TaxTMI 
TaxTMI 
2004 (9) TMI 331
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....giving gross profit rate of 7.34% in the immediately preceding year. The Assessing Officer after rejecting the accounts under section 145 of the Income-tax Act, 1961 estimated the sales at Rs. 5,70,00,000 and applied gross profit rate of 6.5% thereby making trading addition of Rs. 6,14,696. The ld. Commissioner of Income-tax (Appeals) confirmed the action for the reason that the appellant had not maintained day-to-day stock register and quantitative details of goods purchased and sold. Therefore, the trading results shown cannot be taken as verifiable and the provisions of section 145 are definitely applicable to the appellant's case. The increase in sales was not considered as a reason alone to explain the steep fall in the gross profit rate from 7.34% to 5.47% in the year under appeal. He, therefore, confirmed the action of the Assessing Officer. 4. Assessee's counsel contends that the details of stock have been maintained by the assessee in the ledger account itself. The same was produced before the Assessing Officer. The accounts of the assessee are duly audited. The return was accompanied by the auditors report. Complete quantitative details for opening stock, purch....
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....ertion in writing is only to facilitate the Tribunal to arrive at the proper conclusion. The same should not be read as an evidence to decide the appeal of the assessee. This position was not opposed by the ld. Departmental Representative. The appeal was allowed to proceed further. 6. The ld. Departmental Representative further contends that the ld. Commissioner of Income-tax (Appeals) has already given a finding that the assessee has maintained the quantitative details monthly. No day-today account has been kept. No stock register was produced. Non-maintenance of production account can be a reason for rejecting the accounts of the assessee. Reliance has been placed on the decisions of Bastiram Narayandas Maheshri v. CIT [1994] 210 ITR 438 (Mum.), and Ratanlal Om Prakash v. CIT [1981] 132 ITR 640 (Ori.). It has been contended that absence of stock register is one of the factors for rejecting the accounts of the assessee. For this proposition, reliance has been placed on the following decisions: (1) S.N. Namasivayam Chettiar v. CIT [1960] 38 ITR 579 (SC) (2) CIT v. Pareck Bros. [1987] 167 ITR 344 (Pat.). 7. In rejoinder, the assessee's counsel contends th....
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.... the case of Bastiram Naraindas and the Hon'ble Orissa High Court in Ratanlal Omprakash, were rendered in the context of non-maintenance of production record for rejecting the accounts. The assessee is merely a trader and it is not the case that the day-to-day stock tally cannot be made out from the records maintained by the assessee. Both these decisions cannot be made applicable to the facts of the case before us. 8. In S.M. Namasivayam Chettiar the Tribunal was found to have held that the correct profits of the assessee could not be deduced from the books produced for several reasons. One of such reasons was that quantitative tally was not available and it was not possible to verify assessee's accounts. Non-maintenance of stock register, therefore, was held to be of great importance amongst other reasons for rejecting the accounts. However, in the case before us, complete quantitative tally is available. Even if the assessee has not maintained a stock register, that cannot be a reason alone to reject the accounts of the assessee as has been held in the case of Pandit Bros. v. CIT [1954] 26 ITR 159 (Punj.). It is only when quantitative tally is not there, provisions of....
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....s duly sworn in by the two ladies, viz. Smt. Poonam and Smt. Padma were filed before the Assessing Officer, copies placed at APB 109 & 110. These affidavits are duly sworn before the Notary at Ajmer. The Assessing Officer was also requested to issue summons through assessee's letter dated 13-3-2000 and offered to charge cost so as to facilitate the examination or in the alternative an Inspector may be deputed for the purpose. He relied upon the decision of Hon'ble Supreme Court in the case of Mehta Pareek & Co. v. CIT [1956] 30 ITR 181. The Assessing Officer did not pay any heed to the request of the assessee. As regards the third credit in the name of Smt. Neha Joshi a similar request was made. It was, therefore, contended that under the circumstances no addition was warranted. 12. On the other hand, the ld. Departmental Representative contends that the assessee has not discharged the onus of proving its capacity and genuineness of the credits. He relied on the orders of the authorities below. It was further contended that the assessee has already been allowed telescoping and, therefore, there remains no separate addition for adjudication. The ground of the assessee, th....
