Shree Digvijaya Woollen Mills Ltd Vs CIT (Punjab and Haryana High Court)
Addition for excessive shortage not sustainable if trading account of assessee are accepted to be correct and complete
A perusal of Section 145 of the Income Tax Act shows that income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” shall be computed in accordance with the method of accounting regularly employed by the assessee, and as per proviso, in any case, where the accounts are correct and complete to the satisfaction of the Income Tax Officer, but the method employed is such that, in the opinion of Income-tax Officer, the income cannot properly be deducted therefrom, then computation shall be made upon such basis and in such manner as the Income-tax Officer may determine and in the present case the Assessing Officer has accepted the closing stock and further accepted the trading account to be correct and complete and without computing afresh, as per the proviso to Section 145(1) of the Act, the Assessing Officer has made addition to the account of wastage.
The income-tax department throughout accepted the trading account of the assessee and there is no dispute regarding the quantity of cotton shown to be consumed as per the books of account maintained by the assessee and no material to show and to establish that the increase in percentage of wastage was attributable to any suppression of weight or any suppression of production. The Assessing Officer without mentioning any irregularity in the accounts and accepting it could not make addition without giving any reasoning and fresh computation.
AO Cannot make addition of profit under Section 41(2) on assumptions and presumptions
A perusal of the record further shows that the assessing officer has resorted to provisions of Section (1) of the Income Tax Act without recording any finding as to whether the case of the petitioner falls under proviso to Section 145(1) or sub-Section (2) of Section 145 of the Act. If the case of the petitioner fall under the proviso to Section 145, then the Income Tax Officer had to first reject the whole books of account of the assessee before adding any amount to the income of the assessee. The closing stock is valued as per the computation by the assessee regarding the profits and losses and if the books of account of the assessee including rate at which closing stock had been valued are accepted by the Assessing Officer, the addition to the net profit could not be made without recomputing the trading result of the assessee and if as per Section 145(1) of the Act, the trading account of the assessee are accepted to be correct and complete, the Assessing Officer without re-computing cannot make additions to the net profit. Thus, the addition of Rs.34,28,414/- on account of excessive shortage is held to be not sustainable in the eyes of law.
