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2019 (2) TMI 1811 - AT - Income TaxRejection of books of accounts - NP addition - HELD THAT - This is not a fit / case for rejection of books of account and estimation of profits as the search has not thrown up any specific discrepancies in the accounts regularly maintained by the appellant. A.O. has rejected the books of account and estimated the profits of the business only based upon NP ratio without confronting the same to the appellant. This is completely in violation of principles of natural justice. A.O. has adopted a very simplistic approach in completing the assessment. Such action of the A.O. cannot be sustained. We agree with the finding of the Ld. CIT(A) that no ground survives for rejection of books and estimation of income. The result of remand proceedings support the stand of the assessee. The assessee group have also honoured there declaration of surrender of income made during search seizure proceedings. As is evident from the detailed letter dated 28.02.2014, submitted before the AO. The group had surrendered ₹ 10 crore during the search. Therefore, the Ld. CIT(A) has rightly deleted the addition and allowed the appeal of the assessee, which does not need any interference on our part, therefore, we uphold the action of the Ld. CIT(A) on the issue in dispute and reject the ground raised by the Revenue.
Issues Involved:
1. Correctness of the CIT(A) order in law and on facts. 2. Deletion of disallowance of increased profit after invoking section 145(2) of the I.T. Act, 1961. 3. Rejection of books of accounts due to lack of documentary evidence for abrupt fall in net profit rate. 4. Deletion of addition on grounds of non-following the principle of natural justice. 5. Justification of including 'additional income' surrendered during search in the regular P&L account. Issue-wise Detailed Analysis: 1. Correctness of the CIT(A) order in law and on facts: The appeals were filed by the Revenue against the CIT(A)'s orders, which were challenged on the grounds that the CIT(A) erred in deleting the additions made by the AO. The Tribunal examined the CIT(A)'s detailed findings and found them to be well-reasoned and supported by the evidence on record. The CIT(A) had elaborately discussed the issues, including the fall in net profit ratio and the reasons provided by the assessee for such a fall. 2. Deletion of disallowance of increased profit after invoking section 145(2) of the I.T. Act, 1961: The AO had rejected the books of accounts under section 145(2) and recomputed the income based on the average net profit rate of the preceding three years. The CIT(A) found that the AO had not pointed out any specific defects in the books of accounts and that the fall in net profit ratio was due to increased costs of raw materials and financial charges. The Tribunal agreed with the CIT(A) that the mere fall in net profit ratio could not be a ground for rejecting the books of accounts and that the AO's action was not justified. 3. Rejection of books of accounts due to lack of documentary evidence for abrupt fall in net profit rate: The AO had rejected the books of accounts on the basis that the assessee did not furnish documentary evidence to explain the fall in net profit rate. The CIT(A) found that the assessee had provided detailed explanations and supporting documents, which were not properly considered by the AO. The Tribunal noted that the AO had not issued any show-cause notice before rejecting the books of accounts and that the rejection was based on assumptions and conjectures without any concrete evidence. 4. Deletion of addition on grounds of non-following the principle of natural justice: The AO had made additions without giving the assessee an opportunity to explain the fall in net profit ratio. The CIT(A) observed that the AO had not followed the principles of natural justice and had adopted a simplistic approach in completing the assessment. The Tribunal upheld the CIT(A)'s finding that the AO's action was in violation of the principles of natural justice and could not be sustained. 5. Justification of including 'additional income' surrendered during search in the regular P&L account: The CIT(A) had accepted the assessee's explanation that the fall in net profit ratio was due to increased costs and financial charges. The Tribunal noted that the assessee group had honored their declaration of surrender of income made during the search and that the AO had not brought any adverse material on record. The Tribunal agreed with the CIT(A) that the surrendered income could be included in the regular P&L account and that the AO's action in rejecting the books of accounts was not justified. Conclusion: The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s orders. The Tribunal found that the AO had not provided any concrete evidence to justify the rejection of the books of accounts and that the CIT(A) had rightly deleted the additions made by the AO. The Tribunal emphasized the importance of following the principles of natural justice and noted that the AO's actions were based on assumptions and conjectures without proper consideration of the evidence provided by the assessee.
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