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....e him. Under such circumstances and keeping in view the quantum of business, we consider it reasonable to restrict the disallowance on account of telephone expenses at Rs. 1,500 as against Rs. 4,000 out of total expenses of Rs. 8,020. The other disallowances for vehicle expenses and depreciation, being reasonable, no interference is considered necessary. 17. In the result the appeal of the assessee stands partly allowed. ITA No: 133/JP/2001 Per Shri Dinesh K. Agarwal, Judicial Member. 1. I have gone through the proposed order of ld. Accountant Member. I am unable to concur with the finding arrived at by him in holding that (Para 10): "10.... We, therefore, hold that the rejection of accounts made by the Assessing Officer and confirmed by the Id. Commissioner of Income-tax (Appeals) is without proper appreciation of the correct facts of the case and thus the ld. Commissioner of Income-tax (Appeals) has erred in upholding the action for rejection of the accounts as well as the estimation of income by estimating the sales and applying a gross profit rate of 6.5% which is found to be without any basis or material in his possession. We, therefore, direct the Assessi....
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.... one place. (3) Any change in an accounting policy which has a material effect in the previous year or in the years subsequent to the previous years shall be disclosed. The impact of, and the adjustments resulting from, such change, if material, shall be shown in the financial statements of the period in which such change is made to reflect the effect of such change. Where the effect of such change is not ascertainable, wholly or in part, the fact shall be indicated. If a change is made in the accounting policies which has no material effect on the financial statements for the previous year but which is reasonably expected to have a material effect in any year subsequent to the previous year, the fact of such change shall be appropriately disclosed in the previous year in which the change is adopted. (4) Accounting policies adopted by an assessee should be such so as to represent a true and fair view of the state of affairs of the business, profession or vocation in the financial statements prepared and presented on the basis of such accounting policies. For this purpose, the major considerations governing the selection and application of accounting policies are t....
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....ious year together with their nature and amount in a manner so that their impact on profit or loss in the previous year can be perceived. (8) Extraordinary items of the enterprise during the previous year shall be disclosed in the profit and loss account as part of taxable income. The nature and amount of each such item shall be separately disclosed in a manner so that their relative significance and effect on the operating results of the previous year can be perceived. (9) A change in an accounting policy shall be made only if the adoption of a different accounting policy is required by statute or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statements by an assessee. (10) Any change in an accounting policy which has a material effect shall be disclosed. The impact of, and the adjustments resulting from such change, if material, shall be shown in the financial statements of the period in which such change is made to reflect the effect of such change. Where the effect of such change is not ascertainable, wholly or in part, the fact shall be indicated. If a change is made in the account....
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....tion of the financial statements of one or more previous years: Provided that the charges or credit arising on the outcome of a contingency, which at the time of occurrence could not be estimated accurately shall not constitute the correction of an error but a change in estimate and such an item shall not be treated as a prior period item. This notification shall come into force with effect from 1st day of April, 1996, and shall, accordingly, apply to the assessment year 1997-98 and subsequent assessment years. [Notification No. SO 69(E), dated 25th January, 1996]." In view of the above Notification, the accounting standards, as mentioned above, are applicable with effect from 1st April, 1996 and shall, accordingly, apply to the assessment year 1997-98, i.e., the assessment year under appeal. 4. Therefore, in brief, under the provisions of section 145, the Assessing Officer can reject the accounts and make a best judgment assessment under section 144 in any of the following three circumstances: (i) If the method of accounting adopted is neither pure cash nor pure mercantile, in other words, if a mixed method of accounting is adopted. (ii) I....
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....the copy of other ledger account of all the items dealt with, except the account of poultry feed has not been furnished. In the absence of these details, particulars of valuation and in view of the fact that the ld. counsel of the assessee has not addressed as to how the provisions of section 145(3), as applied by the CIT(A) are not applicable, I am of the view that the accounts of the assessee cannot be accepted and the CIT(A) was fully justified in upholding the rejection of books of account and has correctly applied the provisions of section 145(3) in this case. I also find that the assessee has disclosed gross profit rate at 5.47 per cent on the total sales of Rs. 5,65,17,690 as against 7.34 per cent in the assessment year 1996-97 and 8,30 per cent in the assessment year 1995-96. The Assessing Officer has estimated the sales at Rs. 5,70,00,000 and applied a gross profit rate at 6.5 per cent, which cannot be considered to be unreasonable in view of the various deficiencies as pointed out by the Assessing Officer and non-maintenance of accounts as per notified accounting standards and also the past records of the case. Under these circumstances, no interference is called for in t....
