2015 (12) TMI 457 - AT - Income Tax

Rejection of books of account - estimation of income - rejection of documents furnished by assessee - Held that - AO chose not to examine the documents furnished by assessee but chose to place full reliance on the report given by the DDIT. We are not able to appreciate the said action of the assessing officer. When the assessee was confronted with the report given by the DDIT, in our view, the assessee can at best controvert the same by filing the documents available with it. Further, when the assessee has filed the copies of income tax returns filed by the concerned parties, the assessing officer could have very well cross verified the same. The AO could have also enforced the attendance of those parties by issuing summons to them. We are unable to understand as to why the assessing officer could not carry out those kind of examination, when they are well within his powers. Hence, in our view, the assessing officer was not justified in ignoring the evidences furnished by the assessee in order to establlish the genuineness of the parties. We notice that the Ld CIT(A) has also dismissed these documents by observing that they are cooked up documents by making general observations, i.e., without actually establishing that the above said documents were bogus in nature. It is not known as to how the copies of income tax returns could be considered to be a cooked up documents. Thus, we notice that the said observations made by the Ld CIT(A) are baseless, not supported by any evidences and are mere surmises. Hence we are unable to sustain his conclusions. We further notice that the assessee has maintained proper books of accounts. The purchases and sales recorded therein have not been found fault with, i.e., no defect has been pointed out by the assessing officer. Hence, we are of the view that there is no ground available with the assessing officer to reject the books of account. Accordingly we are of the view that the assessing officer was not justified in rejecting the books of account and consequently, in our view, the book results should have been accepted. Accordingly, we are of the view that there is no justification or proper ground warranting the estimation of profits in the assessee s hand in all the three years under consideration. - Decided in favour of assessee.

Summary

Issues involved:
Appeals against rejection of books of account and estimation of income for assessment years 2007-08, 2008-09, and 2009-10.

Detailed Analysis:

Issue 1: Rejection of Books of Account and Estimation of Income
The appeals were consolidated as they pertained to identical issues arising from a survey operation conducted on the assessee, engaged in diamond trading. The Assessing Officer rejected the books of account based on statements obtained during the survey, estimating commission income at 2% of reported sales. The Director retracted his initial statement affirming the modus operandi, claiming coercion. The AO relied on statements and reports, disregarding documents provided by the assessee.

Analysis: The Tribunal noted that statements during surveys lack evidentiary value, especially when retracted, as per legal precedents. The AO failed to substantiate claims with additional evidence, and the absence of incriminating findings during the survey raised doubts. The reliance on the DDIT report without verifying documents provided by the assessee was deemed unjustified.

Issue 2: Reliability of Documents and Books of Account
The CIT(A) dismissed furnished documents as "cooked up" without substantial proof, supporting the AO's estimation of income. However, the Tribunal found no defects in the books of account, suggesting the rejection was unwarranted. The AO's failure to examine provided evidence and reliance on unverified reports were deemed unjustified.

Analysis: The Tribunal emphasized the importance of proper examination of evidence and lack of grounds for rejecting the books of account. The CIT(A)'s dismissal lacked evidential support, leading to the conclusion that the AO's estimation of income was unfounded.

Conclusion: The Tribunal allowed the appeals, directing the AO to accept the declared book results and delete the estimated income for all three years. The judgments highlighted the necessity of substantiated claims, proper examination of evidence, and adherence to legal precedents in assessing income based on survey operations.