In I.T.A No.1155/DEL/2020-ITAT- Audited books of account can’t be rejected by AO on ground that photocopy of bills have been produced instead of original bills: Delhi ITAT
Accountant Member-Pradip Kumar Kedia & Judicial Member- Anubhav Sharma [23-01-2023]

Read Order: BLUE STAMPINGS & FORGINGS LTD V. DY. COMMISSIONER OF INCOME TAX, FARIDABAD 

Mansimran Kaur

New Delhi, January 31, 2023: The insignificant variation in net profit ratio per se cannot  lead to drastic action of rejection of audited books without anything more, the Delhi Bench of the Income Tax Apellate Tribunal has observed.

While pursuing the captioned appeal instituted by the Assessee seeking to assail additions of Rs.33, 11,185confirmed by the CIT(A) on account of fall in net profits, the Tribunal allowed the same and observed that it found traction in the plea of the assessee that no justifiable reasons were  available to reject the books and embark upon estimations. 

Accountant Member-Pradip Kumar Kedia and Judicial Member- Anubhav Sharma allowed the present appeal by observing that it found traction in the plea of the assessee that no justifiable reasons were available to reject the books and embark upon estimations. 

The assessee was engaged in the business of manufacturing of rough iron forgings and machining parts of vehicles. A survey under Section 133A of the Act was carried, wherein certain disclosures were made by the assessee. 

The Assessee filed return of income declaring Rs.2, 78, 37,670/- for the Assessment Year 2013-14 in question which was subjected to scrutiny assessment. The Assessing Officer while framing the assessment inter alia made certain additions on account of lower net profits percentage by invoking Section 145(3) of the Act. 

The amount of addition was subsequently revised under Section 154 of the Act and eventually an addition of Rs.33, 11,182/- was retained on the grounds of lower reporting of net profit.

The assessee challenged the aforesaid action of the Assessing Officer before CIT (A). The CIT (A) did not embrace the plea of the assessee and found justification in rejecting the books under Section 145(3) of the Act by the Assessing Officer.

Aggrieved, the assessee preferred appeal before the Tribunal.

After considering the rival contentions, the Court noted that the estimation of profits consequent upon rejection of books under Section 145(3) was subject matter of controversy.  

The Assessing Officer in the present case had not shown as to how audited the books of account maintained by the assessee are incorrect or otherwise incomplete which is likely to vitiate the true profits of the assessee. It is also not the case of the Assessing Officer that entries in respect of certain transactions are altogether omitted or found incorrect. No inherent lacuna in the system of accounting was shown either, the Court stated. 

In furtherance of the same, the Tribunal noted that the  Assessing Officer was  not justified in taking drastic action of rejection of books of account which were  audited and were  without any qualification solely on the basis of general remarks that photocopy of the bills were  produced instead of original bills. No specific instance was provided in order to appreciate as to how such delinquency on the part of the assessee resulted in unreliability of books per se, the Court noted. 

The Court thus observed, “The Assessing Officer in our view is not justified in taking drastic action of rejection of books of account which are audited and are without any qualification solely on the basis of general remarks that photocopy of the bills have been produced instead of original bills.”   

Hence, the Tribunal stated that it found traction in the plea of the assessee that no justifiable reasons were available to reject the books and embark upon estimations. Thus the Tribunal set aside the action of the CIT (A) and directed the Assessing Officer to restore the position taken by the assessee in this regard. The appeal of the assessee was accordingly allowed.