Books of Accounts cannot be Rejected Merely based on Non-Maintenance of Stock Register in Desired Format: ITAT Deletes Addition u/s 69 of Income Tax Act [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) has deleted the addition under Section 69 of the Income Tax Act holding that the books of account could not be rejected based on non-maintenance of stock register in desired format.

The assessee, Chirag Nareshbhai Son was an individual engaged in the business of trading of gold and gold ornament through his proprietary concern. The assessee during the demonetization period i.e. 9th November 2016 to 31st December made cash deposit of Rs. 59.95 Lakh only in the bank account.

The assessee during the assessment proceedings explained that the cash had been deposited out of sale proceeds which were duly recorded in the books of accounts which were duly audited by the independent auditor, supported by the bills and voucher, purchases and stock register, cash book, bank book etc. However, the AO on analysis of details submitted by the assessee along with immediate previous year data found certain shortcomings.

The AO accordingly held that the sales shown by the assessee in the books account of account was manipulated and to show manipulated sales in the books, the stock movement also must have been manipulated by the assessee.  Thus, the AO rejected the book of account of the assessee as unreliable and treated the cash deposit made during the demonetization period as unexplained cash credit under Section 68 of the Income Tax Act.

The AO further estimated the GP after reducing the amount of cash deposit from turnover as against the GP declared by the assessee. Thus, the AO made addition under section 68 of the Income Act and on account estimation of GP to the total income of the assessee.

P.F. Jain, appearing on behalf of the assessee submitted that all the requisite details were furnished by the assessee during the assessment proceedings and therefore the book results shown by the assessee should have been accepted in toto. However, the AO merely on account of non-furnishing the stock statement in the desired format rejected the books

of accounts and treated the cash sales made during the period as unexplained cash credit under section 68 of the Income Tax Act.

Sanjay Kumar, on behalf of the respondent vehemently supported the order of the authorities below.

The two-member Bench of Waseem Ahmed, (Accountant Member) and T.R. Senthil Kumar, (Judicial Member) observed that as per the provisions of section 145(3) of the Income Tax Act, the AO was empowered to reject the books of accounts of the assessee and make best judgement assessment in the manner as specified under section 144 of the Income Tax Act if he was not inter-alia satisfied with the completeness or correctness of the books of accounts of the assessee.

However, the AO could not use this power as a tool to reject the books of accounts merely due to non-maintenance of the stock register, variation in gross profit and non-furnishing of certain vouchers or its explanation or non-confirmation of sundry creditors.

The Bench allowed the appeal filed by the assessee holding that, “In this documentary evidence no defect was pointed out by the AO except non maintenance of stock register in the desired format. Therefore, without bringing any corroborative material on record suggesting specific defect in the books of account the book result cannot be rejected merely for not providing certain detail which the AO requires to verify.”

To Read the full text of the Order CLICK HERE

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