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2018 (10) TMI 63 - HC - Income TaxRejection of books of accounts - GP estimation - difference in net loss of ₹ 16.41 lacs as compared to net profit of ₹ 1.34 crores in the Assessment Year 2006-07. Held that:- Reasons given by the Assessing Officer for rejecting the book results have not been accepted by the appellate authorities. Reasons and explanation given by the respondent-assessee regarding opening/closing stock, amount written back etc. have been accepted. It is not the case that the method of accounting deployed was not regularly followed or it was not possible to deduce profit and gains from the method deployed. The Assessment Order is silent and does not comment and state that the books of accounts were incomplete, incorrect or unreliable. If there is fall in the gross profit ratio, reasons and grounds given by the respondent/assessee have to be examined objectively, fairly and in a non-partisan manner. Past results could be a good reason to conduct detailed verification, albeit would not be the only ground and reason to make addition by rejecting the books of accounts. Good and cogent reason why the financial results should be rejected has to be given. Books of accounts cannot be rejected as the assessee has suffered losses, where as in the immediate earlier year profit was made. Fall in gross profit ratio could be due to various reasons, and cannot be the sole and only ground to reject the book results in entirety and frame best judgment assessment [see Commissioner of Income Tax-XII v. Poonam Rani 2010 (5) TMI 57 - DELHI HIGH COURT], Action Electricals v. Deputy Commissioner of Income Tax [2002 (7) TMI 64 - DELHI HIGH COURT]. The reasoning given in the assessment order to compute income on hypothetical basis by applying gross profit ratio of 4% is completely fallacious, wrong and is contrary to well-settled law, as expounded vide judgments reported as Commissioner of Income Tax, West Bengal v. Calcutta Discount Co. Ltd. [1973 (4) TMI 6 - SUPREME COURT]
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