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2017 (2) TMI 683 - HC - Income TaxAddition u/s 69 - difference between the cost of construction as estimated by the DVO and as declared by the assessee - Held that - The reference made to the DVO by the authority concerned is clearly bad and illegal in this case as the books of account had been rejected. - Decided in favour of the assessee . Addition towards extra profit by adopting the gross profit rate of 30.18% instead of 35.66% as disclosed by the assessee after rejecting the account books - Held that - Full particulars and details were never supplied by the assessee. The assessing officer, therefore, made an addition. The CIT and Tribunal have not considered these aspects at all, who have ignored them and have, therefore, deleted the addition. As referred by revenue case of Izhar International vs. Deputy Commissioner of Income-tax (2013 (7) TMI 810 - ALLAHABAD HIGH COURT) and Shri Venkteshwar Sugar Mills vs. Commissioner of Income-tax (Appeals) (2012 (1) TMI 81 - ALLAHABAD HIGH COURT) to substantiate his point that where the books of account were not properly maintained and the vouchers pertaining to the consumable items were not available for verification, then there is no option before the assessing officer except to make estimation on the basis of best judgment and also it would be open to him to make addition if amounts are so found against the assessee. - Decided in favour of the department.
Issues involved:
1. Justification of affirming the order of the Ist Appellate Authority regarding the deletion of the addition made under Section 69 of the Income Tax Act due to unexamined books of accounts. 2. Deletion of the addition of ?1,21,61,243/- towards extra profit after rejecting account books under Section 145(3) of the Income Tax Act. Analysis: 1. The appeal was filed by the department against an order of the Tribunal for the assessment year 2009-10. The assessing officer made an addition under Section 69 of the Act due to a difference in the cost of construction. The assessee failed to produce account books despite multiple opportunities. The assessing officer referred the matter to the DVO before rejecting the account books, which is against the law. The reference to the DVO can only be made after the rejection of account books as per Section 142A of the Act. The High Court, citing a Supreme Court case, held the reference to the DVO was illegal as it was made before the rejection of account books. Therefore, the first question was answered in favor of the assessee. 2. The assessing officer made an addition towards extra profit by adopting a different gross profit rate after rejecting the account books under Section 145(3) of the Act. The officer found discrepancies in the maintenance of accounts, lack of stock registers, and unverifiable raw material consumption. The CIT and Tribunal did not consider these aspects and deleted the addition. The department argued that in such cases, estimation based on best judgment is necessary, and additions can be made if discrepancies are found. The Court agreed with the department on this issue, deciding in their favor and remanding the matter to the CIT for reconsideration within three months. In conclusion, the High Court upheld the appeal in part, answering the first question in favor of the assessee and the second question in favor of the department. The matter was remanded to the CIT for further consideration within a specified timeframe.
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