The Assistant Commissioner of Income Tax V/s. M/s. Sanjay Agrawal

Order pronounced in open court on 9th day of June, 2022

The assessee’s firm is in the business of construction activities and 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. 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.

The AO observed that the books of account of the assessee were not fully reliable and he rejected them under Sec. 145(3) of the Act. Considering that the turnover of assessee’s business was more than the limit provided u/s. 44AD of the Act, he estimated its income @ 8% of its gross receipts and assessed the same at Rs. 10,71,67,261.

Appeal before CIT(A): Aggrieved, the assessee filed appeal before the CIT(Appeals). It was observed by the CIT(Appeals) that the AO had rejected the audited books of accounts of the assessee on the basis of vague observations and without any substantive justification for triggering Sec. 145(3) of the Act. The CIT(Appeals) did not uphold the Net profit rate of 8% set by the AO as it was not justified by any data but was taken at 7%, referring to the NP rates of the assessee for AY 2011-12 and AY 2014-15 and the computed business income of the assessee at Rs. 5,79,34,562.

Appeal before ITAT: The tribunal observed 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) 76 ITR 719 (SC). Therefore, the tribunal held that in the absence of pointing out 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. Hence, the rejection of books of accounts of the assessee by AO was set aside. The order of the CIT(Appeals) was modified and the addition to the extent sustained by him by embarking on the process of estimation of the income of the assessee was directed to be vacated. So, the appeal filed by revenue was allowed.

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