INCOME TAX ACT, 1961

Section 145(3)

Accounting method - Rejection of books of account - Validity - Assessee failed to maintain day-to-day stock register, sales vouchers, expenses vouchers, etc.

During course of assessment proceedings, assessee was asked to produce books of account. In compliance, he produced books of account consisting of cash book, ledger, etc., but did not produce proper books of account as such stock register, day-to-day stock register, sales vouchers, expenses vouchers, etc. Since the assessee admitted to have not maintained any day to day stock register, sales vouchers, expenses vouchers, etc., accordingly the AO alleged that the sales and other expenses were not verifiable and therefore, the books of account were rejected by invoking provisions of section 145(3). Assessee submitted that he was a liquor contractor and it was the first year of his business. Being inexperienced in the line, the profitability was very low, though he earned good cash profit. Further, he submitted that the gross profit and net profit shown were actual, correct and true profits and the entire purchases made by him were verifiable from Form 26AS and each and every purchase was made from government corporations agencies. Held: There was no dispute that the assessee being in the liquor business, the purchases made from the government corporations and agencies were verifiable. At the same time, for determination of profits, the sales were also required to be verified and proper records were needed to be maintained in terms of stock purchased and sold of liquor with quality, make and price. Further, maintenance of stock register was essential not just for determining the opening and closing stock but for establishing the necessary linkage with the goods purchased and sold during the year. Further, when the assessee pleaded that the purchases were verifiable, then what stopped him from producing the records of such purchases and its linkage with the sales made during the year. Further, being the first year of operation could not be a ground for non-maintenance of proper books of account. Accordingly, the assessee's books of account had been rightly rejected under section 145(3).

REFERRED :

FAVOUR : Against the assessee

A.Y. : 2015-16

INCOME TAX ACT, 1961

Section 145(3)

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