2022 (6) TMI 19 - AT - Income Tax

Rejection of books of accounts - estimation of sales - addition based on statement recorded during survey operations - estimation of rate of sale of plots at Rs.1,500/- per square yard - HELD THAT:- As statement of Reetesh Accountant and Rajesh Pengawala recorded by survey team on 06.01.2010, it cannot be inferred that they admitted the rate of plots at Rs. 1400/- or Rs. 1500/- per square yard. Rather by bringing the sufficient material on record the assessee has proved that the alleged entry in the seized material / diaries are no where related with the plot No. A-306 or B-102 of water word project developed by the assessee. Therefore, the first basis of rejection of books of account has no leg to stand.

Second ground of rejection of the books of accounts was non-recording the commissions payment - We find that Hon’ble Supreme Court in CIT Vs Padam Chand Ram Gopal [1970 (4) TMI 2 - SUPREME COURT] held that insignificant mistake noticed in one year cannot be a ground of rejection of books of accounts, when no other mistake was found in any other year’s books. Further, Hon’ble Andhra Pradesh High Court in CIT Vs Margadarsi Chit Funds (P) ltd [1984 (6) TMI 17 - ANDHRA PRADESH HIGH COURT] held that the Income Tax Officer is obliged to state the defects inherent in the method followed by the assessee and also to record a clear finding that system of accounting is such that correct profit cannot be deducted from the books before rejecting the books. We have noted that the AO has not pointed out any other serious mistake in the books of assessee. Moreover, the additional income of Rs. 1.50 Crore disclosed by the assessee was included in the profit and due tax has been paid thereon. Therefore, in our considered view the rejection of books of account by AO is not justified in absence of serious defects. Hence, the action of AO in rejecting the books of the assessee is set-aside.

Estimation of income by the assessing officer on the basis of statement of Reetesh Accountant and the partner of the assessee - When the revenue authorities have not demonstrated from the material as to whether the assessee failed to co-operate, which is an eventuality where the income tax authority would required to record its reasons to resort to the provisions of section 131(1) and convert the whole process into a search and seizure. When such facts are completely missing in the process and that such violation is fatal which can turn draconian to inherent safe guard of at least recording of such reason and satisfaction of non-cooperation to resort to other coercive steps needs to be set clearly by the income tax authority.

We further find that the AO has not investigated in the facts, either by examining the purchaser in the project of the assessee-firm nor collected any evidence from the officer of sub-registrar about the rate of sale of the various plots. No adverse material collected by AO except rely of the statement recorded during the survey. It is settled law that the statement recorded during the survey is not admissible in evidence unless it is corroborated with the material evidences. The AO worked out average rate of all the plots in the project. It is a matter of general practice that no uniform rate of sale is applicable in the private projects, the rate may vary depending on various factors like size, location, time of booking and number of bookings. So uniform rate is not applicable is such private project.

We also held that the recording of the statement by survey team under section 131(1) is not valid. Thus, no cognizance of such statement could be taken. Hence, the addition which is also based on the statement is not legally sustainable. In view of the aforesaid factual and legal discussions, we hold that rejection of books of accounts was not valid and further no such estimation of rate of plot which is based on the statement of partner and accountant is not legally sustainable in absence of other corroborative evidence on record. Thus, the assessee also succeeded on this submission as well.