2018 (2) TMI 1578 - AT - Income Tax

Assessment proceeding u/s.147 read with 144 - Addition u/s.69 - rejected of books of accounts - failure of the assessee to reconcile the difference of cash balance in the bank account as per books of account and as per the bank statement - Held that - AO made assessment u/s.143(3) by passing the order on 23.12.2011 by rejecting the book results of the assessee and estimating the income by applying rate of 8% on the gross contract receipts of 49 10 212/- and estimated the income at 3 92 816/-. Thereafter the AO passed an order u/s.147/144 on 11.02.2015 making an addition of 1 00 000/- u/s.69 on account of difference between the amount shown in the bank account maintained with Allahabad Bank and the amount shown in the books of accounts of assessee. On appeal the CIT(A) confirmed the action of AO. As the original assessment u/s.143(3) was made by the AO by rejecting the books of accounts of the assessee and estimating the income of the assessee at 8% of the gross contract receipt of 49 10 212/-. It is trite law that once the books of accounts of the assessee are rejected the same cannot be relied for making addition u/s.69 - Decided in favour of assessee.

Summary

Issues:
1. Delay in filing the appeal
2. Addition under section 69 of the Income Tax Act
3. Rejection of books of accounts by the Assessing Officer
4. Discrepancy in bank account balance
5. Reopening of assessment

1. Delay in filing the appeal:
The appellant filed an appeal against the order of the CIT(A)-2, Bhubaneswar, with a delay of 27 days. The appellant provided an affidavit explaining the reason for the delay, which was found to be sufficient by the Accountant Member of the ITAT CUTTACK. The delay was condoned, and the appeal was admitted for hearing.

2. Addition under section 69 of the Income Tax Act:
The Assessing Officer (AO) made an addition of ?1,00,000 under section 69 of the Income Tax Act in the assessment proceedings. This addition was based on the failure of the appellant to reconcile the difference in cash balance between the books of account and the bank statement. The appellant argued that since the original assessment was completed by estimating the profit at 8% of gross contract receipts, the subsequent addition was illegal and arbitrary. The ITAT CUTTACK held that once the books of accounts are rejected, they cannot be relied upon for making additions under section 69 of the Act. Citing a previous decision, the ITAT allowed the appeal and deleted the addition of ?1,00,000.

3. Rejection of books of accounts by the Assessing Officer:
The AO had initially rejected the books of accounts of the appellant during the original assessment under section 143(3) of the Act. The income was estimated at 8% of the gross contract receipts. Subsequently, the AO reopened the assessment under section 147/144 of the Act and made an addition under section 69 based on the discrepancy in the bank account balance. The ITAT found that the rejection of books of accounts in the original assessment precluded their use for making additional assessments under section 69.

4. Discrepancy in bank account balance:
The AO made an addition of ?1,00,000 under section 69 due to a difference in the amount shown in the bank account with Allahabad Bank and the amount in the books of accounts. The CIT(A) upheld this addition, but the ITAT overturned it, emphasizing the principle that rejected books of accounts cannot be relied upon for such additions.

5. Reopening of assessment:
The appellant had raised other grounds related to the reopening of the assessment, but these became academic after the deletion of the addition under section 69. Therefore, these grounds were considered infructuous by the ITAT.

In conclusion, the ITAT CUTTACK allowed the appeal of the assessee, deleted the addition made under section 69 of the Act, and set aside the orders of the lower authorities based on the rejection of books of accounts during the original assessment.