AO should Point out Specific Defect while rejecting Books of Accounts: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the Assessing Officer should point out the specific defect while rejecting the books of accounts under the income Tax Act, 1961.

The assessee company was engaged in dealing structural steel fabrication and installation work. While completing the assessment, the Assessing Officer noted that the employees of the company attended the assessment proceedings, however, complete books of accounts, bills, vouchers etc were not produced before the Assessing Officer. He was of the view that the business income might be estimated applying profit rate.

On appeal, the first appellate authority held that the books of accounts cannot be rejected on the basis of increase in expense on account of rent. Similarly, the CIT(A) has examined the claim of expenses of Rs.51,91,667/- on directors’ remuneration, administrative expenses of Rs.3.6 crores, purchase of fixed assets amounting to Rs.4,72,80,249/- alongwith the invoices and other evidences maintained by the assessee and already produced before the Assessing Officer.

 Holding in favour of the assessee, the Tribunal said that “In the instant case the Assessing Officer has rejected the books of accounts on the ground that he was not satisfied about the correctness or completeness of the accounts. But in our opinion, for rejection of the books of accounts on the ground of non-satisfaction of correctness or completeness, it is essential for the Assessing Officer to point out the specific defects. Merely increase in expenses, cannot be ground for rejection of books of accounts unless the assessee failed to explain or justify increase in expenses. The Ld. CIT(A) has made detailed verification of invoices and vouchers in respect of the expenses claimed by the Assessing Officers as excessive. The Ld. DR could not controvert the finding of the Ld. CIT(A) on justification of increase in expenses in question. In view of the aforesaid facts and circumstances, we do not find any error in the action of the Ld. CIT(A) in cancelling the rejection of books of accounts by the Assessing Officer and estimation of the profit.”