2002 (7) TMI 64 - HC - Income Tax

Missing stock register and unaccounted sales found in search led to rejecting books u/s145(2); best-judgment profit upheld. (2)

Rejection of books under s. 145(2) was upheld where the assessee did not maintain a stock register and unaccounted sales were detected in a search; the HC ... Rejection of the books of account maintained - disclosures/surrender of income - estimation of the sales and enhancement in the gross profit rate - attracting the provisions of section 145(2) - HELD THAT:- It is not possible to categorise various types of defects which may render rejection of books of account of an assessee on the ground that the accounts are not complete or correct. Each case has to be considered on its own peculiar facts, having regard to the nature of business. Though it is true that the absence of stock register, in a given situation, may not per se lead to an inference that the accounts are incomplete or false the absence of such a register, coupled with other factor, like fall in profits, etc., may lead to an inference that the accounts are not correct. As noticed above, in the instant case, non-maintenance of stock register, coupled with the fact that unaccounted sales were detected during the course of search, in our opinion, is a relevant factor to sustain the view of the Assessing Officer. We do not find any legal infirmity in the view taken by the Tribunal that the disclosures/surrender by the assessee at the time of search, as its unaccounted sales, constitutes sufficient material for the Assessing Officer to base his satisfaction that the books of account of the assessee are not correct and complete. In so far as the estimation of the sales/ gross profit rate is concerned, it being a best judgment assessment, based on past years results cannot be said to be arbitrary. On the findings of fact recorded by the Tribunal, in our opinion, no question of law much less a substantial question of law arises. The appeal, being devoid of merit is dismissed. Issues:1. Surrender of income during search under section 132(4) of the Income-tax Act.2. Rejection of books of account under section 145(2) of the Act.3. Estimation of turnover and gross profit rate by the Assessing Officer.4. Appeal to the Commissioner of Income-tax (Appeals) and subsequent appeal to the Tribunal.5. Tribunal's decision on sustaining trading addition and deleting balance addition.6. Arguments regarding the correctness and completeness of accounts by the assessee.7. Legal interpretation of section 145(2) and best judgment assessment by the Assessing Officer.8. Justification of the Tribunal's decision based on the findings of fact.The judgment pertains to an appeal by the assessee under section 260A of the Income-tax Act, 1961, against the order of the Income-tax Appellate Tribunal, Delhi Bench, concerning the assessment year 1991-92. The assessee had surrendered a sum of Rs. 5 lakhs during a search conducted in 1990, which was credited to the profit and loss account for the relevant year. The Assessing Officer rejected the books of account and estimated the turnover of the assessee-firm, making an addition to the declared income. The Commissioner of Income-tax (Appeals) and the Tribunal dealt with the matter subsequently, with varying decisions on the trading addition made by the Assessing Officer.The Tribunal partially upheld the trading addition but deleted a balance addition, emphasizing the unaccounted sales admitted by the assessee during the search. The Tribunal noted that the reduction of the surrendered income by the assessee was not permissible, as it was considered a device to lower the income surrendered. The Tribunal agreed with the Commissioner of Income-tax (Appeals) on the sustenance of the trading addition but found the balance addition unnecessary and ordered its deletion. This led to the appeal before the High Court.The High Court analyzed the legal provisions, specifically section 145(2) of the Act, which empowers the Assessing Officer to make a best judgment assessment if accounts are deemed incomplete or incorrect. The Court upheld the Tribunal's decision, stating that the absence of a stock register, coupled with unaccounted sales, justified the rejection of the books of account. The Court found no legal infirmity in the view that the disclosures made by the assessee during the search provided sufficient material for the Assessing Officer's satisfaction regarding the accounts' correctness. Additionally, the Court deemed the estimation of sales and gross profit rate as a best judgment assessment based on past results, not arbitrary.Based on the factual findings by the Tribunal, the High Court concluded that no substantial question of law arose from the case. Consequently, the appeal was dismissed as lacking merit. The judgment underscores the importance of maintaining accurate accounts and the Assessing Officer's authority to make best judgment assessments based on the available material, even in cases of surrendered income during searches.