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2023 (8) TMI 1020 - AT - Income TaxRejection of books of accounts - CIT(A) holding that books of account cannot be rejected if the assessee has produced books of accounts and bills/ vouchers, even if there is absence of actual transaction - HELD THAT:- For rejecting the books of accounts, AO has to record any of the following defects as Where the assessing officer is not satisfied about the correctness or completeness of the accounts or Where method of accounting, cash or mercantile has not been regularly followed by the assessee or Accounting standards as notified by Central Government have not been regularly followed by the assessee. In the present case, there is no allegation by the AO that the assessee has not fulfilled the above three conditions. More so, the present assessee is a Private Limited Company, which is required to maintain the books of accounts as per Company Act and required to be audited under Company Act as well as Section 44AB of the Act by a qualified Chartered Accountant. The assessee has duly got audited books of accounts under Company Act and also under Income Tax Act by a qualified Chartered Accountant. There is no adverse remarks made by statutory auditor as well as by Income Tax auditor which could provoke the assessing officer to reject the books of accounts. If there is a decline in the gross profit rate or net profit rate as compared to earlier assessment years and there may be hundred one reasons for the same and the assessing officer shall bring on record specific defects in the books of accounts of the assessee before invoking the provisions of section 145(3) of the Act. The rejection of accounts cannot be made simply on the reason that lower net profit rate in comparison to earlier years or with the other assessee placed in similar circumstances. The power vested with the AO u/s 145(3) of the Act has to be exercised judicially and not arbitrarily. When the assessing officer does not accept the assessee’s method of accounting, then he has to resort to the provisions of the section 145(3) of the Act for computation of income by adopting such other basis as determined by him. As gone through the reasons advanced by AO for rejecting the books of accounts to hold that accounts are not complete or correct from which correct profit cannot be deduced. The reasons advanced by assessing officer as discussed above cannot be said that valid reason to reject the books of accounts as the assessee’s books of accounts duly audited under relevant Act and it is certified by qualified Chartered Accountants. AO not commented anything on the duly certified audit report furnished by the qualified Chartered Accountants when it has been certified that books of accounts are reflects true profit of the assessee’s firm for the relevant assessment year. In such situation, the ld. AO not justified in rejecting the books of accounts of the assessee. Further observed that, the A.O. has not brought on record any evidence to prove that any expenditure and income recorded by the assessee is not supported by evidence or is bogus. Estimation of income @ 50% of Gross CWG receipts and @ 3% of Gross non-CWG receipts - As once the books of accounts of the assessee are rejected, then income of the assessee to be estimated on the basis of proper material available on record. In the present case, though AO has mentioned that he has rejected the books of accounts, he relied on the figures in the same books of accounts to make additions on various counts, which cannot be appreciable. In our opinion, the assessing officer on mere suspicion has rejected the books of accounts though there must be something more than mere suspicion to support the assessment order passed u/s 143(3) the rule of law on this subject has been fairly and rightly stated in the case of Dhakeswari Cotton Mills Ltd. [1954 (10) TMI 12 - SUPREME COURT] In our opinion, there is no valid reason to reject the books of accounts of the assessee and we do not find any infirmity in the order of ld. CIT(A) in accepting the books of accounts of the assessee. As we already held that the rejection of books of accounts is not justified, consequently, there is no question of estimation of income of the assessee and the assessment to be made on the basis of books of accounts of the assessee only, as such, the declared income of the assessee to be accepted. Decided in favour of assessee. Unexplained Cash Seized - HELD THAT:- Considering the fact that the AO has not doubted genuineness of the cash book submitted by the Assessee, the opening cash balance as on 28/10/2010 on the day the search and seizure operation conducted is actually more than the cash found therefore, the observation of the A.O. that Assessee could not provide satisfactory explanation for the cash found that too after submission of the cash book itself which is not doubted is erroneous. Thus, we find no error in the findings and conclusions of the CIT(A) and we do not find any merit in this ground of appeal of the revenue. Accordingly, this ground is also rejected.
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