2018 (9) TMI 1327 - HC - Income Tax

Rejection of books of accounts - assessee has failed to produce the complete bills & vouchers for expenses many of them being unverifiable - Held that - No material is commended at to dispel the findings arrived by the Assessing Officer as regard to the defective unidentified, unverified method of accounting adopted by the assessee, which led the Assessing Officer to apply the best judgment assessment. Presently, the entire case turn on facts. No material being commended at to establish the verifiable account method adhered at by the assessee, the conclusion drawn by the Assessing Officer, being inevitable, no substantial question of law arises for consideration.

Summary

Issues:
Appeal under Section 260A of the Income Tax Act, 1961 against the judgment passed by the Income Tax Appellate Tribunal on substantial questions of law regarding application of Section 145(3) of the Act, revival of Assessing Officer's order, adherence to judicial principles, net profit ratio, and rejection of books of accounts.

Analysis:
The appellant, a government contractor, declared income of ?5,09,137 during the year under consideration. Discrepancies in the books of account were noted by the Assessing Officer, including unverifiable purchases, lack of produced vouchers for expenses, and unexplained overhead expenses. The Assessing Officer disallowed the books of accounts and applied an 8% net profit rate on total gross receipts for assessment.

The Commissioner of Income Tax (Appeals) modified the order by disallowing expenses and selected remaining additions, stating that minor defects should not lead to rejection of book results under Section 145(3). On appeal by the Revenue, the Appellate Tribunal reversed the Commissioner's order, upholding the rejection of books of account under Section 145(3) due to unverifiable vouchers and expenses.

The Tribunal's decision was based on the failure of the appellant to establish the verifiable accounting method, leading to the best judgment assessment by the Assessing Officer. Citing legal precedents, the Tribunal emphasized the importance of factual findings and the limited scope of interference in such assessments. The Tribunal concluded that no substantial question of law arose for consideration due to the factual nature of the case.

In light of the above analysis, the appeal was dismissed as the conclusion drawn by the Assessing Officer was deemed inevitable, and no substantial question of law was found to warrant interference. The judgment highlighted the significance of factual findings in best judgment assessments and the limited scope for challenging such assessments under Section 260A of the Income Tax Act, 1961.