JUDGMENT ASSESSMENT--No stock register maintained nor sales verifiable due to absence of cash memos--No vouchers of expenses and purchases and though turnover is high, low profits shown--Rejection of accounts and assessment under s. 144.
Held :
The amount books were rejected because no stock register was maintained nor the sales were found verifiable in absence of the cash memos. The vouchers of expenses were also not forthcoming and the income returned was ridiculously low as compared to the exorbitant turnover and the extent of the business carried on by the assessee. It is true that absence of stock register or cash memos in a given situation may not per se lead to an inference that accounts are false or incomplete. However, where absence of a stock register, cash memos, etc., if coupled with other factors like vouchers in support of the expenses and purchases made are not forthcoming and the profits are low.
Conclusion :
In the absence of material to verify stock and sales rejection of accounts and consequent assessment under s. 144 justified.
Application :
Also to current assessment years.
Income Tax Act 1961 s.145(2) Income Tax Act 1961 s.144 Reference--QUESTION OF FACT--Best judgment assessment rejecting account books under s. 145(2)--Claim of assessee to accept its account books held unsustainable by Tribunal by considering all material relevant.
Held :
The account books were rejected because no stock register was maintained nor the sales were found verifiable in absence of the cash memos. The vouchers of expenses were also not forthcoming and the income returned was ridiculously low as compared to the exorbitant turnover and the extent of the business carried on by the assessee. It is true that absence of stock register or cash memos in a given situation may not per se lead to an inference that accounts are false or incomplete.
However, where absence of a stock register, cash memos, etc., if coupled with other factors like vouchers in support of the expenses and purchases made are not forthcoming and the profits are low, may give rise to a legitimate inference that all is not well with the books and the same cannot be relied upon to assess the income profits or gains of an assessee. In such a situation the authorities would be justified to reject the account books under s. 145(2) and to make a best judgment assessment under s.
144. The material on which the rejection of account books was sustained in the case on hand was relevant material. Taking all these aspects and the material into consideration, the Tribunal has found as a fact that the claim of the assessee for acceptance of the account books was not sustainable. Its order does not give rise to any question of law.
Conclusion :
When the account books are rejected after considering all relevant material no question of law arises.
Application :
Also to current assessment years.
Income Tax Act 1961 s.256(2) JUDGMENT R.K. Gulati, J.
1. This is an application under Section 256(2) of the Income-tax Act, 1961 (for short, "the Act"). The sum and substance of the four questions proposed in this application is whether the Income-tax Appellate Tribunal misdirected itself and committed an error of law in holding that, on facts, the provisions of Section 145(2) of the Act were attracted and the assessment was to be made on best judgment. Section 145(2) of the Act empowers the Assessing Officer to make assessment in the manner provided in Section 144 in the specified circumstances, namely, when he is not satisfied about the correctness or the completeness of the accounts of the assessee, or, where no method of accounting has been regularly employed by the assessee. Section 144 contains the provisions of best judgment assessment.
2. In the instant case, the Assessing Officer noticed various defects in the account books of the assessee on which he came to the conclusion that the account books maintained by the assessee were neither correct nor complete. It was found that purchases and corresponding sales were not at all verifiable. No vouchers for the expenses and the cash memos were kept. No stock register was maintained. The assessee could not furnish the periodical retail sale price of the liquor. On inquiries, the Assessing Officer was informed by the District Excise Officer that the liquor contractors were free to fix the sale price of liquor and there was no control over the selling rate. A clear finding was recorded that the profit and loss account furnished by the assessee does not depict a correct and real profit earned during the year. On these findings, the Assessing Officer rejected the account books invoking the provisions of Section 145(2) of the Act and proceeded to make assessment on best judgment. The action of the Assessing Officer was affirmed and reiterated in appeal by the Commissioner of Income-tax (Appeals) in upholding the application of the provisions contained in Section 145(2) of the Act. The Income-tax Appellate Tribunal also upheld the action by dismissing the second appeal filed by the assessee. It noticed that the Department was handicapped in verifying the sales with reference to the purchases and the same cannot be ignored. It further observed ;
"To believe that a paltry sum of Rs. 36,000 was earned by the assessee even on the turnover disclosed, will be an overdraft on human credibility.... It is difficult to believe that having paid the licence fee of Rs. 25,40,000, the assessee could earn net income of Rs. 36,727 alone."
3. Finally, the Tribunal held that, on the facts and in the circumstances of the case, the book result was rightly rejected and no case for interference was made out.
4. The various findings recorded by the tax authorities and by the Income-tax Appellate Tribunal have not been challenged in these proceedings. What is contended is that even if the sales or expenses may not be verifiable, yet the provisions of Section 145(2) are not attracted. Except for stating the argument, learned counsel did not elaborate the contention to bring the point home. As noticed earlier, the account books were rejected because admittedly no stock register was maintained nor were the sales found verifiable in the absence of the cash memos. The vouchers of expenses were also not forthcoming and the income returned was ridiculously low as compared to the exorbitant turnover and the extent of the business carried on by the assessee. It is difficult to catalogue the various types of defects in the account books of an assessee which may render rejection of account books on the ground that the accounts are not complete or correct from which the correct profit cannot be deduced. Whether the presence or the absence of a stock register is material or not would depend upon the type of business. It is true that absence of the stock register or cash memos in a given situation may not per se lead to an inference that the accounts are false or incomplete. However, where the absence of a stock register, cash memos, etc., is coupled with other factors like vouchers in support of the expenses and purchases made not being forthcoming and the profits being low, may give rise to a legitimate inference that all is not well with the books and the same cannot be relied upon to assess the income, profits or gains of an assessee. In such a situation, the authorities would be justified to reject the account books under Section 145(2) of the Act and to make the assessment in the manner contemplated in those provisions. The material on which the rejection of account books was sustained in the case on hand was relevant material. Taking all these aspects and the material into consideration, the Tribunal has found as a fact that the claim of the assessee for acceptance of the account books was not sustainable. On the findings of fact recorded by the Income-tax Appellate Tribunal, in our opinion, its order does not give rise to any question of law to direct the Tribunal to make a reference to this court. In our opinion, the findings of the Income-tax Appellate Tribunal do not suffer from any legal infirmity which are based on appreciation of facts.
5. The application is devoid of merit and is rejected with costs which we assess at Rs. 150.