2024 (10) TMI 1567 - AT - Income Tax

Addition made after rejecting the books of accounts of the assessee - HELD THAT - AO has nowhere given a finding that the assessee has not regularly followed the method of accounting as specified u/s.145(1). And it is also not the case of the AO that the assessee has not computed the income in accordance with the accounting standard notified u/s. 145(2) of the Act. Thus, according to us, the condition for invoking sec.145(3) of the Act is not satisfied in the facts of the case. And merely based on suspicion, conjectures and surmises, the action of the AO to express his dissatisfaction about the correctness or completeness of the accounts, when assessee s books are audited cannot be accepted. By merely copying/reproducing Rule 6F of the Rules, and sec.145(3) AO cannot justify his action of rejecting the books of accounts which was regularly maintained by the assessee and which have undergone auditing u/s. 44AB of the Act. Therefore, we don t countenance the action of the CIT(A) upholding the action of the AO rejecting the books of accounts of the assessee. And since we accept the log-book maintained by assessee in accordance to Rule 6F of the Rules and note that there is no other material referred to in assessment order or impugned order to support the addition. Hence, the addition can t be legally sustained. It is a settled position of law that the statement of a person can t be used against a person/ assessee without it being tested on the touch stone of cross-examination as held in the case of CIT v. Odeon Builders (P) Ltd. 2019 (8) TMI 1072 - SUPREME COURT - Therefore, looking from any angle, even if the statement of Ms. G. Subhadra is considered, still the addition cannot be sustained, without it being tested by cross-examination. Appeal filed by the assessee is allowed.

Summary

Issues:
Challenge to addition of undisclosed income in assessment, rejection of books of accounts by AO, validity of re-opening of assessment based on search conducted at M/s. Apollo Hospitals Ltd.

Analysis:
The appeal was against the addition of Rs. 16,47,500 made by the AO after rejecting the books of accounts of the assessee. The AO re-opened the assessment based on information that the assessee received unaccounted income as fees from out-patient consultations at M/s. Apollo Hospitals. The AO doubted the veracity of the log book submitted by the assessee, alleging it was recently prepared. The Ld.CIT(A) partly allowed the appeal but confirmed the addition. The Tribunal noted that the AO rejected the books based on suspicion without alleging any deficiencies or violations of Rule 6F of the Rules. The AO did not give the assessee an opportunity to explain or rebut the rejection of the log book. The Tribunal found that the conditions for invoking sec.145(3) of the Act were not satisfied. The addition of Rs. 16,47,500 was held to be legally unsustainable.

The Ld.DR representing the department referred to a statement of an individual from M/s. Apollo Hospitals recorded during a search, but the AO did not discuss or mention this statement in justifying the addition. The Tribunal refused to consider this material as it had not been referred to by the AO or Ld.CIT(A). Additionally, the Tribunal highlighted that the statement of a person cannot be used against an assessee without being tested through cross-examination. Even if the statement was considered, the addition could not be sustained without proper testing. Therefore, the impugned addition of Rs. 16,47,500 was ordered to be deleted.

In conclusion, the appeal by the assessee was allowed, and the addition of Rs. 16,47,500 was deleted. The Tribunal found that the rejection of books by the AO was unjustified and that the re-opening of assessment lacked proper justification. The decision was pronounced in Chennai on October 23, 2024.