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2023 (10) TMI 1269 - AT - Income TaxEstimation of Net Profit before remuneration at 5.206% - rejection of books of accounts of the assessee u/s 145(3) - AO alleged that the assessee has lowered his profits by manipulating its books of accounts by deflating partners' remuneration and inflating other expenses to artificially compensate for the income surrendered by the assessee on account of survey done in the month of October 2014. HELD THAT:- There is no error in the findings of Ld. CIT(A) that the books of accounts were rejected without cogent reasons. There is no allegation of change of any accounting practice by the assessee. There was no enquiry about the transactions reported in financials to corroborate there was any significant irregularity which made books inaccurate. It is a settled law held that in the absence of any material pointing towards falsehood of the books of accounts and no particular defect or discrepancy being pointed in the books of accounts, resort could not be made to rejecting the books of accounts by invoking Sec. 145(3), specially where same were duly audited by a statutory auditor. It is a settled law, that merely because the Net Profit has declined, the AO cannot resort to rejecting the books of accounts. The discretion exercised about how much remuneration shall be paid to the partners is upon the discretion of the assessee firm cannot be basis to doubt the net profit itself. It is a settled position of law that revenue cannot sit into the armchair of the businessman and question the reasonableness of expenditure. We are of considered view that ad-hoc addition of Net Profit has not been sustained by Ld. CIT(A) on the basis of additional evidences before it. Prudent approach is needed to examine the explanation given by an assessee for decline in profits and statistical examination of financial of past years alone cannot be basis of gearing up the Net Profit. Ld. CIT(A) has appreciated the transactions leading to lower Net profit and accepted explanation of assessee for fall in Net Profit while Ld. AO had examined the issue only on statistical parameters, which is not sustainable. The grounds raised by Revenue have no substance. The appeal of Revenue is dismissed.
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