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2012 (10) TMI 855 - AT - Income TaxRejection of the books of accounts - invoking the principles of best judgment - Held that:- The provisions of sec. 145(3) invoked by the AO, lay down that if the AO is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the AO may make an assessment in the manner provided in section 144. As is apparent from the facts narrated in the impugned order, the AO nowhere recorded any finding that the books of accounts maintained by the assessee for Koldam project were incorrect, rendering it impossible to deduce the profit and despite that he proceeded to invoking the principles of best judgment. There is no deviation in the method of accounting employed by the assessee in the previous year from the accounting standards prescribed u/s 145 of the Act while the auditor's observations did not affect the taxable income of the assessee, the assessee having provided detailed explanations against each of the observations of the auditors along with the supporting documents - as decided in CIT Vs. Amitbhai Gunwantbhai [1980 (6) TMI 10 - GUJARAT HIGH COURT] if there is no challenge to the transactions represented in the books then it is not open to Revenue to contend that what is shown by the entries is not the real state of affairs. Secondly, even if for some reason, the books are rejected it is not open to the AO to make any addition on estimate basis or on pure guess work. As there being no explanation in respect of claim of expenditure of Rs.3,20,656/- mentioned in observation (f) the amount is required to be added back. As assessee did not raise any objection if the said amount is added back. To that extent impugned order is modified and AO is directed to disallow the claim of these expenses - As regards other observations of the auditors, since there is no challenge to the transactions represented in the books in the light of these observations, then it is not open to Revenue to contend that what is shown by the entries is not the real state of affairs - partly in favour of assessee.
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