Rejecting Books of Account Without Pointing Out Any Defect is Bad in Law: ITAT

The Income Tax Appellate Tribunal (ITAT) Kolkata held that a book of account cannot be rejected without specifying any defect in it.

The assessee, Jaya Chandra, a wholesale trader of agricultural materials, filed her income tax return declaring Rs 2,86,92,950. The case was selected for scrutiny for reasons including creditors of more than 50% of the purchases, mismatches in the taxable receipt details and declared income, etc. The Assessing Officer (AO) rejected the assessee’s books of accounts after some suppliers failed to reply to notices issued to them by the AO. As a result, the AO estimated profits at 8% of total turnover and made an addition of Rs 24,974,293. The CIT(A) upheld this addition.

The Tribunal observed that the assessee had placed evidence before the AO and CIT(A). These include e-way bills, transport documents, etc., along with books of accounts. Only a few bills could not be submitted by the assessee. It was also noted that the tax auditors did not point out any defect in the books of accounts of the assessee.

It was noted that the AO and CIT(A) rejected the accounts just because some suppliers did not respond to notices, and some invoices were not submitted. The tribunal held that rejecting the books of account without highlighting any defect is bad in law.

Therefore, the ITAT set aside the CIT(A) order and directed the AO to delete the addition, holding that the books of accounts were wrongly rejected.