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TMI Blog2022 (6) TMI 1495X X X X Extracts X X X X X X X X Extracts X X X X ..... ected decorum and level of precision as would be expected by the AO, not being in the nature of a serious infirmity would not suffice for subjecting its book results to the rigors of Sec. 145(3) of the Act. Our aforesaid conviction that insignificant mistakes in accounts cannot lead to rejection of books of accounts u/s 145(3) is supported by the judgment of the Hon ble Supreme Court in the case of CIT Vs. Padamchand Ramgopal [ 1970 (4) TMI 2 - SUPREME COURT] wherein held insignificant mistakes in the accounts cannot justify rejection of books of accounts of the assessee under Sec. 145(3) of the Act. Thus in the absence of pointing out of any specific defect in the books of accounts of the assessee there was no justification for the AO to have rejected the same by triggering the provisions of Sec. 145(3) of the Act. Decided in favour of assessee. - SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI RATHOD KAMLESH JAYANTBHAI, ACCOUNTANT MEMBER For the Assessee : Shri Veekaas S. Sharma, AR For the Revenue : Shri G.N Singh, DR ORDER PER RAVISH SOOD, JM: The present appeal filed by the department is directed against the order passed by the CIT(Appeals)-1, Raipur, dated 22.02.2018, which in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue involved in the departments appeal and the cross objection filed by the assessee are inextricably interlinked or in fact interwoven, therefore, the same are being take up and disposed off together. 2. Succinctly stated, the assessee firm which is engaged in the business of construction activities had filed its return of income for the assessment year 2013-14 on 29.09.2012, declaring an income of Rs. 5,19,81,710/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act. 3. During the course of assessment proceedings, the A.O, inter-alia, directed the assessee to substantiate its claim for deduction of expenses under the various heads, viz. repair maintenance, printing stationary, travelling expenses, telephone expenses, office expenses and postage telegram expenses by producing its cash book a/w supporting bills and vouchers. As is discernible from the assessment order, the assessee is stated to have not produced all the bills and vouchers before the A.O. In fact, it was admitted by the assessee before the A.O that though the bills/vouchers supporting its claim for deduction of certain administrative expenses i.e., printing stationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur with the adoption of the Net profit rate @ 8% by the AO. It was observed by the CIT(Appeals) that the AO had not brought on record any data which would have justified taking of its Net profit rate @8% by her. Referring to the NP rates of the assessee for AY 2011-12 and AY 2014-15, the CIT(Appeals) was of the view that going by the rule of consistency the profit rate in the case of the assessee for the year under consideration could safely be taken @7% out of which deduction for depreciation, finance charges and partners remuneration and interest on capital may be further allowed. Accordingly, the CIT(Appeals) on the basis of his aforesaid observations computed the business income of the assessee at Rs. 5,79,34,562/-. For the sake of clarity the relevant observations of the CIT(Appeals) are culled out as under: 2.3 Facts being as above, the AO has computed income of the assessee by adopting NP rate of 8 percent. There is no finding about the basis for adopting this rate. The books of account has been rejected whereas the assessee has maintained books of account and has got these audited. The books of accounts cannot be rejected unless a substantial lapse on the major point is fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein is concerned, no legal authority has been shown to support the proposition that in this manner the principle underlying therein can be adopted. May be, that the learned Tribunal claims to be adopting this practice, but then, in our view, in taxing statutes, such adopting the principle underlying other sections cannot be said to be permissible, and sooner the practice is stopped, the better. Thus, question N. 3 is answered in favour of the Revenue, and against the assessee, and it is held, that the Tribunal was not justified in adopting the principle underlying s. 44AD, when it was not applicable, as such. Rather all the Tribunals are directed to stop this practice forthwith, if they are still continuing. Since the impugned judgment of the learned Tribunal proceeds on the basis of adopting the principle underlying s. 44AD, and also declines allowances of depreciation, contrary to law, we are constrained to set aside the order of the Tribunal. AO has not brought on record any data on the basis of which she has adopted the rate of 8 percent. The best judgment assessment should be honest estimate and fair and should have a like nexus with available material (Brij Bhaushan Lal Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentation to which the AO may be accustomed, had thus admitted to lack of maintenance of proper records. On appeal the CIT(appeals) though concurred with the assessee that the AO had rejected the books of accounts of the assessee without pointing out any specific defect in its books of accounts, but despite so observing he had proceeded with the estimation of its income and by drawing support from the NP rates of the assessee for AY 2011-12 and AY 2014-15, held a conviction that going by the rule of consistency the profit rate for the year under consideration could safely be taken @7% subject to a further deduction of depreciation, finance charges and partners remuneration and interest on capital. 7. We have deliberated at length on the issue in hand and concur with the specific observation of the CIT(Appeals) that the AO had rejected the books results of the assessee not on the basis of any substantial lapse in its books of account, but rather on the basis of vague observations that were recorded by him in the body of the assessment order. As observed by the CIT(Appeals), and rightly so, the AO had not only failed to point out any specific defect in the books of account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son that he was not satisfied with the correctness of its accounts. As observed by us hereinabove, a perusal of the assessment order reveals that the AO had rejected the books of accounts of the assessee for the reason that it had in the course of the assessment proceedings not only failed to produce all the vouchers for verification before him, but also by stating that the bills/vouchers supporting its claim for deduction of certain administrative expenses, viz. printing and stationary, office misc. expenses, repair and maintenance expenses, transport and hire charges may not match the decorum and level of presentation to which the AO may be accustomed, had thus in a way admitted to lack of maintenance of proper records. In our considered view, as observed by the CIT(Appeals), and rightly so, the AO had rejected the books results of the assessee not on the basis of any substantial lapse in its books of account, but rather on the basis of vague observations that were recorded by her in the body of the assessment order. As per the settled position of law, in case an AO is not satisfied about the correctness or completeness of the books of accounts, then, irrespective of whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, but also by stating that the bills/vouchers supporting its claim for deduction of certain administrative expenses, viz. printing and stationary, office misc. expenses, repair and maintenance expenses, transport and hire charges may not match the decorum and level of presentation to which the AO may be accustomed, had thus admitted to lack of maintenance of proper records, the same in our considered view is nothing better than a vague observation which by no means could have justified triggering the provisions of Sec. 145(3) of the Act for rejecting the books of accounts of the assessee. We, say so, for the reason that there is neither any whisper in the body of the assessment order of even a single instance of any such claim of expenditure of the assessee which is not found to be supported by corresponding bills/vouchers, nor is there any mention of any such bill/voucher which not being as per the expected decorum and level of precision could be dubbed as unauthentic or bogus. In sum and substance, though the AO had tried to justify the rejection of the books of accounts of the assessee for the reason that there was a lack of maintenance of proper records by the assessee, but ..... X X X X Extracts X X X X X X X X Extracts X X X X
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