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2024 (4) TMI 195 - AT - Income TaxRejection of the books of accounts - best judgment assessment u/s 144 - addition of the sales made in cash on account of unexplained cash credit u/s 68 - HELD THAT:- Before us, the assessee has not challenged the action of the authorities below with respect to the rejection of the books of accounts made by them under the provisions of section 145(3) of the Act. In simple words the decision of the authorities below for rejecting the books of accounts has reached to the finality and no interference to this effect is required to be made. It is the trite law that once the books of accounts have been rejected, the only resort available to the revenue is to determine the income of the assessee in the manner provided under section 144 of the Act to the best of the judgment. The Hon'ble Supreme Court in Kachwala Gems [2006 (12) TMI 83 - SUPREME COURT] held that rejection of books of account under section 145 justified and best judgment assessment under section 144 of the Act needed. As in the case of CIT Vs. Dhiraj R. Rungta [2014 (4) TMI 711 - GUJARAT HIGH COURT] held that once rejection of books of account is justified under section 145 of the Act, no other addition can be made referring the same set of books to the income of the assessee. How to make the best judgement in the manner provided under section 144 of the Act after rejecting the accounts under the provisions of section 145(3) of the Act? - When the books are rejected, a lump sum addition is made to the original return of income. Such addition may be based on estimate of turnover and profit rate or disallowance of claims, expenditure, etc. as held in case of CIT v. Pilliah& Sons [1966 (10) TMI 35 - SUPREME COURT] - After rejecting book results, the Assessing Officer has to determine the income in reasonable and scientific manner after considering the results/ performance of the earlier years or some comparable cases. In the present case, what we find is this that the AO after rejecting the books of accounts has not estimated the income but has treated the amount of cash sales deposited during the demonetization period in the bank as unexplained cash credit which is against the spirit of the law as discussed above. First of all, the provisions of section 68 of the Act cannot be applied to the amount shown as sales in the books of accounts otherwise it is going to lead to the double addition which is undesirable. In holding so, we draw support and guidance from the judgement of CIT vs. Vishal exports overseas Ltd [2012 (7) TMI 1110 - GUJARAT HIGH COURT] wherein the order of the ITAT was upheld that the sales cannot be treated as unexplained cash credit under section 68 of the Act. AO in the present case is treating the amount of cash deposits during the demonetisation period as sales and unexplained cash credit under section 68 of the Act which is contrary to the spirit of the provisions of law. As such the AO should have reduced the alleged amount of unexplained cash credit from the total sales and the balance sales should have been made subject to tax on some estimation basis. But the AO has not done so. Therefore, we are of the view that such addition made by the AO and confirmed by the learned CIT-A in the given facts and circumstances is not sustainable. We uphold the rejection of the books of accounts made by the authorities below but with the direction not to treat the amount of cash sales as unexplained cash credit under section 68 of the Act.
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