2015 (6) TMI 1186 - AT - Income Tax

Rejection of books of accounts - GP addition - CIT-A held that both the books of accounts could not be rejected and consequently the GP could not be estimated and GP addition made @ 2.5% is hereby deleted - ad-hoc disallowance restricted by CIT-A - HELD THAT - CIT (A) has rightly adjudicated the issue relating to the GP addition as well as the restricting the ad-hoc disallowance. In our considering opinion since there is no infirmity in the order of the CIT (A) and the decision taken by the CIT (A) is fair and reasonable therefore it does not call for any interference. Accordingly on this Ground assessee succeeds.

Summary

Issues:
1. Rejection of books of account and estimation of profit rate by Assessing Officer.
2. Disallowance restriction from &8377; 16,03,731 to &8377; 3,00,000.

Analysis:

Issue 1: Rejection of books of account and estimation of profit rate by Assessing Officer:
The Revenue appealed against the CIT (A)'s order deleting the GP addition and directing the AO to accept the profit declared by the assessee. The CIT (A) ruled in favor of the assessee, highlighting that the accounts were audited under section 44AB of the Income Tax Act, and no major adverse remarks were made by the Auditor. The CIT (A) emphasized that since no specific defects were pointed out in the audited accounts, the rejection of books of accounts under section 145(2) by the Assessing Officer was unjustified. The CIT (A) analyzed the progressive profits of the appellant and concluded that the estimation of profit was not justified. The ITAT upheld the CIT (A)'s decision, stating that the CIT (A) thoroughly analyzed the material and that the decision did not have any flaws, hence dismissing the Revenue's appeal.

Issue 2: Disallowance restriction from &8377; 16,03,731 to &8377; 3,00,000:
The second issue involved the restriction of a disallowance from &8377; 16,03,731 to &8377; 3,00,000. The Assessing Officer had rejected the books of account and estimated the freight charges received during the year at 2.50%. However, the CIT (A) reduced the disallowance to &8377; 3 lakhs after considering that the accounts were audited under section 44AB and there were no major adverse remarks by the Auditor. The CIT (A) found that the appellant had complied with most of the AO's requirements and that the estimation of profit at 2.5% was not justified. The ITAT upheld the CIT (A)'s decision, stating that the CIT (A) reasonably adjudicated the issue and there was no need for interference. Consequently, the appeal of the Revenue was dismissed.

In conclusion, the ITAT upheld the CIT (A)'s decision in both issues, emphasizing the importance of proper audit and lack of specific defects in the audited accounts as reasons for rejecting the AO's actions.