2018 (7) TMI 1997 - HC - Income Tax

Rejecting the books of accounts u/s 145(3) - failure to provide adequate details regarding its generation of income - HELD THAT - We find that the power to reject the books of account can only be exercised where the Assessing Officer, is not satisfied with the correctness and/or completeness of the books of account. This nonsatisfaction is not reflected in the order of the Assessing Officer.Thus, he does not satisfy the sinequonon to reject the books of account. Moreover, the Assessing Officer has ignored the fact that the accounts were audited. This would further support the view that there is no basis to reject the books of account. No substantial question of law. Computation of taxable income - Tribunal justification in upholding the orders of the CIT(A), restricting the disallowance of ₹ 16 lakhs to ₹ 3 lakhs when the Assessee itself had disallowed the same in its computation - HELD THAT - As Respondent states that Respondent itself had disallowed the sum of ₹ 16 Lakhs while computing its total taxable income. Therefore, the CIT (Appeals) as well as the Tribunal restricting the disallowance to ₹ 3 Lakhs is contrary to the facts on record. Substantial question at Sr.No.(b) above has to be answered in the negative, i.e., in favour of the Appellant Revenue and against the Respondent Assessee.

Summary

Issues: Appeal under Section 260A of the Income Tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal for Assessment Year 2007-08.

Analysis:

Question (a):
The Tribunal upheld the order of the Commissioner of Income Tax (Appeals) [CIT(A)], stating that there was no basis for the Assessing Officer to reject the books of account. The Assessing Officer failed to point out any defects in the audited accounts, leading to the conclusion that there was no basis for rejection. The power to reject accounts can only be exercised if the Officer is unsatisfied with their correctness or completeness, which was not evident in this case. The question raised did not present a substantial question of law and was not entertained.

Question (b):
The Revenue contended that the disallowance of ?16 lakhs was incorrectly restricted to ?3 lakhs by the authorities. However, the Revenue failed to provide evidence that the Assessee had already disallowed the amount while computing taxable income. The Appeal was adjourned to allow the Revenue to produce the computation of income. Later, it was revealed that the Assessee had indeed disallowed the sum of ?16 lakhs while computing total taxable income, contrary to the claims made by the Revenue. The substantial question was answered in favor of the Appellant Revenue, and the Appeal was allowed accordingly.

The Respondent Assessee's fair conduct in presenting evidence and suggesting the disposal of the Appeal at an early stage was appreciated by the Court. The Appeal was allowed in favor of the Revenue, and no costs were imposed.