AO Cannot Reject Books of Accounts Solely for Non-Maintenance of Stock Register: ITAT

The Income Tax Appellate Tribunal (ITAT), Delhi, has dismissed the appeal filed by the Income Tax Department, ruling that the non-maintenance of the stock register cannot be the only reason to reject the books of account. The Tribunal also ruled on several other issues, including the unexplained credit and large cash deposits during demonetization.

The assessing officers completed the assessment under section 143(3) of the Income Tax Act of the assessee Saluja Overseas, making three additions of Rs 79.14 lakh, Rs 2.52 crore, and Rs 18.53 crore.

Addition for Not Maintaining Stock Register

The AO had made an addition of Rs 79,14,204 by invoking section 145(3) of the Income Tax Act. The AO rejected the books of accounts of the assessee due to the non-maintenance of the item-wise stock register. The CIT(A) deleted this addition, noting that the assessee was dealing in the wholesale and trading of electronic items, which are very large in number with different sizes, qualities, colours, etc. The ITAT agreed with the CIT(A) that non-maintenance of the item-wise stock register alone cannot be the only reason to reject books. Therefore, the tribunal upheld the deletion of the addition of Rs 79,14,204.

Addition for Unexplained Credit Under Section 68 of the Income Tax Act

The AO had made an addition of Rs 2,52,50,000 towards the alleged bogus loans. The AO alleged that the assessee failed to substantiate the genuineness of the transaction. The CIT(A) observed that the loan was taken and repaid in the same year, and all transactions were made through proper banking channels. Considering the submissions made by the assessee, such as bank statements and GST details, the CIT(A) deleted this addition. The ITAT agreed with CIT(A), noting that the transactions were carried out through banking channels and the assessee had submitted documentary evidence to substantiate its claim. Therefore, this addition was also deleted.

Addition Towards Cash Deposits made during the demonetization period

The AO had made an addition of Rs 18,53,09,000 observing that the assessee had deposited cash in his bank account during the demonetization period. The CIT(A) deleted this addition after observing that the sales were recorded, VAT returns were filed, and cash deposits during demonetization were lower than in earlier periods. The ITAT upheld the CIT(A)’s ruling that mere suspicion cannot be the basis for making an addition under section 68. Accordingly, this addition was also deleted.

The ITAT found no error in the CIT(A)’s order and dismissed the Revenue’s appeal.