2018 (12) TMI 884 - AT - Income Tax

Rejection of books of accounts - non-production of accounts - Held that - Plea advanced on behalf of the assessee for defending non-production of accounts, as made before the authorities below, to our mind does not hold good. It is notable that the AO has demanded the production of accounts right from beginning of proceedings. Sufficient opportunities were given to the assessee and the assessee also appeared on some of the dates and filed part reply. No such fact of missing of accounts was unfolded by the assessee at any of the dates except the last date of hearing. Besides, the finding of Ld. CIT(A) as mentioned in his order AO had also not pointed out any particular defect or discrepancy in the accounts books maintained by the assessee , in our considered opinion, would have no locus standi once the assessee did not produce any books of accounts before the AO. Ld. CIT(A) is, therefore, not justified to accept the plea of the assessee regarding wrong rejection of books of accounts. - decided in favour of Revenue.

Summary

Issues:
1. Restriction of addition made on account of rejection of books of accounts under section 145(3).
2. Deletion of addition made by the Assessing Officer rejecting the books of accounts.
3. Validity of reopening the case for reassessment proceedings.

Issue 1: Restriction of addition due to rejection of books of accounts
The case involved an appeal by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals) pertaining to the assessment year 2006-07. The Revenue contended that the Ld. CIT(A) erred in restricting the addition made on account of rejection of books of accounts under section 145(3) to a lower amount than initially calculated by the Assessing Officer. The Revenue argued that the assessee failed to produce books of account and substantiate the sharp fall in the gross profit rate. The Ld. CIT(A) accepted the plea of the assessee regarding the wrong rejection of books of accounts but sustained the addition on account of loss on revaluation of stock and discounts given against previous year's sales. The Revenue challenged this decision before the Income Tax Appellate Tribunal.

Issue 2: Deletion of addition by AO rejecting books of accounts
The Assessing Officer rejected the books of accounts of the assessee under section 145(3) due to the inability of the assessee to produce the required documents. The AO calculated the gross profit at a certain rate, resulting in a substantial addition to the trading results declared by the assessee. The assessee appealed before the Ld. CIT(A), who, after considering detailed submissions and case laws, accepted the plea of the assessee regarding the rejection of books of accounts. However, the Ld. CIT(A) sustained certain additions, providing relief to the appellant. The Revenue contended that the Ld. CIT(A) was not justified in accepting the plea of the assessee and argued that the average gross profit rate was correctly calculated by the AO.

Issue 3: Validity of reopening the case
The case was reopened by the AO under section 148 of the Income Tax Act after the assessee filed a return declaring Nil income. The assessee requested to treat the original return as a response to the notice for reassessment proceedings. The AO issued statutory notices, and during the reassessment proceedings, the assessee failed to produce the necessary documents, citing misplacement during office relocation. The AO rejected the books of accounts under section 145(3) and completed the assessment under section 144. The Revenue challenged the validity of reopening the case, which was rejected by the Ld. CIT(A). The Tribunal ultimately allowed the appeal of the Revenue, finding that the assessee failed to produce accounts despite multiple opportunities, justifying the rejection of books of accounts and the additions made by the AO.

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