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TMI Blog2012 (10) TMI 474X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1 in the appeal of the assessee is as under :- 1) "The learned Commissioner of Income Tax (Appeals) has erred both of facts and in law in upholding the action of the learned Assessing Officer in rejecting the books of account regularly maintained by the appellant firm by wrongly invoking the provisions of section 145(3) of the Income Tax Act, 1961 and in estimating the income under the head 'Profit & gains of Business' and confirming the addition to the extent of Rs. 2,00,000/- on ad hoc basis." 2.1 In the course of hearing before us, the assessee furnished a revised ground in place of the aforesaid ground, it reads as under :- "The learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in upholding the acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 lacs without giving any cogent reasons and ignoring the analysis furnished by the AO in the assessment order. It will thus be seen that the grounds of the assessee and the revenue deal with the same issue. Therefore, these grounds are disposed off hereunder. 3. The Ld. Counsel submits that the accounts of the assessee had been rejected by the AO on the ground that valuation of opening stock is not in accordance with accounting standards and the sale made by the assessee is not verifiable. The assessee had shown sales at Rs. 9,55,992/-. The accounts show overall loss of Rs. 44,91,874/-. Against the aforesaid, the AO estimated the sales at Rs. 35,95,149/- and estimated profit @ 10% of sales at Rs. 3,59,514/-. In appeal, Ld. CIT(A) estimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds. It is argued that the loss primary occurred because old stock carried forward from assessment year 2004- 05, which could not be utilized in the process of manufacture, was partly liquidated in this year. Obviously the stock had to be sold at less than the cost price as it had become old. However, there is nothing in the accounts which makes them reliable. 3.4 In order to support his case, reliance is placed on the decision in the case of Sona Electric Company vs. CIT (1985) 152 ITR 507 (Del).The Hon'ble court held that section 68 makes it clear that the entry can be rejected if the explanation offered by the assessee can be rejected by the ITO on cogent grounds. When such grounds are themselves based on no evidence, the question on p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opening stock has been carried forward from the immediately preceding year at same value. Further, the closing stock has been valued at cost. The book result of this year show that realisable value will be lower than the value mentioned in the books. Thus the valuation has no negative impact on the overall result of this year. The assessee had also filed sale bills and account of the parties to whom sales were made by way of cheque. Cash sale form only about 17% of the total sales. The Ld. CIT(A) has recorded a finding that there is no error etc. in quantitative details. The books of account can be rejected on three grounds - i) Where the AO is not satisfied about the correctness or completeness of the accounts ii) where the method of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as bad debts. These amounts represent loan of Rs. 3.00 lacs to M/s. Herbal Gifts, and security deposit with Kinley Water of Rs. 2,470.- and security deposit for electricity meter of Rs. 16,300/-. It is held that loan to M/s. Herbal Gifts is not a debt which can be considered as bad debt u/s 36(1) (vii), as it is in the nature of loan and has not been considered a profit in any earlier year. In another words, the loss is a capital loss. The other two amounts have also been held to be capital losses. 6.2 Before us, Ld. Counsel submitted that the losses are incidental to carrying on business and not capital losses. Advance was given to M/s Herbal Gifts for sales promotion, which could not be recovered. Similarly, security deposits placed w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been written off in this year. The fact on record as mentioned above in the submissions before the Ld. CIT(A) do not lead to the conclusion that the amount was advanced long back for promoting the business. In fact past accounts have not been filed and in particular the account for the year in which the money was advanced has also not been furnished. Therefore, the contention that the amount was given for promoting business is not substantiated. In this situation, we uphold the finding of the Ld. CIT(A) that this amount represents loan as shown in the accounts. Consequently we also agreed with her that the amount cannot be allowed as the transaction is in the capital field. 7.2 The other two amounts are stated to be security deposits, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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