The Raipur bench of Income Tax Appellate Tribunal (ITAT) has ruled that no addition could be made on the basis of a rejected book of account by the Assessing Officer.
The assessee Five Star Construction Company is a firm of civil contractors, filed the return of Income for the assessment year 2014-2015. Thereafter, the assessee’s case was selected for scrutiny under Section 143(2) of the Income Tax Act, 1961.
As per the Section 133A of the Income Tax Act, a survey proceedings were carried out in the premises of the assessee. During the course of the survey proceedings, several serious deficiencies had surfaced in the records of the assessee.
It was found that the assessee firm for recording on a day-to-day basis, its actual business transactions was by way of a consistent practice maintaining manual cash books for the preceding several years.
After verifying the accounts of the assessee, the Assessing Officer (AO) not being satisfied about the correctness and completeness of the accounts, rejected the same under Section 145(3) of the Income Tax Act. The AO after rejecting the books of accounts of the assessee proceeded with to assess its income in the manner provided in Section 144 of the Income Tax Act and made the additions.
Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], who dismissed the appeal and upheld the rejection assessee’s book of account and addition made by the AO. Thereafter, the assessee filed a second appeal before tribunal against the order of CIT(A).
It was observed by the tribunal that there was no infirmity emerged from the view taken by the AO, who on the basis of his exhaustive deliberations, found that serious doubts as regards the correctness and completeness of the accounts of the assessee firm on the basis of which its final accounts and audit report were prepared.
Further, the tribunal pointed out that the AO after rejecting the books of accounts of the assessee was vested with a discretion to frame the assessment in a manner provided in Section 144 of the Income Tax Act.
However the AO in clear and unequivocal terms rejected the books of accounts of the assessee under Section 145(3) of the Income Tax Act.
Thus, once the AO had rejected the books of accounts, then, he should not hold the profit which is supported by the books of accounts to be correct.
The two-member bench of Ravish Sood (Judicial Member) and Arun Khodpia (Accountant Member) relied upon the decision of supreme court in case CIT Vs. K.Y Pilliah & Sons held that “once the books of account of an assessee are rejected as unreliable then it is open to the AO to estimate the assessee’s profits considering the profit which was earned in similar business.”
R.B Doshi, counsel appeared for the assessee. Piyush Tripathi, counsel appeared for the revenue.
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