aside the AAC's decision and directed a reassessment by the ITO to determine the income in a fair manner, ensuring that the final assessment does not exceed the amount previously determined. The Cross Objection filed by the Department was dismissed due to being time-barred.