2024 (1) TMI 1198 - HC - Income Tax

Addition on the basis of seized documents found during the course of the search - unaccounted transaction/Purchases - ITAT instructed to restore the issue to the file of the AO with a direction to obtain information from the parties regarding transactions carried on by the assessee during the above 2 years - HELD THAT - It is thus manifest that since the exercise of assessment was not confined merely to the material gathered in the course of a search but was kept open to be examined with reference to all transactions in the Assessment Years in question, we find no ground to entertain the instant appeals on Question A. Estimation of income - bogus purchases - ITAT has essentially held that since the books of account had not been rejected it would not be open for the Assessing Officer to undertake an assessment of income - Appellant invited our attention to the following observations as appearing in the decision rendered in Unit Construction Co. Ltd. vs Joint Commissioner of Income-Tax 2003 (1) TMI 85 - CALCUTTA HIGH COURT to contend that it is not necessary for the Assessing Officer to reject the book of accounts in order to assess income on a best judgment basis - HELD THAT - In order to enable learned counsels to examine whether this issue stands concluded by a decision rendered by this Court, let the appeals be re-notified on 13.02.2024.

Summary

Issues involved:
1. Assessment based on seized documents for different assessment years.
2. Rejection of books of account for assessing income.
3. Consideration of legal principles for assessing income without rejecting books of account.

Issue 1: Assessment based on seized documents for different assessment years:
The Income Tax Appellate Tribunal (ITAT) remitted the matter to the Assessing Officer due to discrepancies in financial transactions found during a search. The ITAT emphasized that the Assessing Officer cannot estimate unaccounted purchases and sales for a particular assessment year based on material found in search proceedings relating to a different assessment year. The ITAT directed the Assessing Officer to obtain information from relevant parties and decide the issue after giving the assessee an opportunity to be heard. The High Court upheld this decision, noting that the assessment was not confined to material from the search but was open to examination with reference to all transactions in the relevant assessment years.

Issue 2: Rejection of books of account for assessing income:
The ITAT held that since the books of account were not rejected, the Assessing Officer could not disallow a percentage of purchases without proper justification. Citing a case from the Hon'ble Gujarat High Court, the ITAT emphasized that when books of account are not rejected, actions like disallowing purchases without proper grounds cannot be sustained. The High Court concurred with the ITAT's decision, noting that the Assessing Officer must have a valid reason to disallow income when books of account are not rejected.

Issue 3: Consideration of legal principles for assessing income without rejecting books of account:
The appellant's counsel referred to a decision by the Calcutta High Court to argue that it is not necessary for the Assessing Officer to reject books of account to assess income on a best judgment basis. The legal principle highlighted was that Section 68 of the Income-tax Act applies when the assessee's explanation is rejected, and the onus is on the assessee to prove the source of income. The High Court decided to re-notify the appeals for further examination to determine if this issue is concluded by a decision of the Court.

This summary provides a detailed breakdown of the judgment, addressing each issue involved and the key points discussed in the High Court's decision.