- (1.) This order shall dispose of a bunch of appeals* filed under s. 260A of the IT Act, 1961 (for brevity, 'the Act') against the order(s)** rendered by the Chandigarh Bench of the Income-tax Appellate Tribunal (for brevity, 'the Tribunal') and IT Ref. No. 105 of 1997, which has been referred to this Court by the Tribunal on the reference application filed by the assessee-M/s J.R. Solvent Industries (P) Ltd., against the order dt. 19th Sept., 1995, passed by the Tribunal in ITA No. 654/Chd/1990, in respect of the asst. yr. 1987-88. A common question raised for determination of this Court in all the cases would be : Whether the Tribunal was right in law in treating the purchases from non-existent firms as recorded in the books of account of the assessee as bogus without giving an explicit finding that the provisions of s. 145(2) of the Act were attracted in the case of the assessee, especially when complete quantitative details were available ? The facts are being referred from IT Ref. No. 105 of 1997. The applicant-assessee is a private limited company deriving its income from extraction and sale of solvent oil from rice bran. It is shown to have made purchases of rice bran amounting to Rs. 5,76,645 from the firm known as M/s Raj Kumar Raghbir Kumar, Ludhiana, as per the entries in the books of account. The AO on inquiry found that the party was non-existent and accordingly he treated the entire purchases as bogus. On appeal, the CIT(A) held that only part of the purchases could be treated as bogus while the balance purchases, in fact, were made by the applicant-assessee either from M/s Raj Kumar Raghbir Kumar or from somebody else. Accordingly, partial relief was allowed to the applicant-assessee. Both Revenue as well as the applicant-assessee filed appeals before the Tribunal and the Tribunal held that the entire purchases of Rs. 5,76,645 made from M/s Raj Kumar Raghbir Kumar were bogus despite the fact that the CIT(A) had observed that the AO had not found any discrepancy in the accounts maintained by the applicant-assessee in the regular course of business. It is in the aforesaid facts and circumstances that the Tribunal has referred the following question of law for the opinion of this Court: The CIT(A) having observed that the Asstt. CIT had not found any discrepancy in the accounts maintained by the appellant in the regular course of business and the Revenue not having challenged this finding before the Tribunal, whether the Tribunal was right in law in having treated the purchases of Rs. 5,76,645 from M/s Raj Kumar Raghbir Kumar recorded in the assessee's books of accounts, as bogus without giving an explicit finding that the provisions of s. 145(2) were attracted in the case of the assessee specially when complete quantitative details were available ?
(2.) In order to put the controversy in its proper prospective, it would be appropriate to make a reference to s. 145 of the Act, as it stood at the relevant time and the same reads as under : 145. Method of accounting.--(1) 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 : Provided that in any case where the accounts are correct and complete to the satisfaction of the ITO but the method employed is such that, in the opinion of the ITO, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the ITO may determine. (2) Where the ITO is not satisfied about the correctness or the completeness of the accounts of the assessee, or where no method of accounting has been regularly employed by the assessee, the ITO may make an assessment in the manner provided in s. 144.
(3.) A perusal of the aforesaid provision would make it patent that s. 145 deals with method of accounting. However, under s. 145(2) where the ITO is not satisfied about the 'correctness' or 'completeness' of the accounts of the assessee or where no method of accounting has been regularly employed by the assessee then the ITO may make best judgment assessment as contemplated by s. 144 of the Act.;