In the instant case it was held that the books cannot be rejected for merely the reason that there was an over writing in a transaction. It also cannot be rejected as the assessee furnished the PAN numbers and paid TDS for the transactions.
Brief facts of the case:
The assessee was a partnership firm engaged in civil construction. During the assessment proceedings the Assessing Officer noted that assessee declared net profit of Rs.47, 21,819/- on a total turnover of Rs.8, 68, 76,534/- amounting to about 5.5%.
In the following year the assessee declared net profit of Rs.53, 32,302/- on a turnover of Rs.6, 52, 17,258/- which amounts to about 8%. According to the assessee, the reduction in profit was due to hike in labour charges, building material and overhead expenses.
The assessee stated that there was increase in price of Diesel, Salary, Bonus, Transportation charges, etc. From the bills filed by the assessee before the Assessing Officer it was observed that in the wages register only name of the workers were noted but their full address and details of work done by them were not mentioned.
Moreover, most of the signatures on the register were in English which appeared to the Assessing Officer as doubtful.
The Assessing Officer also had doubt about the writing on some bills. The Assessing Officer was not satisfied with the explanation of the assessee and found that possibility of misrepresentation of expenses cannot be ignored as most of them were in cash.
In view of the above, the Assessing Officer rejected the book results by invoking the provisions of section 145(3) of the Act.
The order was challenged by the assessee before the Ld. CIT (A). Thereafter the Ld.CIT (A) held that merely as the wage register was signed by some laborers in English, its authenticity cannot be questioned.
However, it was found that the transport bills did not contain the Registration No. of the vehicles and the details of the suppliers. As such, the bills of the assessee cannot be relied upon.
The Ld. CIT (A) upheld the order passed by the Assessing Officer. The ld. CIT (A) also observed that there is truth in the explanation of the assessee that due to hike in some expenses there was decrease in profit. Accordingly, he directed the Assessing Officer to restrict the addition.
Arguments of the Assessee:
The Ld. Counsel for the assessee submitted that the signature of the laborers in English cannot be a ground for rejection of the books. The ld. Counsel also submitted that PAN number was filed and TDS was deducted. As such, in absence of any adverse material the Assessing Officer is wrong in rejecting the books in connection with transportation charges. He also contended that the assessee provided the PAN Numbers and other details of the sub contractors of the sub contractors. The Ld. Counsel submitted that royalty payment had been paid to the Government and there was no scope of any forgery.
The ld. Counsel relied on the judgment passed in CIT vs. Om Overseas, 315 ITR 185, and stated that if there is no defect in the books of account, merely decrease in profit cannot be a ground for rejecting the books.
The decision of the Hon’ble Bombay High Court in R.B. Jessaram Fatechand (Sugar Department) vs. CIT, 75 ITR 33, was referred and it was submitted that the Hon’ble High Court held that books of accounts cannot be rejected only for the reason that address of the assessees are not mentioned in the cash transactions.
Arguments of the Revenue:
The Revenue submitted that the Assessing Officer was justified in finding that the book results were not reliable as there were some defects in the wage register and there was an overwriting in some bills. Therefore, the CIT (A) was not justified in sustaining only an amount of Rs.20, 00,000/- out of the Rs.55, 08,898/- which was added by the Assessing Officer.
The Hon’ble Tribunal observed that from the details filed by the assessee that there was no ground for the Assessing Officer to disbelieve the transportation cost. The argument of English Signatures was rejected by the Ld. CIT (A). Moreover, as a general convention, wages register do not state the nature of work done. Address of the labourers is optional which cannot be a ground for rejecting the books.
The assessee furnished full address of the labour contractors and their PAN Numbers and TDS has been deducted from their payments. Under such circumstances there cannot be any ground for rejecting the books. As per the observation of the Assessing Officer, in one of the bill there was an overwriting but it cannot be a ground for rejecting the total result of the books.
The royalty charges have been paid to Government; as such the profit from sub-contract will be less as the main contractor has enjoyed a portion of the net profit. The Hon’ble Tribunal relied upon the judgment delivered in the case of R.B. Jessaram Fatechand (Supra) where it was held that in the case of transaction where delivery is against cash payment, it is not necessary for the vendor to note about the name and address of the purchaser.
The account books of an assessee cannot be rejected only on the ground that the details were not mentioned in the cash transactions. Taking into consideration all the facts and law points the Hon’ble Tribunal held that the rejection of books of account was not in accordance with law. The income as stated in the return filed by the assessee should be accepted. The grounds of appeal preferred by the assessee were allowed and those raised by the Revenue were dismissed.