[Income Tax] Once Books Of Accounts Not Objected To Before Tribunal, AO Can't Disturb Gross Profit Rates Applied By Assesee: Allahabad High Court

The Allahabad High Court has held that once the acceptance of books of accounts by the Commissioner of Income Tax (Appeals) have not been objected to by the Assessing Authority before the Income Tax Appellate Tribunal, it is not open to the Assessing Officer to disturb the gross profit rate as declared by the assesee.

The bench comprising of Justice Saumitra Dayal Singh and Justice Donadi Ramesh held that

“in absence of any other objection found in the books of accounts of the assessee as may have been pressed before the Tribunal, there survives no room to reject the books of accounts of the assessee. Consequently, there is no intrinsic evidence to enhance the gross profit rate. Once the books of accounts of an assessee are found accepted the Assessing Officer may have remained within the confines of his powers ad not disturbed the gross profit rate as that would remain in the nature of the result of the book entries and not an original entry by itself.”

Rejecting the books of accounts of the assesee-respondent, the Assessing Authority tinkered with the gross profit rate as declared by the assesee. The Assessing Authority held that certain expenditures were not disclosed in the books of accounts and accordingly, the books of accounts were held to be unreliable. Based on the gross profit rate of previous 3 years, the Assessing Authority made addition of Rs. 3 crores in the gross profit rate of the petitioner for the assessment year in question.

Assesee filed an appeal before Commissioner of Income Tax (Appeals) which was allowed, and the order was confirmed by the Income Tax Appellate Tribunal. The Tribunal held that the vouchers of cash expenses were produced before CIT(Appeals) and only expenses under the heads 'mess expenses' and 'travelling expenses of directors' which were less than Rs. 1 lakh were not accounted for. Since all other cash expenditures were duly vouched, the addition of Rs. 25,48,011/- made by Assessing Authority was deleted.

The order of the ITAT was challenged before the High Court raising the following questions of law: whether the Tribunal had ignored the fact that the Assessing Authority had considered the gross profit rate of past 3 years before making the additions, whether the addition of Rs. 25,48,011/- was rightly made since the assesee had failed to substantiate the vouchers and whether without reversing finding of Assessing Authority the Tribunal could have deleted the addition of Rs. 7,20,834/- on account of disallowance relating to unverified consignment sales expenses.

The Court held that questions raised by the Department were questions of facts and the findings of Tribunal on the said questions were findings of fact and not of law.

The Court observed that based on the vouchers of cash expenses CIT(Appeals) had deleted the additions and no material had been placed to dispute the findings of the CIT(Appeals) which were affirmed by the Tribunal (the last fact-finding authority).

Holding that the Assessing Authority had not objected to the books of accounts before the Tribunal, the Court held that “the assessing officer may never step into the shoes of the assessee to infer more profit than may have been derived by the assessee and further his jurisdiction being confined to examine the correctness and completeness of the books of account, it never became open to the Assessing Officer to reject the gross profit rate disclosed by the assessee.”

The Court held that the finding of CIT (Appeals) upholding the books of accounts of the assesee were never challenged before the Tribunal. Accordingly, the appeal filed by the Department was dismissed.

Case Title: The Pr Commissioner Of Income Tax, Aaykar Bhawan And Another vs. The Mahabir Jute Mills Lts. Sahjanwah Gorakhpur 2024 LiveLaw (AB) 327 [INCOME TAX APPEAL No. - 35 of 2024]

Citation: 2024 LiveLaw (AB) 327

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