2012 (11) TMI 804 - AT - Income Tax

Tribunal reduces AO's addition, highlights bookkeeping importance for accurate tax assessment

The Tribunal partially allowed the appeal, reducing the addition made by the Assessing Officer (AO) and dismissing general grounds of appeal. The judgment ... Rejection of books – AO found discrepancies in gross receipts, non-payment of term loans and interest thereon, non-availability of inwards and outward register - Held that:- As concluding from the facts of the case assessee has not maintained books of account and other relevant documents, as are required under the Act. He has admitted that no in-ward or out-ward Stock Registers have been maintained for the storage. Therefore, no correct and true profits can be ascertained in absence of stock register. In favour of revenue Revenue on adhoc basis - 90% of net sanctioned capacity – Assessee earn income from hire charges of cold-storage - Cold Storage capacity being 3382.8 MT - AO, calculated the storage capacity of cold-storage at 67656 bags of 50kg each – Calculate revenue @ Rs. 40 per bag – Assessee contended that capacity utilization for such a plant was 34000 to 36000 bags, for which a storage rate of Rs.30/- to Rs.40/- per bag was received – Held that:- As concluding from the facts of the case it would be fair and reasonable to upheld the addition to the tune of Rs. 4,00,000/-, with a view to meet the ends of justice. Issue partly allowed in favour of assessee Issues Involved:1. Rejection of books of account under section 145(3) of the Income Tax Act, 1961.2. Upholding the addition of Rs. 10,68,860 made by the Assessing Officer (AO).Issue 1: Rejection of books of account under section 145(3) of the Income Tax Act, 1961:The appellant contested the rejection of their books of account by the Assessing Officer (AO) under section 145(3) of the Income Tax Act, 1961. The AO found discrepancies in the unaudited balance sheet filed by the appellant, including issues with gross receipts, outstanding loans, penalties, and lack of proper documentation. The AO concluded that the appellant had undisclosed investments, leading to the rejection of the books of account and estimation of income under section 144. The appellant argued that their accounts were audited, and nonpayment of interest should not warrant rejection. However, the Commissioner of Income Tax (Appeals) upheld the rejection, citing the absence of stock registers as a material ground, in line with the decision in CIT v British Paints India Ltd. The Tribunal concurred, noting the incomplete and incorrect nature of the books, leading to the dismissal of this ground of appeal.Issue 2: Upholding the addition of Rs. 10,68,860 made by the Assessing Officer (AO):The AO calculated an addition of Rs. 10,68,860 based on the storage capacity of the cold storage facility and estimated revenue. The AO's calculation was based on 90% capacity utilization and hire charges per bag. The appellant disputed this calculation, presenting their own capacity figures and utilization rates. The Commissioner of Income Tax (Appeals) upheld the addition, considering the AO's calculation reasonable. In the appellant's submission, they highlighted technical details regarding the cooling capacity of the equipment and discrepancies in the AO's inquiries. The Tribunal reviewed the submissions and decided to partially allow the appeal, reducing the addition to Rs. 4,00,000 to align with the appellant's contentions. Grounds 3 and 4, being general, were dismissed without separate adjudication.In conclusion, the Tribunal partially allowed the appeal, reducing the addition made by the AO and dismissing general grounds of appeal. The judgment emphasized the importance of maintaining accurate and complete books of account in compliance with statutory requirements, and the need for proper documentation and records to ascertain correct profits for tax assessment purposes.