2014 (7) TMI 508

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....lation to the two years, and the issues arising for adjudication there-under being common, the same were posted for and, accordingly, heard together, and are being disposed of vide a common, consolidated order. 2.1 In the verification proceedings, initiated with the issue and service of notices u/s. 143(2), the assessee's, a printer and publisher of specific periodical magazines, consolidated results; it operating through two Divisions, i.e., 'Spenta Multimedia' and 'Spenta Print', were observed to be as under: (Amt in Rs. lacs) Particulars A.Y. 2007-08 A.Y. 2008-09 Turnover 3513.42 4475.85 Gross profit (GP) 1443.17 1765.02 GP (%) (*) 41.08 (**) 37.88   (*) reckoned after adjusting the gross profit for the income from th....

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....te of 1.39%. For A.Y. 2008-09, the assessment was made by reckoning the GP rate at 40%. Further, defects/discrepancies in the books of account had been observed for both the years, rendering them as not reliable for the purpose of computing the assessee's business income and, consequently, for estimation of income upon invocation of section 145(3) of the Act. 2.2 In appeal, the assessee reiterated its stand, clarifying that there were valid and genuine reasons for the decline in the gross profit for the relevant year/s, i.e., with reference to the preceding years, being principally a higher increase in the input costs, as wages, vis-à-vis the revenue, which by itself could not lead to the rejection of its accounts u/s. 145(3) of the....

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....ave heard the parties, and perused the material on record. The law in the matter is well settled. The initial onus to explain and substantiate its accounts, which is only its' evidence in support of its return of income (ROI), is on the assessee. However, before the assessing authority disregards the same (accounts) as the basis of the assessee's income (under the heads of income 'Profits and gains of business or profession' or 'Income from other sources') for any year, and proceeds to apply his best judgment for assessment of income, he ought to arrive at a finding as to the non satisfaction with the correctness or completeness of the same (accounts). The specific instances toward the same, as found by the A.O., work to Rs. 2,234/- and Rs.....

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.... invocation of section 145(3). In the present case, we find no cause/s to have been located which could form the basis of the A.O.'s dissatisfaction with the assessee's accounts in terms of section 145(3). The ld. CIT(A) has thus rightly held that there was no warrant for the application of section 145(3) in the present case for both the years. Continuing further, however, having so opined, he in our view fell in error in estimating the assessee's income (at an increase of Rs. 5 lacs and Rs. 10 lacs over the returned income) for the two consecutive years respectively. His action, which is without any basis on facts being communicated, is without any legal basis in-as-much as the same (estimation) could only be upon and subsequent to a vali....