2016 (1) TMI 985 - AT - Income Tax

Rejection of books of accounts u/s 145(3) - addition on account of low net profit - CIT(A) deleted addition - Held that - CIT(A) was fully justified in observing that the Assessing Officer was not justified in rejecting the assessee s books result u/s 145(3) of the Act. The CIT(A) has also rightly observed that the action of Assessing Officer was also not justified in applying the provisions of Section 44AD since the assessee s total turnover was ₹ 3.36 crores; accordingly, the CIT(A) has rightly deleted the addition. This reasoned factual finding needs no interference from our side. We uphold the same. - Decided in favour of assessee.

Issues:
- Appeal against orders of CIT(A) for Assessment Years 2006-07 & 2007-08
- Rejection of book results u/s 145(3) and addition on account of low net profit
- Application of Section 44AD to total receipts of the assessee
- Verification of books of account and expenses incurred in cash
- Lack of bills and vouchers for expenses
- Assessment of net profit and addition to total income
- CIT(A) deleting the addition and rejecting the rejection of book results
- Appeal by Revenue against CIT(A) orders
- Observations and findings of Assessing Officer and CIT(A)
- Upholding CIT(A) orders and dismissing Revenue's appeals

Detailed Analysis:

Issue 1: Rejection of book results u/s 145(3) and addition on account of low net profit
The Revenue raised grounds of appeal against the deletion of rejection of book results u/s 145(3) and addition of a specific amount on account of low net profit. The Assessing Officer had rejected the book results citing lack of bills and vouchers for certain expenses incurred in cash. The CIT(A) deleted the addition after considering various contentions raised by the assessee, finding the Assessing Officer's observations unsubstantiated. The CIT(A) upheld that the Assessing Officer failed to provide specific examples supporting the rejection and noted that the nature of the assessee's business and the expenses incurred were not adequately considered. The CIT(A) found the objections raised by the Assessing Officer regarding expenses, labour payments, and vouchers to be baseless and unsubstantiated. Consequently, the CIT(A) deleted the addition of the specified amount to the assessee's total income.

Issue 2: Application of Section 44AD to total receipts of the assessee
The Assessing Officer applied the provisions of Section 44AD to the total receipts of the assessee due to the rejection of book results u/s 145(3). However, the CIT(A) found this application unjustified, considering the total turnover of the assessee. The CIT(A) correctly observed that the Assessing Officer's decision to apply Section 44AD was not warranted, leading to the deletion of the additional amount from the assessee's total income.

Issue 3: Observations and findings of Assessing Officer and CIT(A)
The Assessing Officer's observations regarding expenses, labour payments, and vouchers were found to be lacking substantial evidence and specific defects in the assessee's books of account. The CIT(A) highlighted the inadequacy of the Assessing Officer's reasoning and the relevance of the expenses to the assessee's business operations. The CIT(A) concluded that the Assessing Officer's rejection of book results and application of Section 44AD were unwarranted and unsupported by concrete findings. The CIT(A) emphasized the importance of maintaining normal accounting standards and justified the deletion of the addition based on reasoned factual findings.

Conclusion:
The ITAT upheld the CIT(A) orders for both Assessment Years 2006-07 and 2007-08, dismissing the Revenue's appeals. The ITAT found no grounds to interfere with the CIT(A)'s decisions to delete the addition and reject the rejection of book results, considering the lack of substantiated evidence and the proper application of legal provisions. The reasoned factual findings of the CIT(A) were deemed appropriate, leading to the dismissal of the Revenue's appeals for both years.

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