Rejection of books and statutory-liability disallowance sustained where records were incomplete and wrong section citation was not decisive.

Rejection of books of account was upheld where the assessee failed to produce complete accounts and supporting records despite repeated s, and a revised gross profit rate was sustained on the facts because the assessee's sick-company status and BIFR reference showed the current year could not be compared mechanically with the earlier year. Deletion of the addition for unpaid statutory liabilities was set aside because a wrong section cited in the assessment order did not, by itself, defeat an otherwise sustainable disallowance; the matter was remanded to the Assessing Officer for fresh adjudication after hearing the assessee.

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Issues: (i) whether rejection of the books of account and adoption of a revised gross profit rate was justified; (ii) whether the deletion of the addition relating to unpaid statutory liabilities on the ground of mention of a wrong section was sustainable.

Issue (i): whether rejection of the books of account and adoption of a revised gross profit rate was justified

Analysis: The assessee did not produce complete books of account and relevant supporting records despite opportunities, and the inability to produce them continued before the first appellate authority as well. In such circumstances, rejection of the books of account was justified. On the question of profit rate, the assessee's sick-company status and its reference before BIFR constituted a relevant circumstance showing that the current year could not be equated mechanically with the preceding year, and a reduced gross profit rate was warranted on the facts.

Conclusion: The rejection of books was upheld and the application of a 4% gross profit rate was sustained, which was against the assessee and in favour of the Revenue on this issue.

Issue (ii): whether the deletion of the addition relating to unpaid statutory liabilities on the ground of mention of a wrong section was sustainable

Analysis: The audit report disclosed irregularities in the payment of statutory dues, which could call for disallowance under the appropriate provision, including Section 43B of the Income-tax Act, 1961 or the relevant provisions of Chapter XVII-B of the Income-tax Act, 1961. The mere fact that the assessment order referred to an incorrect section was not, by itself, a valid basis to delete the addition without examining whether the disallowance was otherwise sustainable on merits. The matter therefore required fresh consideration by the Assessing Officer after giving an opportunity of hearing.

Conclusion: The deletion was set aside and the issue was remanded to the Assessing Officer for fresh adjudication, which was in favour of the Revenue for purposes of remand.

Final Conclusion: The appeal succeeded only to the extent of the remand on the statutory-liability addition, while the rejection of books and the reduced gross profit rate were sustained.

Ratio Decidendi: Rejection of books is justified where complete accounts and supporting records are not produced, and an addition cannot be deleted merely because the Assessing Officer mentioned the wrong section if the disallowance is otherwise sustainable on the facts and in law.

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