2019 (2) TMI 45 - AT - Income Tax

Penalty proceedings u/s 271B - Rejection of books of accounts - G.P. rate - disallowance u/s 43B - Held that - The entire case of the AO and the CIT(A) is that no audited account or audit report has been furnished. From the perusal of the letter filed before the AO, find that assessee has filed the audit report in response to a notice issued by the AO and said audit report is also appearing, wherein auditors have duly certified the books of account and the trading result in Form 3CB. Not only that, a notice was also sent by the AO to CA and despite all these material facts placed on record, the entire additions have been made on the ground that entries in the profit and loss account and balance sheet have not been audited. The entire basis and premise for making an adhoc addition gets vitiated in the light of the fact that audited accounts and the entire audit report was filed before the AO as well as before the CIT(A), which fact stands established by the Tribunal in the penalty proceedings u/s 271B. Apart from that, find that assessee has given the entire details relating to trading account and profit and loss account and balance sheet including details of opening stock, purchases and the sales made by the assessee before the CIT(A) which was also sent to the AO to submit his remand report. However, the AO in the remand report has not even commented upon these details. Once assessee has filed all the details and the audit report and has given explanation with regard to each and every entry of the trading account including expenses incurred with evidences, then no adhoc estimation of income or disallowance of expenses can be made. - Decided in favour of assessee.

Summary

Issues Involved:
- Appeal against order passed by Ld. Commissioner of Income Tax (Appeals)-XXV, New Delhi for the quantum of assessment under IT Act for Assessment Year 2008-09.
- Disallowance of expenses and enhancement of gross profit rate.
- Disallowance of VAT payable under section 43B of the IT Act.
- Failure to produce books of account and relevant vouchers.
- Non-audit of accounts despite turnover exceeding prescribed limit under section 44AB of the IT Act.

Analysis:

Issue 1 - Appeal Against Order:
The appeal was filed against the order dated 31.01.2018 by the Assessee, challenging the assessment under section 144 of the IT Act for the Assessment Year 2008-09. The grounds of appeal raised various issues, including the nullity of the order under section 144.

Issue 2 - Disallowance of Expenses and Enhancement of Gross Profit Rate:
The assessing officer disallowed a portion of the expenses claimed by the assessee on an estimate basis and enhanced the gross profit rate due to the absence of supporting purchase and sales bills. The disallowance and enhancement were made without proper documentation and led to a significant addition to the income.

Issue 3 - Disallowance of VAT Payable:
The assessing officer disallowed the VAT payable amount reflected in the balance sheet under section 43B of the IT Act, as the assessee failed to produce the necessary documentation, such as a copy of the challan. This disallowance further impacted the financials of the assessee.

Issue 4 - Failure to Produce Books of Account:
During the assessment proceedings, the assessee failed to produce books of account and relevant vouchers to support the claimed expenses. This failure to provide essential documentation raised concerns regarding the accuracy and legitimacy of the expenses incurred.

Issue 5 - Non-Audit of Accounts:
The assessing officer noted that the accounts were not audited despite the turnover exceeding the prescribed limit under section 44AB of the IT Act. This non-compliance with the auditing requirement raised questions about the accuracy and reliability of the financial statements presented.

Judgment Analysis:
The Ld. CIT(A) dismissed the assessee's appeal based on the non-audit of accounts and lack of satisfactory explanations for expenses and auditing non-compliance. However, the Tribunal found that the assessee had indeed filed the audited balance sheet and audit report before the Assessing Officer, as evidenced by the documents submitted. The Tribunal also highlighted that the auditors had certified the books of account and trading results. The Tribunal observed that the additions made by the assessing officer lacked a valid basis due to the availability of audited accounts and detailed explanations provided by the assessee. As a result, the Tribunal allowed the appeal, overturning the disallowances and enhancements made by the assessing officer and upheld by the Ld. CIT(A).

In conclusion, the Tribunal's decision emphasized the importance of proper documentation, audit compliance, and detailed explanations in income tax assessments to ensure accuracy and fairness in determining the taxable income.