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TMI Blog2024 (3) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... before the AO proceeds to the best judgment assessment upon fulfilment of conditions mentioned in the Act. The underlying rationale behind such an action is to meet the standards of correct computation of accounts for the purpose of a more transparent and precise assessment of income. Therefore, any pick and choose method of rejecting certain entries from the books of account while accepting other, without an appropriate justification, is arbitrary and may lead to an incomplete, unreasonable and erroneous computation of income of an assessee. In the present case, the ITAT has made a categorical finding that despite the fact that the AO was provided with the requisite bills, vouchers and addresses of the transacting parties, it did not make any effort to confirm the veracity of the alleged bogus or inflated bills. Admittedly, the addition of income as discussed in questions (B), (C) and (D) on estimate basis has been done without rejecting the books of account. - HON'BLE MR. JUSTICE YASHWANT VARMA And HON BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV For the Appellant Through: Mr. Zoheb Hossain, SSC and Mr. Sanjeev Menon, JSC For the Respondent Through: Mr. Yoginder Handoo and Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, deleted the additions of Rs. 19,05,653/- on account of disallowance of expenses and Rs. 9,30,49,222/- on account of inflated purchases. The CIT (A) also held that the addition of Rs. 1,00,000 on account of cash found and seized was made on the protective basis and in view of the substantive addition already made in the hands of Mr. Moin Akhtar Qureshi, which was mentioned by the AO, the said addition should be deleted. 6. Thereafter, the respondent-assessee as well as the Revenue preferred cross appeals before the ITAT. The ITAT dismissed the appeal of the Revenue and partly allowed the appeal of the respondent-assessee. The issue pertaining to the addition based on estimation of unaccounted profits was remitted back to the AO with a direction to obtain information from the parties regarding transactions carried on by the respondent-assessee during the concerned AYs. The ITAT further upheld the findings of the CIT (A) on the additions made in respect of disallowance of expenses and inflated purchases of Rs. 19,05,653/- and Rs. 9,30,49,222/-, respectively, in absence of any defect on record brought by the AO. Without finding any infirmity in the order of the CIT (A), the ITAT hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instant case, which was duly accepted on the even date by the learned counsel for the respondent-assessee, who was present on advance notice. 9. Thereafter, on 21.07.2023, the matter was taken up for consideration and the order passed by this Court on the said date would manifest that the appellants had conceded that the abovementioned questions (E), (F) and (G) stand covered against the appellants by virtue of the decision rendered by this Court in CIT v. Ankitech (P) Limited [2011 SCC OnLine Del 2213]. The order dated 21.07.2023 reads as under:- 1. This appeal concerns Assessment Year (AY) 2014-15. 2. The appellant/revenue has proposed seven (7) questions of law. 3. According to Mr Sanjeev Menon, learned standing counsel, who appears on behalf of the appellant/revenue, the proposed questions (e), (f) and (g) stand covered against the appellant/revenue, by virtue of the judgment rendered by a coordinate bench of this court in CIT v. Ankitech Pvt. Ltd., (2011) 11 taxmann.com 100 (Delhi). 4. We are informed that a Special Leave Petition (SLP) was preferred against the said judgment, which was also dismissed. 5. Learned counsel for the parties will file written submissions, not excee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties alongwith their addresses was presented to the AO to explain the expenses, however, the AO did not make any effort to verify the genuineness of such expenses from the concerned parties. He further submitted that in the absence of any discrepancy in the books of account and more importantly, without rejecting the books of account, such disallowance of the purchases by the AO is completely unjustified and contrary to the provisions of the Act. He, therefore, submitted that there were no cogent reasons to make the aforesaid additions at the behest of the AO and the view taken by the ITAT and CIT (A) in favour of the respondent-assessee is the correct enunciation of law. 15. Learned counsel has placed reliance on the decision of the Hon ble Supreme Court in the case of Sargam Cinema, Haldwani v. Commissioner of Income-tax, Haldwani [(2010) 15 SCC 546], to contend that the books of account must have been rejected. 16. We have heard the learned counsel appearing on behalf of the parties and perused the record. 17. It is expedient to primarily advert to Section 145(3) of the Act which deals with the method of accounting and provides that in cases where the AO is not satisfied about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year and references in this section to the other provisions of this Act shall be construed as references to those provisions as for the time being in force and applicable to the relevant assessment year. 19. A plain reading of the aforementioned provisions would indicate that the AO wields an authority to make additions on the basis of estimation of income upon fulfillment of the conditions mentioned in Section 145(3) of the Act. Once the AO is satisfied about the existence of irregularities in the books of account as per Section 145(3) of the Act, it shall proceed in the manner provided under Section 144 of the Act. At this juncture, what needs consideration is the question whether such an addition must be made only after the rejection of the books of account by the AO. 20. The Division Bench of the High Court of Bombay in the case of Principal Commissioner of Income-tax v. Swananda Properties Pvt. Ltd. [2019 SCC OnLine Bom 13359] had an occasion to consider the said question and the same was accordingly answered as under:- 11. We note that the books of account of the respondent were rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of his business, the same would form the basis for computation of income. In the instant case it is noticed that neither the Assessing Officer nor the Commissioner of Income-tax (Appeals) have rejected the books of account maintained by the assessee in the course of the business. As such the Tribunal has rightly rejected or set aside the partial addition made by the Assessing Officer for arriving at gross profit and sustained by the Commissioner of Income-tax (Appeals) and rightly held that the entire addition made by the Assessing Officer was liable to be deleted. The said finding is based on sound appreciation of facts and it does not give rise for framing substantial question of law. [Emphasis supplied] 22. In another case of Principal Commissioner of Income-tax v. Marg Ltd. [2017 SCC OnLine Mad 37852], the Division Bench of the High Court of Madras has held that the rejection of books of account is sine qua non before the AO proceeds to make his own assessment. Paragraph 4(c) of the said decision is reproduced as under:- 4(c). Therefore, it is sine qua non that the Assessing Officer to come to a conclusion that the books of account maintained by the assessee are incorre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an assessee. 25. In the present case, the ITAT has made a categorical finding that despite the fact that the AO was provided with the requisite bills, vouchers and addresses of the transacting parties, it did not make any effort to confirm the veracity of the alleged bogus or inflated bills. 26. We, hereby, also take note of the observations made by the ITAT in its order dated 22.10.2018 in Paragraph 25, wherein, while affirming the deletion of additions vide order of the CIT (A), it was held as under:- 25. We find although the Assessing Officer was having complete address of the parties, however, he did not bother to call for any information from the said parties if he had some doubts. The entire addition by disallowing of 40% of the purchases in our opinion is not justified when the books of account are not rejected. We find the Hon'ble Gujarat High Court in the case of Yunus Haji Fazawala Vs. CIT (supra) has held that action of the Assessing Officer in disallowing 25% of purchases by doubting its genuineness without rejecting the books of account cannot be sustained. The order of the Tribunal confirming the disallowance was accordingly reversed. Since in the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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