2012 (11) TMI 1104 - AT - Income Tax

Tribunal rules in favor of assessee, rejects Revenue's appeal on bookkeeping and income calculation.

The Tribunal allowed the assessee's appeal, rejecting the rejection of books of account, the addition based on assumed sales and scrap generation, and the ... Rejecting the books of account and applying provisions of section 145(3) - Held that:- CIT(A) was quite aware as is evident from the findings in his order that the assessee has maintained regular books of account showing details of purchases and sales including that sale of scrap. The findings thereafter in the said paras are based on surmises and conjectures. The reliance is placed by the ld. CIT(A) on the decisions of various courts of law, therefore, cannot help the Revenue. There is no evidence with any of the authorities below that the assessee has made the sales of the production which have been produced by the assessee and had made sales outside the books of account. In the facts and circumstances of the case and to repeat our decision, the learned CIT(A) is not justified in confirming the invocation of provisions of section 145(3) of the Act and no additions can be made accordingly, as discussed hereinabove - Decided in favour of assessee Issues Involved:1. Rejection of books of account and application of Section 145(3) of the Income Tax Act, 1961.2. Addition based on assumed quantity of sale and estimation of scrap generation.3. Admission of additional evidence.4. Estimation of sale value and suppression of sales.5. Incorrect computation of returned income.Issue-wise Detailed Analysis:1. Rejection of Books of Account and Application of Section 145(3) of the Income Tax Act, 1961:The assessee argued that the Assessing Officer (AO) erred in rejecting the books of account and applying Section 145(3) based on insufficient material without pointing out specific discrepancies. The AO had noted variations in production ratios and high scrap generation. The assessee submitted revised figures, claiming initial errors were due to miscalculations by the accountant. The CIT(A) upheld the AO's rejection, noting that even without direct defects, higher wastage or low yield justified the rejection, citing precedents from the Punjab & Haryana High Court. The Tribunal found that the AO did not point out any defects in purchases, sales, or stock and that the revised figures tallied with the books of account. Therefore, the Tribunal concluded that the rejection of books was not justified and allowed the assessee's appeal on this ground.2. Addition Based on Assumed Quantity of Sale and Estimation of Scrap Generation:The AO made an addition of Rs. 17,31,59,753 based on assumed production and sales, estimating scrap generation at 4% and burning loss at 2.5%, contrary to the assessee's claim of 47.97% scrap and 10% burning loss. The CIT(A) partially upheld the addition, estimating scrap generation at 10% for angles and 5% for rods and flats, resulting in a sustained addition of Rs. 5,59,50,097. The Tribunal noted that the assessee's unit was excisable, and the Excise Department had accepted the production records. The Tribunal found no evidence of unaccounted purchases or sales, and the AO's reliance on a third-party comparison without confronting the assessee violated principles of natural justice. Consequently, the Tribunal dismissed the addition, allowing the assessee's appeal on this ground.3. Admission of Additional Evidence:The assessee sought to admit additional evidence in the form of a certificate from the General Manager, District Industries Centre, Jalandhar, regarding higher burning loss. The CIT(A) did not admit this evidence, stating it was based on empirical data rather than measurements at the assessee's factory. The Tribunal did not specifically address this issue, focusing instead on the overall reliability of the books of account and the lack of evidence for unaccounted transactions.4. Estimation of Sale Value and Suppression of Sales:The AO estimated the sale value based on closing stock rates, leading to an addition for suppressed sales. The CIT(A) disagreed with using closing stock rates and instead used average sale rates, resulting in a reduced addition. The Tribunal found the CIT(A)'s estimation to be arbitrary and unsupported by evidence, emphasizing that no defect was found in the assessee's records and that the Excise Department had accepted the production figures. The Tribunal allowed the assessee's appeal, rejecting the estimation of suppressed sales.5. Incorrect Computation of Returned Income:The assessee argued that the AO incorrectly computed the returned income at Rs. 9,29,133 instead of the actual nil income returned. The Tribunal found this claim to be correct and directed the AO to take the correct nil income as declared by the assessee.Conclusion:The Tribunal allowed the assessee's appeal, rejecting the rejection of books of account, the addition based on assumed sales and scrap generation, and the incorrect computation of returned income. The Tribunal dismissed the Revenue's appeal, upholding the assessee's arguments and findings.