HIGHLIGHT ON SECTION 145 OF INCOME TAX ACT, 1961

INCOME CAN BE DETERMINED ON ESTIMATION BASIS ONLY AFTER REJECTION OF BOOKS OF ACCOUNT WITH A VALID REASON

Section 145 of the Income-tax Act, 1961 – Method of accounting – Rejection of accounts[2015]Reconciliation of quantitative details:-

Where details contained in Form 3CEB were with reference to the royalty paid/payable by assessee-company and not details of production, and reconciliation had been filed by assessee regarding sale on which royalty had been paid during the year, rejection of books of account on ground of alleged difference in the quantity shown in Form 3CEB and quantitative details furnished by the assessee was not justified.

Assessing Officer rejected assessee’s books of account on ground of alleged difference in quantity shown in Form 3CEB and quantitative details furnished by the assessee.

However, Form 3CEB filed by assessee before Assessing Officer was found to be not about number of motorcycles produced by assessor during the period but concerning royalty paid by assessor during the relevant quarter.

A reconciliation had been filed by the assessee regarding sales on which royalty had been paid during the year.

It was held that Assessing Officer had erred in concluding that there had been a difference in sales and quantitative details of assessee and rejecting books of account on that ground.

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Lower sale as compared to preceding year cannot, by itself, be a ground to reject books of account:-

Assessing Officer rejected assessee’s books of account on ground that average sale-price of motorcycles by assessee during year was low, as compared to preceding assessment year

It was held that merely because realization per motorcycle for year under consideration was low as compared to that in preceding year, this, by itself, could not lead Assessing Officer to assume that sale price charged by assessee company was under-stated and since there was no material evidence to disprove contention of assessee, sale stated in books of account must be accepted and therefore, Assessing Officer was not justified in rejecting books of account on aforesaid ground.

Where revenue could not prove that loss suffered by assessee was bogus or inflated, rejection of books of account by comparing results of other successful company was unjustified:-

Assessing Officer rejected assessee’s books of account as assessee’s explanation regarding losses incurred by it as compared to profits earned by other competitors, was not acceptable.

Reasons for loss suffered by Assessee Company, as contended, were low market share, low capacity utilization, very high debtors-turnover ratio, high inventory ratio, shift in technology, higher personnel cost due to VRS and labour unions problem, etc.

It was held that in presence of said factors, without a doubt, losses suffered by assessee could not be said to be either bogus or inflated and since Assessing Officer did not prove otherwise, rejection of books of account was unjustified.

Where TPO has accepted export price shown by assessee to its holding and subsidiary companies to be at arm’s length, Assessing Officer could not reject books of account on ground that assessee was charging lower price from its holding and subsidiary companies:-

It was held that where on considering export sales made by assessee to its holding company and subsidiary companies, TPO had accepted price of export shown by assessee as being at arm’s length, Assessing Officer was not justified in rejecting books of account on ground that assessee had been selling motorcycles at a lower price to its holding and subsidiary companies as compared to its domestic sales.

In case there is no discrepancy in books of account and books of account have been accepted, profit or loss has to be determined as per books of account and not on estimation basis:-

It was held that estimation of profit can be resorted to only when there is a discrepancy in books of account which makes determination of profit or loss difficult and where there is no discrepancy in books of account and books of account have been accepted, profit or loss has to be determined as per books of account and not on estimation basis.

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