1993 (12) TMI 28 - HC - Income Tax

Rejection of assessee's books under section 145(2) upheld; best-judgment assessment valid due to deficient vouchers, records

Awadhesh Pratap Singh Abdul Rehman And Brothers Versus Commissioner Of Income-Tax

The HC upheld the Tribunal's factual finding that the assessee's books could be rejected under section 145(2) and a best-judgment assessment validly made. ... Application of section 145(2) - best judgment assessment - Whether the Income-tax Appellate Tribunal misdirected itself and committed an error of law in holding that, on facts, the provisions of section 145(2) of the Act - HELD THAT:- The vouchers of expenses were also not forthcoming and the income returned was ridiculously low as compared to the exorbitant turnover and the extent of the business carried on by the assessee. It is difficult to catalogue the various types of defects in the account books of an assessee which may render rejection of account books on the ground that the accounts are not complete or correct from which the correct profit cannot be deduced. Whether the presence or the absence of a stock register is material or not would depend upon the type of business. It is true that absence of the stock register or cash memos in a given situation may not per se lead to an inference that the accounts are false or incomplete. However, where the absence of a stock register, cash memos, etc., is coupled with other factors like vouchers in support of the expenses and purchases made not being forthcoming and the profits being low, may give rise to a legitimate inference that all is not well with the books and the same cannot be relied upon to assess the income, profits or gains of an assessee. In such a situation, the authorities would be justified to reject the account books under section 145(2) of the Act and to make the assessment in the manner contemplated in those provisions. The material on which the rejection of account books was sustained in the case on hand was relevant material. Taking all these aspects and the material into consideration, the Tribunal has found as a fact that the claim of the assessee for acceptance of the account books was not sustainable. On the findings of fact recorded by the Income-tax Appellate Tribunal, in our opinion, its order does not give rise to any question of law to direct the Tribunal to make a reference to this court. In our opinion, the findings of the Income-tax Appellate Tribunal do not suffer from any legal infirmity which are based on appreciation of facts. Issues involved: Application u/s 256(2) of the Income-tax Act, 1961 regarding misdirection by the Income-tax Appellate Tribunal in applying section 145(2) for best judgment assessment.Judgment Summary:The High Court considered an application u/s 256(2) of the Income-tax Act, 1961, questioning the application of section 145(2) for best judgment assessment by the Income-tax Appellate Tribunal. The Assessing Officer found defects in the account books of the assessee, leading to the conclusion that they were neither correct nor complete. The absence of verifiable purchases and sales, lack of vouchers for expenses, missing stock register, and inability to provide retail sale prices of liquor were noted. The Assessing Officer invoked section 145(2) and proceeded with best judgment assessment, a decision upheld in subsequent appeals. The Tribunal observed the incredibility of the reported income compared to the turnover and upheld the rejection of account books. The Court noted that the findings were not challenged, and the contention that section 145(2) was not applicable due to unverifiable sales or expenses was insufficiently supported. The absence of a stock register, cash memos, and supporting vouchers, combined with low profits, justified the rejection of account books under section 145(2) for accurate assessment. The Tribunal's decision was deemed legally sound based on factual evaluation, leading to the rejection of the application with costs.In conclusion, the High Court upheld the Tribunal's decision to reject the account books under section 145(2) for best judgment assessment, emphasizing the importance of verifiable records and supporting documentation for accurate income assessment.