Books of Account cannot be rejected on Insignificant defect: ITAT [Read Order]

The Jaipur Bench of the Income Tax Appellate Tribunal ( ITAT ), observed that Books of account cannot be rejected on insignificant defect.

The assessee, M/s Motisons Jewellers Ltd company e-filed its return of income for the previous year 2016-17 relevant to Assessment Year 2017-18 declaring an income of Rupees four crores.The assessee company is engaged in the business of Jewellery.

The show cause notice so as to rejection of books of account u/s 145(3) of the Income Tax Act was not given by the Assessing Officer (AO) and the assessment completed in the manner provided u/s 144 of the Act. It is also noteworthy to mention that that the AO has not given any show cause notices as required u/s 144/145 of the Income Tax Act before estimation of income by applying the N.P. Rate.

The CIT(A) had examined the genuineness of purchases from M/s. Paras Gems and Jewellers, M/s. Girdhar Jewellers (P) Ltd. and M/s. Girdhar Jewellers and held the same as genuine for which the Department has not challenged the findings of the CIT(A) as to the issue of genuineness of the purchases and thus the books of account cannot be rejected on the ground of genuineness of purchases.

Before invoking the provisions of Section 145(3) of the Income Tax Act, the AO has to bring on record material on the basis of which he has arrived at the conclusion with regard to correctness or completeness of the accounts of the assessee or the method of accounting employed by it.

A Bench consisting of S Seethalakshmi, Judicial Member and Rathod Kamlesh Jayanthbhai, Accountant Member observed that “In the instant case, it was not the case that the assessee had not followed either cash or mercantile system of accounting. It was also not the case that the Central Government had notified any particular accounting standard not followed by assessee. Further the assessee maintains proper books of account audited by Chartered Accountant and the profit may be derived from the audited books of account therefore there is no justification in estimation of income by applying NP rate.”

“We allow the appeal of the assessee by holding that the rejection of books of account on the basis of insignificant defects in all respect, is not justified and books of account deserves to be accepted” the Tribunal said.

To Read the full text of the Order CLICK HERE

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