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2015 (10) TMI 252 - RAJASTHAN HIGH COURT

2015 (10) TMI 252 - RAJASTHAN HIGH COURT - TMI - Rejection of Books of Account - Trading addition - whether where Books of Account are rejected, does it entitle the Assessing Officer to make an addition to the Trading results? - CIT(A) held that rejection of Books of Account by resorting to Section 145 of the Act, will not necessarily lead to addition to the Returned income, and accordingly deleted the Trading addition also confirmed by ITAT - Held that:- CIT(A) as well as the Tribunal, after ap .....

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he claim of the assessee that cost had increased, when specific material was placed, before the Assessing Officer. Though the Books of Account have been rejected, and proper estimation can certainly be made but it is no ground to make an addition in a case where the Assessing Officer was not able to come to further material or controvert the facts narrated by the assessee during the course of assessment proceedings. The Assessing Officer was unable to pinpoint as to any specific defect noticed d .....

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picion of pilferage or leakage were not justified. This conclusion was a finding of fact keeping in view that the additions in the profits and gains returned by the assessee were not a necessary concomitant of an order made under sections 145(1) or 145(2). Therefore, there was no error in the order of the Tribunal deleting the entire additions to the trading results after holding that the proviso to section 145(1) was applicable - Decided against revenue. - D. B. Income Tax Appeal No. 56/2015 - .....

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a Private Limited company and is deriving income by way of export of ready made garments. The assessee maintains closed and adjusted Books of Account and accounts are stated to be audited. 3. During the course of assessment proceedings, the Assessing Officer noticed that the Trading Results declared by the assessee were not proper and the Gross Profit rate had declined sharply from 28.14% to 16.22%. An explanation was sought, and it was narrated by the assessee that during the previous year, rel .....

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s not satisfied with the explanation so offered and rejected the Books of Account under Section 145(3) of the Income Tax Act, 1961 (for short 'the Act') and applied a G.P. rate of 25% and made a Trading addition of ₹ 32,86,536/-. Other additions were also made. 4. The matter travelled before the Commissioner of Income Tax (Appeals), who went into detailed facts and after considering the arguments raised by the respondent-assessee in the light of judgment of this court in the case o .....

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ed the addition. Hence this appeal. 6. Learned counsel for the revenue contended that when there was a sharp decline in the G.P. rate, as also the Books of Account were rejected being defective, and once the finding had been reached by the Assessing Officer that the books had to be rejected for so many reasons mentioned in the assessment order, then there was no material before the Assessing Officer except to resort to estimation to arrive at a proper assessment and to deduce proper profits, and .....

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proved by acceptable evidence. He further contended that substantial questions of law arise out of the order of Tribunal, which needs consideration. 7. We have considered the arguments advanced by the counsel for the revenue and have perused the impugned order as also the other orders. In our view the CIT(A) as well as the Tribunal, after appreciation of evidence on record and considering the facts have come to a definite finding of fact that the trading results were not required to be interfer .....

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ected, and proper estimation can certainly be made but it is no ground to make an addition in a case where the Assessing Officer was not able to come to further material or controvert the facts narrated by the assessee during the course of assessment proceedings. The Assessing Officer was unable to pinpoint as to any specific defect noticed during course of the proceedings except that the Books of Account were rejected on certain discrepancies. It was for the Assessing Officer to come out clearl .....

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) which has been considered by the Tribunal wherein it has been held ad infra :- The Assessing Officer had found that the trading accounts of the assessee for the assessment year 1986-87 were not backed up with the quantitative and qualitative stock details and that there was a considerable fall in the gross profit rate and invoked the provisions of Section 145(1) of the Act. The Assessing Officer was not convinced by the reason given by the assessee that the assessee had employed a method of ac .....

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not sustain the additions retained by the Commissioner (Appeals). On a reference : Held, that the Tribunal had reached the finding on the ground that, in the absence of any finding recorded by the Commissioner (Appeals) that the expenses incurred on any account appeared to be unreasonable or excessive, the additions sustained merely on suspicion of pilferage or leakage were not justified. This conclusion was a finding of fact keeping in view that the additions in the profits and gains returned .....

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