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TMI Blog2015 (11) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... e not rejected, nor were they found to be inaccurate, incorrect or incomplete, and, thus, the Assessing Officer was not justified in adding Rs. 5 lakhs, only on the ground that the profit rate shown by the assessee was much lower than the previous year. It is submitted that the appellate authority found, after it was held by the Assessing Officer, that the regular books of account have been maintained, and purchase and sales are fully vouched, and quality details were also maintained and produced before the Assessing Officer, and on such findings the books of account could not be disbelieved. The observation of the Assessing Officer that the appellant was trying to suppress his real profit, was not supported by any material, the appellate authority held that, in the instant case, the books of account are properly maintained and unless the books are rejected, the estimation could not be made. He found that the Assessing Officer has nowhere found any defect in the books of account of the appellant, therefore, lump sum addition of Rs. 5 lakhs cannot be sustained. 3. The Income-tax Appellate Tribunal allowed the second appeal with the findings that the assessee-company derives income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us heads had been inflated. On appeal, the learned Commissioner of Income- tax took into consideration the change in the gross profit rate for 11 years and various other factors including the maintenance of accounts, which have not been rejected and that the IAC had not pointed out any single instance of inflation in expenditure. The appeals of the assessee were allowed in part. In appeal, the Tribunal did not discuss the matter, but simply stated that the opinion of the Commissioner of Income-tax was correct and that the Inspecting Assistant Commissioner had been unduly influenced by the action of his predecessor and had not applied his judicial mind in the proper perspective. The reasoning of the Commissioner of Income-tax was adopted." 5. Reliance has also been upon the judgment of the Gauhati High Court in Aluminium Industries P. Ltd. v. CIT [1995] 80 Taxman 184 (Gauhati), in which it was held in paragraph 5 as follows : "Similarly, the mere fact that the profits were low is not a circum stance or material to justify addition of profits. It would be seen from both the orders annexures-A and C as passed by the Income-tax Officer and the Tribunal that the sheet anchor of this o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks. No particular expenditure shown in the account books has been disallowed by the Assessing Officer. There is no find ing by the Assessing Officer that the actual quantity of finished pro duct produced by the assessee was more than what it was shown in the accounts books. There is no finding that the assessee had made any such sale of the finished product which was not reflected in the accounts books. There is no finding by the Assessing Officer that the finished product was sold by the assessee at a price higher than what was declared in the accounts books. In these circumstances, the Com missioner of Income-tax (Appeals) and the Tribunal, in our view, were justified in holding that the Assessing Officer could not have increased the gross profit ratio merely because it was low as com pared to the gross profit ratio of the preceding year." 7. Learned counsel appearing for the respondent-Department submits that the increasing turn over and gross profits from 1990-91 to 1993-94, did not justify the reduction in the profit rate. The assessee-company had declared profit rate of 11.18 per cent. as against the last years gross profit rate of 13.78 per cent. 8. The Assessing Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessments Each year being self- contained unit, and the taxes of a particular year being payable with reference to the income of that year, as computed in terms of the Act, the method adopted by the assessee has been found to be such that income cannot properly be deduced therefrom. It is therefore, not only the right but the duty of the Assessing Officer to act in exercise of his statutory power, as he has done in the instant case, for deter mining what, in his opinion, is the correct taxable income. The Tribunal's order, affirming that of the Assessing Officer, was based on findings of fact made on cogent evidence and in accordance with correct principles. The High Court was clearly wrong in inter fering with those findings. Accordingly, we set aside the judgment of the High Court and allow the appeals of the Revenue with costs throughout. Appeals allowed." 11. Section 145 of the Income-tax Act provides for method of accounting at the time of making assessment. The income chargeable under the head "Profits and gains of business or profess" or "Income from other sources" is provided to be computed in accordance with the method of accounting, subject to the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held in Cloth Traders (P.) Ltd.'s case [1979] 118 ITR 243 (SC) that deduction is to be allowed on the gross total income and not on the net income. But then the decision in Cloth Traders (P.) Ltd.'s case [1979] 118 ITR 243 (SC) was overruled in Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 (SC). After the decision in Cloth Traders (P.) Ltd.'s case [1979] 118 ITR 243 (SC), two sections 80AA and 80AB were introduced by the Finance (No. 2) Act, 1980. While section 80AA was to have retrospective effect with effect from April 1, 1968, section 80AB was to have operation with effect from April 1, 1981. Section 80AA had the effect of effacing the decision of this court in Cloth Traders (P.) Ltd.'s case [1979] 118 ITR 243, which had inter preted section 80M. Section 80AB was made applicable to all the sec tions in Chapter VI-A except section 80M. In Distributors (Baroda) P. Ltd.'s case [1985] 155 ITR 120 (SC), however, this court specifically overturned its earlier decision in Cloth Traders (P.) Ltd.'s case [1979] 118 ITR 243 (SC) and held that deduction is to be allowed only on the net income and not on the gross income. With reference to s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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