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2016 (7) TMI 915 - GUJARAT HIGH COURT

2016 (7) TMI 915 - GUJARAT HIGH COURT - [2016] 388 ITR 237 - Rejection of books of accounts - ITAT allowed the rejection - Held that:- The Commissioner (Appeals) examined each discrepancy pointed out by the Assessing Officer and after giving detailed reasons in respect thereof, found that none of the eight grounds taken by the Assessing Officer for rejecting the books of account are valid also confirmed by ITAT. - Assessing Officer was not justified in rejecting the books of account of the a .....

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the absence of any perversity being pointed out in the findings of fact recorded by the Tribunal after appreciating the material on record, the conclusion arrived at by the Tribunal being based upon findings of fact, does not give rise to any question of law, much less, a substantial question of law warranting interference. - Decided against revenue - Tax Appeal No. 412 of 2016 - Dated:- 6-5-2016 - Harsha Devani And G. R. Udhwani, JJ. For the Appellant : Mr Sudhir M Mehta, Advocate For the Oppo .....

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law, the Income Tax Appellate Tribunal was correct in arriving at the conclusion that the Assessing Officer has no sufficient material to reject the books of account by invoking section 145 of the I. T. Act and deleting the addition though the Assessing Officer has elaborately brought on record the defects noticed during the course of assessment proceedings and work in progress valued by the Assessing Officer has been found correct? 2. The case of the assessee was picked up for scrutiny assessme .....

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g the same as suppression of gross profit. He further disallowed interest of ₹ 1,88,84,000/- and depreciation of capital goods of ₹ 62,23,134/- and computed the book profit at ₹ 2,15,36,320/- as against the book profit of ₹ 2,02,69,269/- as declared by the assessee. The assessee carried the matter in appeal before the Commissioner (Appeals), who, after considering the submissions of the assessee, deleted the addition made on account of estimation of gross profit by holdin .....

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oper perspective while upholding the order of the Commissioner (Appeals) and holding that the books of account had wrongly been rejected by the Assessing Officer. The attention of the court was invited to the findings recorded by the Assessing Officer, to point out that the Assessing Officer had noted as many as eight discrepancies in the books of account maintained by the assessee for the purpose of coming to the conclusion that the books are not reliable. It was submitted that in these circums .....

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ere is always a certain degree of guess work. No doubt, the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to be blamed as he did not submit proper accounts. It was, accordingly, urged that the appeal does give rise to a substantial question of law as propose .....

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al, the impugned order does not give rise to any question of law. Various other contentions have also been raised on the merits of the findings recorded by the Commissioner (Appeals). However, it is not necessary to refer to the same in detail. 5. The record of the case reveals that the Assessing Officer found, in all, eight discrepancies in the books of account maintained by the assessee and rejected the books of account as not reliable. The Commissioner (Appeals) examined each discrepancy poin .....

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fit (in %) 8.90% The Assessing Officer has not even once doubted or made any adverse remarks with reference to the yield of yarn/grey cloth of the appellant company. This would mean that the Assessing Officer has fully accepted the purchase, sales, consumption, shortage, etc., of the appellant company. The Assessing Officer could not quantify any particular item of deduction as disallowable item for the tax purposes. In other words, Assessing Officer could not pinpoint any specific item in the w .....

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the Assessing Officer is restricted to only addition on account of undervaluation of work-in-progress in the closing stock to the extent of ₹ 1,15,63,596/-. Hence, the addition is sustained only to the extent of ₹ 1,15,63,596/- as undervaluation in work-in-progress and the balance is deleted. This ground of appeal is, therefore, partly allowed. 6. The Tribunal, after appreciating the material on record, concurred with the findings recorded by the Commissioner (Appeals) and held thus .....

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ejecting the books of accounts estimated the profit. It was incumbent upon the AO when he rejected the books of accounts, he had to make the assessment in the manner prescribed under section 144 of the Act. As per this provision, the AO after taking into account all relevant material which he had gathered and was required to give the assessee an opportunity of being heard before making the assessment, of the total income or loss to the best of his judgment and determine the sum payable by the as .....

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AO did not give any finding on this aspect. However, the learned CIT (A) accepted the contention of assessee after verifying the details furnished before him. The basic factor for fall in G.P. in the case of the assessee was found to be increase in crude oil price and decline in realization of POY Yarn sale as per learned CIT (A). This finding on fact is not rebutted by the Revenue. Further, we find merit in this contention of the assessee that the gross profit would fall if the sale of price re .....

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of decreasing. We are of the view that such reasoning cannot be universally applied and becomes fallacious in certain conditions. In the case in hand, the assessee is a company subjected to internal audit as well as statutory audit. The auditors have not pointed out any defect and/or there is no adverse remarks. The AO has not made any adverse comment upon sale & purchase. Undisputedly, no defect has been noticed by the Central Excise Department in the registers maintained under the Central .....

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icular item of account is found to be not correct or complete, the AO is required to find out its impact on the profit of the assessee, if it is found that there is no impact or very minuscule impact on profit. Such defect becomes insignificant. In such a situation, there would be no need of rejection of entire books of accounts, the AO would be justified to make addition into the profit to the extent of such item. The law is well settled that the insignificant defects in the books of accounts s .....

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