The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) overturned the Assessing Officer’s (AO) rejection of books and deleted the addition of Rs. 4,12,67,000 as unexplained income, citing the lack of evidence of specific discrepancies in the books of accounts.
Kshetrapal Gold Private Limited,appellant-assessee,engaged in the business of selling gold ornaments, had deposited cash amounting to Rs. 4,12,67,000 during the demonetization period from November 8 to December 30, 2016. This substantial deposit led to scrutiny under the Computer Assisted Scrutiny Selection (CASS) system.
The Assessing Officer (AO), upon examining the financial records, noted significant discrepancies between the sales and cash in hand for the year in question compared to the prior year. Observing an unusual increase in cash sales just before demonetization, the AO suspected that the cash deposits represented unexplained sources of income, leading him to reject the books of accounts under Section 145(3) of the Act.
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Consequently, the AO treated the entire cash deposit of Rs. 4,12,67,000 as unexplained under Section 68 and added it to the taxable income.
The assessee challenged the AO’s decision before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the cash sales were legitimate and backed by corresponding purchases. They contended that the books were maintained in accordance with the law, with all relevant documents, vouchers, and stock records presented to the AO. However, CIT(A) upheld the AO’s decision, affirming both the rejection of the books of accounts and the addition under Section 68 of the Act.
The matter was then taken to the tribunal. The assessee argued that the AO could only reject the books if he identified specific defects or inconsistencies, which were absent in this case. They emphasized that the AO’s conclusions were based solely on a comparative analysis of financial data without substantial evidence of irregularities.
The tribunal agreed with the assessee, stating that under Section 145(3), the AO must demonstrate clear and specific defects in the books before rejecting them. In this case, the AO’s conclusions were based on mere assumptions rather than concrete evidence.
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The two member bench comprising T.R.Senthil Kumar(Judicial Member) and Annapurna Gupta(Accountant Member)set aside the AO’s rejection of the books and reversed the addition of Rs. 4,12,67,000 under Section 68 of the Act. All grounds raised by the assessee were allowed, underscoring that assumptions alone were insufficient grounds for rejecting books and making income additions.
In conclusion the appeal filed by the assessee was allowed.
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