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2014 (11) TMI 403 - AT - Income TaxRejection of books of accounts – Principle of natural justice – Counsel of the assessee contended that the books of accounts are not properly examined – Reasons for rejection of books of accounts valid or not - Held that:- Following the decision in Late Shri Harshad S. Mehta Through L/H Smt. Jyoti H. Mehta Versus The DCIT, Central. Cir. 23, Mumbai 2014 (10) TMI 795 - ITAT MUMBAI] - The first reason for rejection of books is that the books of accounts are not contemporaneous - there is no denial that the books of accounts are not contemporaneous - the books of accounts have been prepared much after the close of the accounting year - rejecting the books of accounts on this ground is not justified because the books have actually been prepared much after the close of the accounting year - the books cannot be rejected merely because they are unaudited - All that has to be seen is that whether the books of accounts give a true and fair view or not. If the books of accounts have never been examined how can the revenue authorities say that the books are not complete - The revenue authorities should have specifically pointed out which part of the books is not complete - Without pointing out any specific/direct mistake, a general statement stating that the books are not complete would not do any justice - CIT(A) observed that most of the entries in the books of accounts are in the form of journal entries in the names of related person – it could not be understood as to how can this be a reason for rejecting the books of accounts - When a person is maintaining books of accounts on mercantile system of accounting, obviously, most of the entries would be in the form of journal entries - the books of accounts have been prepared on the basis of the evidences which are seized by the authorities which mean that they are still in the possession of the department/custodian - There is no specific instance pointed out which is not backed by any primary documentary evidence - It is also not clear whether the assessee was ever called for to explain any of the transactions recorded in the books of accounts - In the absence of the verification of primary document vis-à-vis entries in the books, assessee’s accounts cannot be treated as unreliable - The books were rejected by the Revenue authorities - the books have been rejected by the department on flimsy grounds without independently examining each and every entry and confronting specific discrepancy, if any, to the assessee - the AO is directed to verify/examine each and every entry in the books of accounts – Decided in favour of assessee.
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