The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the books of account cannot be held incorrect merely due to an inadvertent mistake in the Tax Audit Report (TAR) which is also supported by an affidavit of the auditor.
The assessee is a partnership firm and has filed its return of income declaring a total income of Rs.30,85,410/-. The assessee firm is engaged in the business of real estate development viz property developer and builders.
The Assessing Officer while scrutinizing the books of the assessee found that in the TAR, there was a certain discrepancy so he show-caused the assessee as to why its books of account should not be rejected under Section 145(3) of the Income Tax Act, 1961. Pursuant to this assessee filed its reply which was not accepted by the Assessing Officer, so he proceeded to estimate the income of the assessee.
The assessee had claimed total revenue from operations at Rs.25,52,69,395/- but on perusal of the audit report, it was seen that the assessee has shown zero turnovers and has zero net profit, and has declared a total income of Rs.30,85,410/- in its Income Tax Return (ITR). He has claimed a closing stock of Rs.43,49,47,272/- whereas has claimed a closing stock of Rs.1,14,63,282/- as per disclosure as per ICDS in the audit report.
According to the Assessing Officer, the accounts maintained by the assessee are to be taken as unproved in view of the discrepancies and as stated above. So, he estimated the profit at 8% of Rs.25,52,69,395/- which works out to Rs.2,04,21,551/-. Since, the assessee has already declared its income amounting to Rs.30,85,410/-, hence, the addition was made at Rs.1,73,36,141/-.
The Commissioner of Income Tax (Appeal) [CIT(A)] accepted the explanation given by the assessee and found that there was inadvertent error/data entry in the TAR/Form 3CEB in respect of turnover and taken note of the fact that the assessee firm was developing only one project and have only one work-site and was following the percentage completion method for recognizing revenue from its real estate project.
The Assessing Officer’s satisfaction that the accounts are not correct or complete cannot be accepted merely because there was an inadvertent mistake in the TAR which was explained by the assessee as an inadvertent error while entering the date which fact is seen supported by the auditor who has accepted the mistake by filing an affidavit
The Two-member bench comprising of Aby T. Varkey (Judicial member) and Amarjit Singh (Accountant member) held that the action of the Assessing Officer to reject the books cannot be accepted and the CIT(A) has rightly reversed his action on this issue and accepted the books of account of the assessee. Thus, the order of the CIT(A) was upheld and the appeal of the revenue was dismissed.
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