The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that Assessing Officer (AO) is duty bound to specify the defects in the books of accounts maintained by the assessee before rejection of books of accounts by applying provisions of Section 145(3) of the Income Tax Act, 1961. Thus directed to delete the addition of Rs. 23,44,406/- being 1% of turnover and other operating income of Rs. 45,44,563/-.
The assessee company Mystic Electronics Ltd. filed its return of income declaring total income of Rs. 31,51,330/-, a revised return was filed by declaring the income at Rs. 35, 48,140/-. The case of the assessee was selected for scrutiny and a notice under Section 143(2) of the Income Tax Act.
In a search and seizure under Section 132 of the Income Tax Act of the Raj Kumar Kedia Group for the allegation of bogus LTCG (Long Term Capital Gain) by pre-arranged trading in shares of various non-descript listed companies, which are under the control and management of the syndicate of entry operators, the assessee was centralized to the charge of DCIT (Deputy Commissioner of Income Tax).
During the scrutiny R.K kedia, admitted that the assessee company is under the control and management of Krishan Kumar Khadaria who is in the same business of providing accommodation entries and booking for bogus prearranged LTCG was done through the scrip of Assessee Company.
Manish Arora(employee who keeps records of unaccounted transactions) and Natwar Lal Daga (Entry operator based in Mumbai and is, helping Shri Raj Kumar Kedia) further admitted the relation of assessee company with Raj Kumar Kedia Group.
AO concluded that assessee is a listed company and involved in generating illicit LTCG /short term capital loss, further he rejected the books of accounts of the assessee under Section 145 of the Income Tax Act and estimated the income at the rate of 1% i.e. Rs. 23, 44,406/- of total turnover i.e. Rs. 23, 44, 40,568/-. In addition to this, AO further added the income shown under schedule 13 as other income amounting to Rs. 45,44,563/-.
Aggrieved by the order the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT (A)], which partly allowed the appeal, thus further aggrieved the assessee filed an appeal before the Tribunal.
The Bench comprising of Amit Shukla, Judicial Member and Gagan Goyal, Accountant Member observed that Assessee Company is a listed entity on the stock exchange and it is established fact that the entity was involved in the rigging/manipulation of share price.
The Tribunal noted that to reject books of account, AO is duty bound to specify the defects in the books of accounts maintained by the assessee, a detail reasoning with specific defects pointed out during the assessment proceedings has to be mentioned and then only provisions of Section 145(3) of the Income Tax Act can be applied and the same are missing in the present case.
It is further observed that Legal position with reference to rejection of books of accounts is altogether different whereas the case made by AO and further confirmed by the CIT (A) leads the matter towards specific disallowance /addition.
Thus the Bench direct to delete the addition of Rs. 23,44,406/- being 1% of turnover and other operating income of Rs. 45,44,563/- and returned income of Rs. 35,48,140/- declared by assessee is directed to be final figure.
Hence the ground of the appeal by the assessee is allowed.
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