2006 (1) TMI 58 - HC - Income Tax

Assessment to the best of AO s judgment - Since the assessee had in its return voluntarily made mention of the two profit-making transactions which came to be accepted by the Assessing Officer, it could not turn around to question the correctness of disclosure regarding profit-making transactions in its return and that of related entries in respect thereto in its books of account simply because the Assessing Officer doubted the correctness of the two entries pertaining to the loss-making transactions and, consequently, proceeded to make the assessment to the best of his judgment. The books of account or any other material produced before the Assessing Officer by the assessee were simply meant to support the disclosure of profit or loss set out in its return and it was always open to the Assessing Officer to scrutinise such material or entries in the books of account before accepting the same for the purpose of assessment. There is, thus, no merit in the contention on behalf of the assessee that the Assessing Officer could not have disregarded the two entries pertaining to loss-making transactions while accepting the other two entries in the books of account relating to the profit-making transactions. The Tribunal was, in the circumstances, justified in repelling the contention so raised.

Summary

Issues: Assessment of trading transactions, disallowance of loss, additional evidence in appeal, treatment of profit and loss entries, application of section 145 of the Income-tax Act.

Assessment of trading transactions:
The assessee was engaged in trading rice through a third party during the accounting period. The Assessing Officer disallowed a loss of Rs. 86.11 lakhs, considering the transactions as not genuine. The Commissioner of Income-tax (Appeals) and the Tribunal had differing opinions on the matter, leading to multiple appeals and reassessment by the Assessing Officer.

Disallowance of loss and additional evidence in appeal:
The Commissioner of Income-tax (Appeals) initially deleted the addition made by the Assessing Officer based on additional evidence presented by the assessee. However, the Tribunal overturned this decision, emphasizing that the assessee failed to provide evidence during the original assessment proceedings and that additional evidence cannot be considered during the first appeal.

Treatment of profit and loss entries:
The Tribunal rejected the argument that all profit and loss entries should be treated equally, stating that specific defects in the loss entries warranted separate scrutiny. The Assessing Officer was justified in accepting profit entries disclosed by the assessee while questioning the loss entries based on discrepancies found.

Application of section 145 of the Income-tax Act:
The court analyzed the application of section 145(3) of the Income-tax Act, stating that the Assessing Officer can make assessments based on his judgment if not satisfied with the correctness or completeness of the accounts. In this case, since the Assessing Officer accepted the profit entries voluntarily disclosed by the assessee, he was within his rights to question the loss entries and make assessments accordingly.

In conclusion, the court found no substantial legal question for consideration and dismissed the appeal, upholding the Tribunal's decision.