1982 (2) TMI 99 - AT - Income Tax

ITAT upholds CIT (A)'s decision to set aside assessments due to discrepancies in financial statements

INCOME TAX OFFICER. Versus JETHANAND A. PAGARANI.

The ITAT upheld the CIT (A)'s decision to set aside the assessments for the years 1975-76 and 1976-77 due to discrepancies in financial statements, lack ... - Issues:Assessment of income from commission and interest for the years 1975-76 and 1976-77 based on lack of evidence, discrepancy in financial statements, and absence of confirmatory letters for loans shown as sundry creditors.Detailed Analysis:1. Assessment based on lack of evidence: The assessee, an Individual deriving income from commission and interest, filed returns declaring income for the years 1975-76 and 1976-77. The Income Tax Officer (ITO) observed that the assessee did not maintain proper books of accounts for the commission business, lacked evidence to support the business activity, and failed to explain the accumulation of opening capital. Consequently, the ITO proposed additions to the income for both years, leading to draft assessment orders under section 144B of the IT Act, 1961.2. Revised statements and IAC's decision: Subsequently, before the Income-tax Appellate Tribunal (ITAT), the assessee submitted revised Profit & Loss Account and balance sheets showing reduced sundry creditors. However, the Income-tax Appellate Commissioner (IAC) disregarded the revised statements as they were not presented before the ITO. The IAC approved the addition of a certain amount for the first year and allowed a set-off in the second year, resulting in a reduced addition for that year.3. Appeal to CIT (Appeals) and discrepancies in financial statements: The assessee appealed to the Commissioner of Income Tax (Appeals) contending that the original Profit & Loss Account was prepared hastily and inaccurately, leading to incorrect assessments. The CIT (A) noted material discrepancies between the balance sheets submitted to the ITO and IAC, emphasizing the need for reconciliation through scrutiny of bank accounts and personal examination of the assessee.4. Contentions before ITAT and decision: During the ITAT proceedings, the department representative argued against granting further opportunities to the assessee, citing multiple chances already provided for substantiating the case. In contrast, the assessee's representative supported the CIT (A)'s order, highlighting the challenges faced in obtaining confirmatory letters post-relocation and the absence of past records from Goa. The ITAT upheld the CIT (A)'s decision, acknowledging the discrepancies in the financial statements and the relevance of missing records from the assessee's past location.5. ITAT's decision and conclusion: After considering the arguments and evidence, the ITAT concurred with the CIT (A)'s findings, emphasizing the need for reconciliation due to conflicting Profit & Loss Accounts and the absence of crucial records before the ITO. Consequently, the ITAT upheld the CIT (A)'s order, dismissing the department's appeals and affirming the decision to set aside the assessments for both years.In conclusion, the ITAT's judgment emphasized the importance of accurate financial statements, reconciliation of discrepancies, and the necessity of relevant records for proper assessment, ultimately supporting the CIT (A)'s decision in setting aside the assessments for the years in question.