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TMI Blog2014 (7) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, on an overall verification and examination of the accounts, of the same being not correct or complete and, thus, accordingly, not reliable for the purpose of computation of income under the said heads of income - no cause/s to have been located which could form the basis of the AO’s dissatisfaction with the assessee’s accounts in terms of section 145(3) - CIT(A) has thus rightly held that there was no warrant for the application of section 145(3) of the Act – Decided against Revenue. Disallowance of detention charges – Held that:- The documents of the clearing agent supplied in substantiation were however for the year 2005, and also did not match with the figures in respect of weight, name of ship, delivery point, etc. per the copie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, i.e., Spenta Multimedia and Spenta Print , were observed to be as under: (Amt in Rs. lacs) Particulars A.Y. 2007-08 A.Y. 2008-09 Turnover 3513.42 4475.85 Gross profit (GP) 1443.17 1765.02 GP (%) (*) 41.08 (**) 37.88 (*) reckoned after adjusting the gross profit for the income from the other sources (Rs.23.87 lacs), and loss in the division Spenta Print (Rs.135.98 lacs) with reference to the reduced sales (for the sales of that unit). (**) after adjusting for direct income of ₹ 69.51 lacs. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not reliable for the purpose of computing the assessee s business income and, consequently, for estimation of income upon invocation of section 145(3) of the Act. 2.2 In appeal, the assessee reiterated its stand, clarifying that there were valid and genuine reasons for the decline in the gross profit for the relevant year/s, i.e., with reference to the preceding years, being principally a higher increase in the input costs, as wages, vis- -vis the revenue, which by itself could not lead to the rejection of its accounts u/s. 145(3) of the Act. That is, a decline in the profit cannot by itself lead to the application of section 145(3), so that the addition, if at all, could be limited to the amount for which the discrepancy/s was found i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of its return of income (ROI), is on the assessee. However, before the assessing authority disregards the same (accounts) as the basis of the assessee s income (under the heads of income Profits and gains of business or profession or Income from other sources ) for any year, and proceeds to apply his best judgment for assessment of income, he ought to arrive at a finding as to the non satisfaction with the correctness or completeness of the same (accounts). The specific instances toward the same, as found by the A.O., work to ₹ 2,234/- and ₹ 6,00,720/- (which is with regard to the value of closing stock) for the relevant years. The same, in our view, do not justify the invocation of section 145(3) in the facts and circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of section 145(3). The ld. CIT(A) has thus rightly held that there was no warrant for the application of section 145(3) in the present case for both the years. Continuing further, however, having so opined, he in our view fell in error in estimating the assessee s income (at an increase of ₹ 5 lacs and ₹ 10 lacs over the returned income) for the two consecutive years respectively. His action, which is without any basis on facts being communicated, is without any legal basis in-as-much as the same (estimation) could only be upon and subsequent to a valid invocation of section 145(3), which he himself disapproves of in the present case. 4. In our view, therefore, in the facts and circumstances of the case, the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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