2014 (5) TMI 521 - HC - Income Tax

High Court upholds ITAT decision on Income Tax appeal for AY 2005-2006, emphasizes verifiability of accounts

The High Court dismissed the Income Tax Department's appeal against the ITAT order for AY 2005-2006. The Court upheld the ITAT's decision to accept the ... Admission of appeal - Rejection of books of accounts u/s 145(3) of the Act - Cash memo for individual sales was not issued – Held that:- It is not necessary that a cash memo is required to be issued for each and every sale - books of accounts could not be rejected on the sole ground that only one consolidated cash memo was issued at the end of the day – Relying upon Ramji Lal and Sons Vs. Commissioner Sales Tax [1978 (5) TMI 116 - ALLAHABAD HIGH COURT] - the order of the AO rejecting the books of account u/s 145(3) of the Act and consequently, making an addition of the income on estimate basis was reversed by the Tribunal - addition made on estimate basis is a question of fact as decided in COMMISSIONER OF CUSTOMS (IMPORT) Versus STONEMAN MARBLE INDUSTRIES & ORS. [2011 (1) TMI 15 - SUPREME COURT OF INDIA] – no substantial question of law arises for consideration – Decided against Revenue. Issues:Appeal by Income Tax Department under Section 260A against ITAT order for AY 2005-2006 - Rejection of books of account under Section 145(3) for estimation of gross profit - Acceptance of books of account and gross profit by ITAT - Justification of rejection of books of account by AO - Verifiability of stock registers - Necessity of issuing cash memos for each sale - Legal precedents regarding rejection of books of account - Addition of income on estimate basis - Question of fact regarding addition on estimate basis.Analysis:The High Court heard an appeal filed by the Income Tax Department under Section 260A against the order passed by the Income Tax Appellate Tribunal for the assessment year 2005-2006. The case involved the rejection of books of account by the Assessing Officer under Section 145(3) for estimation of gross profit. The assessee, engaged in the business of liquor sale, filed a return disclosing income and claiming a refund. The AO, after scrutiny, computed the total income at a higher amount, citing lower disclosed profit. The AO rejected the books of account due to issues like issuing consolidated cash memos and unverifiable stock registers.During the appeal, the Tribunal accepted the books of account and affirmed the gross profit indicated by the assessee. The Income Tax Department challenged this decision, arguing that the AO was justified in rejecting the books of account due to the manner of issuing cash memos. The Department contended that issuing a single cash memo daily was insufficient. However, the assessee defended the procedure, stating it was adequate for petty sales and that the books were verifiable through stock registers.The High Court, after considering arguments from both sides, ruled that the rejection of books of account solely based on consolidated cash memos was unjustified. Citing legal precedents, the Court emphasized that failure to issue separate cash memos for each sale does not warrant rejection of books if they are otherwise verifiable. The Court referred to cases where similar issues were addressed, highlighting that the addition of income on an estimate basis is a question of fact.Consequently, the High Court dismissed the appeal at the admission stage, finding no substantial question of law for consideration. The Court upheld the Tribunal's decision to accept the books of account and gross profit indicated by the assessee, emphasizing the importance of verifiability and legal precedents in such matters.