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2019 (11) TMI 693 - AT - Income TaxRejection of books of account - Additions made on account of difference in the closing balance on account of purchases in comparison to the assessee’s account in the books of supplier as well as adhoc disallowance made by the AO on account of Coal and Fuel expenses - HELD THAT:- AO rejected the books of account of the assessee by invoking the provisions of section 145(3). Thus once the AO has invoked the provisions of section 145(3), the only course of action left with the AO to proceed with the assessment on best judgment basis and the income of the assessee ought to have been estimated on some reasonable and proper basis. It is also not in dispute that the past history i.e. the GP/NP declared by the assessee is the proper and reasonable basis and guidance for estimation of income of the assessee for the year under consideration. Instead of making the assessment by considering the provisions of section 145(3) read with section 144, the AO has proceeded to make specific disallowance after rejection of books of account. This action of the AO is not permitted under law as the book results were rejected by the AO then the items which are part of the trading account cannot be disallowed but the income of the assessee was required to be estimated. The assessee has pointed out that the AO has not pointed out any decline in the GP rate of the assessee for the year under consideration but the income declared by the assessee shows a better GP and NP rate in comparison to the preceding years. He has referred to the comparative chart of the preceding years as well as for the year under consideration showing the GP declared by the assessee. Thus having regard to the fact that the AO has rejected the books of account and the GP declared by the assessee for the year under consideration is 17.88% in comparison to the average of 3 years at 17.76%, the rejection of books of account under section 145(3) would not ipso facto lead to an addition if the assessee has declared the results either better or in line with the preceding years. Therefore, once the assessee’s GP declared for the year under consideration is better than the average of the preceding year, then inspite of rejection of books of account, no addition is called for. Even otherwise, the AO has not attempted to make any trading addition but made specific disallowance after rejection of books of account which is not permissible. Accordingly, additions made by the AO on account of some discrepancies in the balance sheet on account of Coal and Fuel expenses are deleted. Appeal of the assessee is partly allowed.
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