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TMI Blog2014 (7) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... the accounts maintained by the assessee was a pre-requisite for invoking the provisions of Section 145 – the AO had merely doubted trading results declared by the assessee - There were no findings as to how the accounts maintained by the assessee were either incomplete or incorrect. The reason advanced was that in the relevant year the assessee was eligible for exemption u/s 80IB @ 100% of its profits, whereas, it was not so in the next AY 2004-05 - There appears to be an inherent fallacy in the reasoning because for the AY 2005-06 wherein the assessee was also not eligible for 100% exemption u/s 80IB, the G.P. rate declared was 8.48% - to say that higher G.P. rate declared in the relevant year at 8% was incorrect merely on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. ) noticed certain discrepancies in the accounts and also sought to verify the correctness of balances shown in the accounts of about 325 creditors and debtors by issuing inquiry letters to them. While account confirmations were received in respect of about 95 such parties, the letters issued to 143 other parties were returned unserved as the parties could not be found at the addresses given. In other cases, the letters issued did not come back, but no confirmations were received from the parties. Considering all the facts, a special audit under Section 142(2A) was ordered with the approval of the Commissioner. 3. The report of the special audit was received in September, 2006, pointing out several discrepancies in the books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er instances of sales, the amount of sales had been shown less by an amount of ₹ 21,466/-. j) No brand wise stock register was maintained. 4. Since most of the accounts of debtors and creditors were not confirmed, stock records were not properly maintained, and in view of the findings of the special auditors, and further taking into consideration the fact that the profits declared and expenses shown were not consistent with figures of other years, the A.O. rejected the books of accounts as unreliable. He also found that in the immediate succeeding assessment year 2004-05, where the assessee was eligible for deduction under Section 80IB at only 25% of profits, the G.P. rate had been disclosed at 6.32% as against about 8% declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was observed that the A.O. has made no reference to any adverse remarks of the Auditor in the assessment order. It was also held that non maintenance of stock records was not shown to adversely affect the correctness or completeness of the accounts. Thus, the ITAT held that there was no justification on the part of the A.O. for invoking Section 145(3) and rejecting the books of accounts in this case and further it was held that the assessee was eligible for deduction under Section 80IB on the income declared by it in the return. 7. On 12.03.2009, this Court admitted the appeal on the following substantial questions of law:- 1. Whether the Assessing Officer could invoke the provisions of Section 145(3) of the Income-Tax Act in the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts as filed by the assessee did not reflect the correct profit. 10. On the other hand, Shri Atul Jhingan, learned counsel for the respondent has supported the order passed by the ITAT as being strictly in conformity with law. 11. We have considered the rival submissions of the learned counsel for the parties carefully and meticulously. In this case, the dispute regarding scaling down of deduction under Section 80IB emanates from the action of the Assessing Officer under Section 145(3) whereby the accounts of the assessee have been rejected. Section 145(3) of the Act reads as under:- Method of accounting. 145. (1) Income chargeable under the head Profits and gains of business or profession or Income from other sources ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities and discrepancies in the accounts maintained by the assessee was a pre-requisite for invoking the provisions of Section 145 ibid. However, what appears in the present case is that the Assessing Officer had merely doubted trading results declared by the assessee. There were no findings as to how the accounts maintained by the assessee were either incomplete or incorrect. 13. The Assessing Officer in order to hold the accounts as being incomplete and incorrect advanced the logic that there was a variation in the G.P. rate and level of expenses in comparison to the subsequent year. As per him, the G.P. rate declared in the subsequent assessment year of 2004-05 was 6.3% as against 8.0% declared in the relevant year. It was for this rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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