2023 (1) TMI 1012 - AT - Income Tax
Rejection of books of accounts - estimation of profits consequent upon rejection of books - HELD THAT:- It is the case of the Revenue that the assessee has failed to produce original invoices/vouchers to prove the completeness of the books of account and therefore, books of account have been rightly rejected u/s 145(3) - In the factual set up, we straightaway take note of the assertions made on behalf of the assessee that net profit rate declared by the assessee is 6.15% as compared to 6.52% in the earlier year. Thus, there is no striking discrepancy in the net profit ratio. Incidentally, it is the case of the assessee that the gross profit declared during the year compares higher than the gross profit in the earlier year whereas some marginal drop in the net profit has happened on account of higher depreciation and interest on loan for acquisition of fixed assets.
Hon’ble Delhi High Court in the case of Paradise Holidays [2010 (4) TMI 111 - DELHI HIGH COURT] has enunciated the circumstances where invocation of Section 145(3) would not be justified. AO in the present case has not shown as to how audited the books of account maintained by the assessee are incorrect or otherwise incomplete which is likely to vitiate the true profits of the assessee. It is also not the case of the AO that entries in respect of certain transaction are altogether omitted or found incorrect. No inherent lacuna in the system of accounting is shown either.
AO in our view is not justified in taking drastic action of rejection of books of account which are audited and are without any qualification solely on the basis of general remarks that photocopy of the bills have been produced instead of original bills. No specific instance has been provided in the order to appreciate as to how such delinquency on the part of the assessee has resulted in unreliability of books per se. Admittedly, the photocopies of bills and vouchers were duly produced, AO has not made any independent inquiry on the correctness of the bills from third parties. The profits declared in the instant case being in the vicinity of the profits declared in the earlier years, we see no apparent justification whatsoever in the action of the Revenue.
We find traction in the plea of the assessee that no justifiable reasons are available to reject the books and embark upon estimations. We thus set aside the action of the CIT(A) and direct the AO to restore the position taken by the assessee in this regard. Appeal of the assessee is allowed.