2010 (4) TMI 111 - HC - Income Tax

Arranging inland tour of foreign tourists visiting India Best Judgment Assessment after rejection of account books - The net profit shown in the return was at 7.93% of the receipts. Since the Assessing Officer felt that the net profit reported by the assessee was on lower side, he picked up the expenses relating to seven tours organized by the respondent. On a consideration of the accounts furnished by the assessee, the Assessing Officer felt that the assessee could not demonstrate any pattern as to uniformity of rates etc. and the expenses debited in the tour Ledger did not reconcile with the tour itinerary. He, therefore, rejected the book results in terms of Section 145(3) of the Income Tax Act, 1961 and assessed the income @ 12% of gross foreign receipts. Net rate of 10% was applied by the Assessing Officer, to determine the income from Indian business receipts. Held that The question as to whether the accounts produced by the assessee were defective/incomplete or not is a question of fact CIT(A) and ITAT have found that the accounts maintained by the respondent were neither defective nor incomplete - Even the Assessing Officer has not found any fault as such with the system of accounting being followed by the assessee - non-production of formal agreements with the foreign principals would not render the accounts of the assessee incomplete and would not give justification to the Assessing Officer to reject them under Section 145(3) of the Act.

Issues:
1. Dismissal of appeal against the order of the Income Tax Appellate Tribunal.
2. Assessment of income for the assessment year 2004-2005.
3. Rejection of book results under Section 145(3) of the Income Tax Act.
4. Acceptance of income returned by the appellant by the Commissioner of Income Tax(Appeals).
5. Interpretation of Section 145(3) of the Income Tax Act.
6. Maintenance and correctness of the accounts by the assessee.
7. Reconciliation of tour expenses with the tour itinerary.
8. Final decision on the appeal and absence of substantial question of law.

Analysis:

1. The appeal was filed against the order of the Income Tax Appellate Tribunal, which dismissed the appeal regarding the assessment of income for the year 2004-2005. The Assessing Officer rejected the book results under Section 145(3) of the Income Tax Act and assessed the income at a higher rate than declared by the assessee.

2. The assessee firm, engaged in travel and tourism business, filed its return with a declared income. The Assessing Officer, finding the net profit reported by the assessee low, assessed the income at a higher rate based on expenses related to tours organized by the assessee. The Commissioner of Income Tax(Appeals) directed the Assessing Officer to accept the income returned by the appellant after scrutiny.

3. The Income Tax Appellate Tribunal noted the lack of specific reasons for rejecting the Books of Account by the Assessing Officer. The Tribunal accepted the contention that the tour itinerary was tentative and could change based on various factors, making reconciliation with expenses challenging.

4. Section 145(3) of the Act provides for assessment when the Assessing Officer is not satisfied with the correctness or completeness of the accounts. In this case, the Revenue did not prove any non-compliance with accounting standards. The Assessing Officer did not point out any specific defects in the Account Books maintained by the assessee.

5. The accounts maintained by the assessee were found to be complete and correct by the Commissioner of Income Tax(Appeals) and the Income Tax Appellate Tribunal. The Tribunal held that the nature of the business did not necessitate a formal agreement with foreign principals, and non-production of such agreements did not render the accounts incomplete.

6. The explanation provided by the assessee regarding tour expenses not reconciling with the itinerary was accepted by the authorities. The accounts were deemed correct, and any unverified expenses could have been disallowed individually by the Assessing Officer.

7. The judgment concluded that no substantial question of law arose for consideration based on the findings of the authorities. The appeal was dismissed accordingly, as the accounts of the assessee were found to be in order and the decision of the Tribunal was not deemed perverse.

This detailed analysis covers the issues involved in the legal judgment comprehensively, providing insights into the assessment process and the reasoning behind the decisions made by the authorities.

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