2013 (10) TMI 920 - AT - Income Tax

Rejection of Books of Accounts u/s 145 (3) Held that - The reason given by the CIT (A) for upholding the rejection of books of accounts u/s 145(3) of the Act is not justified as the assessment order itself mentions that the assessee produced all the books of account along with supporting vouchers - The auditor of the assessee has specifically stated in his statutory audit report in form 3CB u/s 44AB of the Act that the profit and loss account gives a true and fair view of the profits of the assessee for the year. The AO has applied the net profit rate of 5.85% on the basis of A.Y. 2007-08 even when the same is without giving any reason to reject the assessee s view point of reduction in Net Profit because of increase in cost of bitumen - The rate has been applied devoid of any bearing thereon of the reasons given for rejection of books of account - the order passed by the CIT Udaipur u/s 263 of the Act for the A.Y. 2008-09 does not give any conclusive finding regarding any specific defect in the books of accounts and consequent specific disallowance - He has only given a direction to verify certain expenditure, which are claimed at an amount higher than the preceding years - Such directions in absence of any conclusive finding would not have a bearing on the case for A.Y. 2009-10 - rejection of books of account u/s 145(3) of the Act is not justified - the entire addition id deleted decided in favour of assesse.

Summary

Issues:
Trading addition in contractorship business based on net profit rate.

Analysis:
The appeal and cross objections were against the order of the ld. CIT(A) regarding a trading addition of Rs. 77,42,186 made by the Assessing Officer (AO) and the relief of Rs. 49,60,233 allowed by the ld. CIT(A). The AO applied section 145(3) of the Income-tax Act due to lack of site-wise records, absence of closing stock details, and consolidated accounts not verifiable. The ld. CIT(A) upheld the rejection of books but increased the net profit rate by 1% to 4.06%. The revenue argued against the relief granted, citing the application of 9% net profit rate in the previous assessment year. The assessee challenged the rejection of books, stating that all necessary accounts were maintained, and the auditor confirmed the accuracy of the profit/loss. The Tribunal found the rejection of books unjustified as the AO did not specify defects or how they affected income computation. The net profit rate of 5.85% was applied without considering cost variations. The Tribunal concluded that the rejection of books under section 145(3) was unwarranted, deleting the entire addition and dismissing the revenue's appeal.

The Tribunal highlighted that the AO's remarks were insufficient to reject audited books, and the auditor confirmed the accuracy of the profit/loss account. The AO failed to show how the alleged defects impacted income computation. The net profit rate was applied without considering cost variations, contrary to the assessee's explanation. The Tribunal found the CIT's directions for the previous year not applicable to the current assessment. Consequently, the rejection of books under section 145(3) was deemed unjustified, leading to the deletion of the entire addition and partial allowance of the assessee's cross objection.

The Tribunal emphasized the lack of justification for rejecting the books of account, as all necessary records were maintained and verified by the auditor. The AO's failure to specify defects impacting income computation and the arbitrary application of the net profit rate without considering cost variations were key factors in the decision. The Tribunal also noted that previous year's directions were not conclusive for the current assessment. Consequently, the rejection of books under section 145(3) was deemed unwarranted, resulting in the deletion of the entire addition and partial allowance of the assessee's cross objection.