Commissioner of Income Tax-IV vs Suresh Scrap Industries Ltd.

D.A. Mehta, J.—This appeal filed u/s 260-A of the Income Tax Act, 1961 (the Act) by Revenue proposes following question:

Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) and thereby deleting the addition of Rs. 54,38,457/- by adopting adhoc GP of 5% though the Assessing Officer has discounted GP rate @ 5% as against comparable GP rate of 7.81% considering increase in various costs relied upon by the CIT(A).

The assessment year is 1993-94, the relevant accounting period being financial year ending on 31st March, 1993. In case of respondent assessee, the Assessing Officer rejected books of accounts and made an addition of Rs. 54,38,457/- by adopting adhoc Gross Profit rate of 5% vide an order dated 5th December, 1995. The assessee carried the matter in appeal. Commissioner (Appeals) held that no case was made out for rejection of books of accounts and hence, deleted the addition made on basis of adhoc Gross Profit rate.

Revenue carried the matter in Second Appeal before Income Tax Appellate Tribunal and raised the following ground:

The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 54,38,457/- by adopting adhoc GP of 5% though the AO has discounted GP rate @5% as against comparable GP rate of 7.81% considering increase in various costs relied upon by the CIT(A).

The Tribunal has deleted the addition holding that the finding of Commissioner (Appeals) that books of accounts could not be rejected u/s 145 of the Act having not been challenged by Revenue, the consequential addition could not be sustained.

Heard learned senior counsel appearing for appellant - Revenue. It was submitted that rejection of books of accounts was only an aspect of the addition and once the deletion of addition had been challenged before Tribunal, the Tribunal could not have deleted the addition by sustaining the order made by the Commissioner (Appeals).

The entire appeal proceeds on a misconception. Exercise of powers u/s 145 of the Act cannot be an aspect of Gross Profit addition but it is the other way round. Only after books of accounts have been rejected for any of the reasons provided by Section 145 of the Act would the Assessing Officer be able to make estimate of profits. Even on facts, when one considers the submissions made by the departmental representative before Tribunal, as recorded in paragraph No. 3 of the impugned order dated 02nd May, 2008, it becomes clear that at no stage was it ever urged that Commissioner (Appeals) had wrongly cancelled rejection of books of accounts.

In the circumstances, in absence of any error in the impugned order of Tribunal, no question of law, much less a substantial question of law arises from the impugned order of Tribunal.

The appeal is accordingly dismissed with no order as to costs.