No Addition shall be made u/s 44AD by AO without Rejecting Books of Accounts: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Kolkata bench, held that an addition should not be made under Section 44AD of the Income Tax Act without rejecting the books of accounts produced during the assessment proceedings.

The assessee, Bulu Ghosh, had their case selected for scrutiny after filing the return of income. During the scrutiny proceedings, the assessee appeared before the AO from time to time and furnished the necessary details as asked for, providing a copy of the audit report along with the P & L A/c and balance sheet for the year ending on 31.3.2016.

After examining the books of account without rejecting them, the AO added an amount of Rs. 1,77,046, by calculating 8% of the total contract value of Rs. 22,13,070, resorting to the provisions of section 44AD of the Income Tax Act. When the assessee filed an appeal before CIT(A) against the order, no relief was granted, and they rejected the appeal. Therefore, the assessee filed a second appeal before the tribunal.

Counsel for the assessee pointed out in argument that the assessee maintained complete books of accounts and also filed an audit report. There is no mention in the assessment order about any mistake in the books of account.

"Crucial point is without rejecting  Books  Of  Accounts  AO can not assume any method other than the same regularly followed by assessee. It does contrue grave and patent mistake and is void ab initio, bad  in  law." Dilip Chatterjee, Counsel for the assessee told Taxscan.

Bivekananda Madhu, Counsel for Revenue, supported the decision of the lower authorities.

During the assessment proceedings, the tribunal relied upon the decision of the Rajasthan High Court in the case of CIT vs. Maharaja Shree Umaid Mills Ltd, which had observed that, "The other question about the fall in gross profit rate cannot be looked into in this case because the Inspecting Assistant Commissioner has not rejected the books of accounts of the assessee, and without making this as a base, it could not be said that the expenditure had been inflated, which is a question of fact, and in view of the findings of the commission, which is confirmed by the tribunal, the same cannot be allowed."

Therefore, the AO cannot make an addition with respect to Section 44AD of the Income Tax Act without rejecting the books of accounts, the counsel contended.

After reviewing the facts and records, the two-member bench of Dr. Manish Borad (Accountant Member) and Sonjoy Sarma (Judicial Member) deleted the addition made by the assessing officer under Section 44AD of the Income Tax Act without rejecting the book of accounts.

Therefore, the bench allowed the appeal.

To Read the full text of the Order CLICK HERE

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