2016 (9) TMI 301 - HC - Income Tax

Enhancement of income - Held that - While accepting the books of accounts, estimating the income to ₹ 1,00,000/- by the ld.Tribunal is not permissible in law & the Tribunal ought not to have estimated income having accepted books of accounts. - Decided in favour of assessee.

Summary

Issues:
Challenging judgment of Income Tax Appellate Tribunal on income estimation.

Analysis:
The appellant challenged the Tribunal's judgment that partly allowed the appeal by enhancing the income from ?92,685 to ?8,33,214 for the Assessment Year 1990-91. The Assessing Officer had initially increased the income, which was partially allowed by the CIT (Appeals). Subsequently, the appellant appealed to the Tribunal, which estimated the income at ?1,00,000 after verifying the books of accounts. The appellant contended that the Tribunal did not provide any basis for this estimation despite accepting the books of accounts.

The key legal question framed by the High Court was whether the Tribunal was justified in law in sustaining the addition of ?1,00,000 on an estimated basis when the provisions under Section 145(2) were found to be inapplicable due to correct and complete books of accounts. The appellant's counsel referred to Section 145(2) which empowers the Central Government to notify income computation and disclosure standards for assessees. The appellant argued that the Tribunal's estimation without providing cogent reasons was impermissible in law.

On the other hand, the respondent's counsel argued that since the Assessing Officer and CIT (Appeals) had rejected the books of accounts, the Tribunal's estimation of ?1,00,000 was justified after reviewing the books. However, the High Court noted that the Tribunal's observations indicated that the accounts were correct and complete, and the true profit could be deduced from them. The High Court emphasized that when the books of accounts were found to be in order, there was no legal basis for the Tribunal to enhance the income to ?1,00,000.

Ultimately, the High Court held in favor of the appellant, ruling that estimating the income at ?1,00,000 by the Tribunal after accepting the books of accounts was not permissible in law. The High Court concluded that the Tribunal should not have estimated the income once it had accepted the books of accounts. Consequently, the appeal was allowed in favor of the assessee against the revenue.