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....ount of difference between them, have referred this matter to me under section 255(4) of the Income-tax Act. The learned Members have different perception of controversy as is reflected from different questions referred to by the learned Members. The questions referred are as under:- Question per Shri B.R. Jain, Accountant Member Under the facts, findings and on the basis of material on record and without hearing the assessee on the aspect as to whether he has followed the accounting standards or not or even without pointing out which accounting standard has not been followed, whether the application of provisions of section 145(3) is justified and if so whether on facts the addition of Rs. 6,14,616 can still be sustained? Question per Shri Dinesh K. Agarwal, Judicial Member Whether on the facts and in the circumstances of the case and also in law, it is justified to hold that "the ld. CIT(A) has erred in upholding the action for rejection of accounts as well as the estimation of income", when the ld. CIT(A), under his co-terminus powers, has specifically invoked the provisions of section 145(3) which is applicable with effect from 1-4-1996, rele....
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....are definitely applicable to the appellant's case. At the appellate stage, the learned counsel has filed month-wise quantitative details of poultry feed, deoiled cake, rice bran, marble chips etc. However, no stock register maintained on day-to-day basis has been produced in support of these details. Moreover, such details were not filed before the Assessing Officer at the assessment stage in spite of sufficient opportunity given to the appellant and, therefore, the same could not be subjected to any scrutiny. The G.P. shown at 5.47% is very low as compared to G.P. shown in the immediately preceding year at 7.34%. It is true that there is increase in the turnover from Rs. 3,81,54,883 in the assessment year 1996-97 to Rs. 5,65,17,690 in the assessment year 1997-98, in question. But this fact alone does not explain steep fall in the gross profit from 7.34% in the assessment year 1996-97 to 5.47% in the assessment year 1997-98, in question. The Assessing Officer after taking into consideration the facts and material on record and all other relevant factors, estimated the sales at Rs. 5,70,00,000 and applied the G.P. rate at 6.5% which cannot be considered unreasonable or excessive....
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....countant Member in the proposed order, deleted the impugned addition. He held that the Assessing Officer did not express any inability to gather proof of the case in the assessment order. He did not go for special audit as provided under section 142(2A) of the Income-tax Act. No defect in the accounts maintained was stated in the impugned order. There was further no change in the method of accounting employed by the assessee. Value of stock was duly reflected in the report of the auditors filed with the return. Quantity in bags is reflected in the ledger account of the opening stock, sales and purchases. No purchase or sale outside the books of account has been reported. The learned AM did not attach any importance to the fact that no separate day-to-day register was maintained by the assessee as in his view all relevant details were available in the ledger and were filed before the Assessing Officer. He held that the CIT(A) was not justified in confirming the order of the Assessing Officer. The learned AM distinguished the decision of Hon'ble Bombay High Court in the case of Bastiram Naraindas Maheshri as also that of Hon'ble Orissa High Court in the case of Ratanlal Ompra....
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....Book. Even weight of bags of different items was not mentioned. The assessee merely furnished month-wise quantity of a commodity dealt with without disclosing unit of quantity in terms of weight or otherwise. Further counsel for the assessee could not address as to how provisions of section 145(3) as applied to by the learned CIT(A) were not applicable. He held that rejection of books of account in terms of provisions of section 145(3) was fully justified. He also held that the rate applied by the revenue authorities to determine the assessee's income was quite reasonable. With the above observations, the learned JM confirmed the addition in dispute as per the proposed order. 9. The hearing of the case was once again fixed and Shri B.L. Meena for the revenue and Shri Mahendra Gargia for the assessee have been heard. Respective orders of the learned Members were relied upon and supported by the parties. 10. After careful consideration of the relevant material in the light of submissions advanced before me, I am inclined to agree with the learned AM. The assessee is a dealer of poultry feed on wholesale basis. It submitted its return with the tax audit report. The auditors ....
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....ly sub-section (3) of section 145 which was invoked by the learned CIT(A) for the first time. The basis of rejection of books of account was non-maintenance of day-to-day stock register and quantitative details of goods purchased and sold. No reference whatsoever was made to the Notification applying accounting standards in case of assessee's maintaining books on mercantile basis. Thus when the revenue authorities had not analyzed application of accounting standards, it was not possible for the Tribunal to see application of those standards at its level for the first time. The result is that the learned JM could not record clear finding as to which of the three circumstances indicated by him in para 4 of his proposed order, was applicable in this case. He has merely observed that the accounts of the assessee could not be accepted and counsel for the assessee did not address as to how provisions of section 145(3) are not applicable to the case; the assertions not supported by facts on record. 12. On careful consideration of the relevant material, I reiterate that the observations made in the proposed order of the learned JM are not factually correct. As noted earlier, the ass....