Indian Kanoon - Search engine for Indian Law

3. The action of the ld. A.O. was contested by the assessee before the ld. C.I.T.(A) and submitted that the ld. A.O. did not consider the explanation of the assessee and arbitrarily rejected the books of account u/s. 145 of the Act. The ld. C.I.T.(A), however, upheld the action of the ld. A.O. by observing as under :-

"The appellant disclosed loss from business. The AO examined the appellant's books of account, the statement of sales and audit report. The AO noticed that there is substantial increase of expenses though the turnover has decreased. Further, the AO noticed various discrepancies in the audit report accompanying the return. Further, the stock, quantity of production reported to the bank differed from the quantity adopted in the books of account. In view of the various discrepancies discussed by the AO at pages 2, 3 & 4 of the assessment order, the AO rejected the books of account of the appellant. The AO is correct as per law in invoking the provisions of Sec. 145 and rejecting the books of account of the appellant since they are defective. The AO's action is correct as per law and is upheld.

The AO noticed that the appellant disclosed net profit of 0.61% during the earlier year. Considering the facts of the appellant's case, the AO determined the business income of the appellant at 1% of the turnover. The quantum of income determined by the AO is fair and reasonable. The AO's action is upheld"

Hence this appeal by the assessee.

4. At the time of hearing before us, the learned counsel assailed the orders of the authorities below and submitted that during the year under consideration there was decrease in turnover and increase in salary & wages and the explanation thereof was not considered by the ld. A.O. in proper perspective although supporting documents were produced. He further pointed out that the alleged discrepancy in the production as well as sales, as pointed out by the authorities below, is not correct, because the ld. A.O. in the chart annexed to the assessment order has wrongly taken the total production as submitted to the bank at 481.850 MT instead of actual quantity of 489.450 MT duly reflected in the audit report. He further pointed out auditor's remark for the points raised by the ld. A.O., although filed before the ld. C.I.T.(A), was not considered by the ld. C.I.T.(A) while upholding the ld. A.O.'s action in rejecting the books of account u/s. 145 of the Act. The ld. counsel further submitted that the ld. A.O. without issuing any show cause notice to explain the alleged discrepancies noted in the assessment order rejected the books of account and estimated the income @ 1% of the total turnover, which is uncalled for and bad in law.