2014 (1) TMI 1181 - AT - Income Tax

Rejection of books of accounts Estimation of income - No incriminating evidence/material against Assessee Held that - Merely because in the opinion of the revenue authorities the income declared by the assessee was less as compared to his annual turnover, that itself cannot be a ground to reject the books of the accounts of the assessee which had been maintained regularly in the due course of business - When the CIT(A) had given a finding that there was no defect in the books of the accounts of the assessee and even no cogent or convincing incriminating material was found against the assessee during the course of search action, then under such circumstances, there was no reason for him to reject the books of the accounts of the assessee. There was no incriminating evidence available with the revenue - the Revenue merely rely on the weakness of the evidences produced by the assessee to make any adverse presumption or conclusion of his indulging in such activities without being there any direct or even circumstantial evidence on record against him - Merely assuming that the buyer and seller might have connived with each other, cannot itself be a ground to call upon the assessee to disprove such type of assumption which is even not based on any relevant incriminating evidence or fact on the file there was no justification in the action of the CIT(A) in confirming the income on estimation basis at the rate of 0.5% of the turnover even having given a finding that there was no defect in the books of account of the assessee or any incriminating evidence found against the assessee the order of the CIT(A) set aside and the AO directed to accept the books of accounts of the assessee and make the assessment accordingly Decided against Revenue.

Summary

Issues:
Cross appeals by assessee and Revenue, rejection of books of accounts, estimation of income at 0.5% vs. 1% of total turnover, lack of incriminating evidence, circumstantial evidence, confirmation of income estimation by CIT(A), justification of CIT(A) action.

Analysis:
The judgment involves cross appeals by the assessee and the Revenue regarding the rejection of books of accounts and the estimation of income at different rates. The AO rejected the books of accounts, concluding the assessee provided accommodation bills and received commission, estimating income at 1% of total turnover. The assessee contended there was no material to support the allegation, and CIT(A) reduced the estimation to 0.5% net of expenses. The assessee challenged this reduced estimation, while the Revenue appealed against it.

The Revenue failed to establish a link between the assessee and incriminating evidence, relying on circumstantial evidence like cheques and letterheads. The CIT(A) found no specific defect in the books of accounts, reduced the income estimation, but still confirmed it at 0.5%. The Tribunal noted no direct incriminating evidence against the assessee, emphasizing the lack of grounds to reject the books of accounts maintained regularly. The Tribunal rejected the Revenue's argument of possible connivance between buyers and sellers, stating it was mere assumption without evidential value.

The Tribunal held that without incriminating evidence or defects in the accounts, the CIT(A) unjustly confirmed the income estimation at 0.5%. As a result, the Tribunal ordered the deletion of the income estimation made by the AO and confirmed by the CIT(A), directing acceptance of the books of accounts for assessment. Consequently, all appeals by the assessee were allowed, and those by the Revenue were dismissed, based on the lack of justification for the estimation and the absence of incriminating evidence against the assessee.

In conclusion, the Tribunal emphasized the importance of concrete evidence in tax assessments, highlighting the necessity for direct proof rather than assumptions or circumstantial evidence. The judgment underscores the significance of maintaining accurate accounts and the burden on the Revenue to establish allegations with substantial evidence rather than conjecture.