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2017 (3) TMI 1029 - AT - Income TaxRejection of books of accounts - enhancement of NP rate - assessee has shown purchase of material in the last week of March, 2006 which have been claimed to have been consumed and as a result no closing stock has been shown - Held that:- As per AO though the books of accounts have been maintained and audited at the same time, the assessee has failed to provide the necessary explanation regarding non-disclosure of closing stock out of material purchased at the fag end of the accounting year which has resulted in a situation where the profits cannot be determined correctly, where the material is purchased and consumed in the financial year, the same can be claimed as an expenditure. However, where the material is purchased and not consumed during the financial year, the same has to necessarily form part of the closing stock and to that extent it cannot be claimed as an expenditure. This is a well accepted accounting methodology which is followed for determination of true profits at the end of the year for tax purposes. What is therefore relevant is the books of accounts should be maintained in such a manner that the correct profits can be deduced therefrom. It is no doubt true that the closing stock of one year will form part of the opening stock of the next year, at the same time, the assessee has to determine and disclose its true and correct profit & loss situation for each year. The continuity of the transaction as well as the inter-connection between various transactions cannot be a basis to distort the state of affairs belonging to a particular financial year. Thus we are of the considered view that the assessee has failed to provide satisfactory explanation regarding non-disclosure of closing stock out of the purchases made towards the fag end of the year and the ld. CIT(A) giving specific instances of such cases, the books of accounts have been rightly rejected by the Assessing Officer and confirmed by the ld. CIT(A). Regarding the estimation of profits - AO has estimated the net profit rate @ 11% on contract receipt (subject to Interest, Salary to partners and Depreciation) - Held that:- In the instant case, it is true that the books of accounts have been rejected at the same time, there has to be a fair estimation taking into consideration of relevant material as well as past history of the assessee. In the instant case, though no basis has been given by the Assessing Officer at the same time, the ld. CIT(A) after going through the purchases made by the assessee towards cement and TMT Bars and MS Bars has held that the assessee is inflated the consumption of material by at least ₹ 10 lac. In our view, we find the observations of ld. CIT(A) to be fair, reasonable and based on specific material available on record which have not been controverted by the assessee. Thus we confirmed the addition of ₹ 10 lac confirmed by the ld. CIT(A). The depreciation being statutory allowance, the adhoc disallowance of 10% of the depreciation is deleted.
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