EXPERT WOOD PACK,TIRUVALLUR vs. ITO, WARD-1,, TIRUVALLUR

The Assessee raised the following grounds of appeal : “1. The learned National Faceless Appeal Centre, Delhi (NFAC) erred in confirming the total addition of Rs.18,79,702 made by the assessing officer.

The Assessing officer erred in estimating the income from business of the appellant of manufacturing and supplying of wooden boxes and wooden pallets at 4% of the gross turnover of Rs.4,50,43,058 at Rs.18,01,722 against the income returned by the appellant of Rs. 6,37,020/-.

The Assessing officer though claimed to have rejected the books of accounts u/s 145(3) of the Act has completed the assessment only under section 143(3) and not u/s 144 of the Act which shows that he has not rejected the books of accounts.

The appellant submits that the provisions of section 145(3) cannot be invoked in its case as the conditions laid down therein are not satisfied.

The appellant submits that it was maintaining the mercantile system of accounting and the profits can be easily deducted from the accounts maintained and audited by the appellant and therefore the assessing officer was not justified in rejecting the books of accounts so audited u/s 145(3) of the Act.

The appellant submits that the alleged difference in the audited profit and loss account and that was filed with the income-tax return of Rs. 12,75,000 represent the internal change of the wages from the profit and loss account to the trading account in the return uploaded which was clearly submitted to the NFAC but it has not considered the same.

The appellant submits that there is no difference in the net profit when compared with the profit and loss account as filed and as attached with the audit report u/s 44AB of the Act and therefore the alleged defect pointed out by the assessing officer cannot at all be the reason for rejection of books of accounts.

The assessing officer has mainly rejected the books of accounts as the appellant had not responded to the final show cause notice whereas the appellant could not respond as the Accountant handling the accounts has suddenly left the job.

The learned NFAC erred in observing that the audited financials cannot be ascertained without books of accounts and documents when admittedly books of accounts were not only maintained but also got audited u/s 44AB of the Act.

The appellant had submitted purchase and sales register were admittedly submitted to the assessing officer in response to notice issued on 07/08/2023 and the observation contrary in the later part of the assessment order for rejection of books of accounts is not justified.

The appellant therefore prays that the addition of Rs.11,64,702 to the business income may be deleted.

The assessing officer erred in adding Rs. 7,15,000 as income from house property.

The appellant submits that it has offered a sum of Rs. 9,10,000 as other, income included in the computation of business income in the return of income filed and the said sum of Rs. 9,10,000 was specifically stated as "rent" in Col.14(i) in Part A - P&L and therefore the assessing officer is not justified in adding Rs. 7,15,000 as income from house property and that too without allowing standard deduction of 30% normally allowed while computing the property income.

The appellant submits that the addition of Rs. 7,15,000 made by the assessing officer tantamount to double addition as the same was already offered and included in the business income offered.

The appellant therefore prays that the additions of Rs.11,65,702 to the business income and Rs. 7,15,000 under property income may be deleted and justice rendered.”

Briefly stated facts of the case are that the appellant is a partnership firm engaged in the business of manufacturing and sale of wooden bags and wooden pallets. The Return of Income for the Assessment Year 2022-23 was filed by the appellant firm on 16.09.2022 disclosing the total income of Rs.6,37,020/-. Against the said return of income, the assessment was completed by the e- Assessment Unit of the Department (hereinafter called ‘AO’) vide order dated 28.02.2024 passed u/s.143 r.w.s 144B of the Income Tax Act, 1961 at a total income of Rs.25,16,722/- While doing so, the Assessing Officer estimated the income from the business at 4% of the turnover by rejecting the book results. Accordingly, made addition of Rs.11,64,702/-. Similarly, the Assessing Officer made addition under head “Income from House Property” based on the claim made by the assessee for TDS credit of Rs.71,500/-.

Being aggrieved by the above assessment order, the appellant preferred an appeal before ld.CIT(A), who vide impugned order confirmed the action of the Assessing Officer by holding that the appellant had failed to furnish supporting documents in support of the books of accounts maintained and similarly, the Learned Commissioner of Income Tax(Appeal) also confirmed the addition under head “Income from House Property” based on the credit for TDS of Rs.71,500/-.

Being aggrieved by the order of ld.CIT(A), the appellant is in appeal before us in the present appeal. The ld.Counsel submits that the Lower Authorities were not justified in rejecting the books of accounts without pointing out any defects in the books of accounts maintained by the appellant and therefore, the question of estimation of income by rejecting the book results does not arise. He further submits that the appellant firm offered to tax the rental income of Rs.7,15,000/- as the appellant had already offered to tax. A sum of Rs.9,10,000/- had credited to profit and loss account.

On other hand, Learned SR.DR submits that the Assessing Officer was justified in rejecting the book results as the appellant had failed to substantiate the expenditure incurred by producing the vouchers, bills in support of the expenditure incurred. He further submits that the appellant firm had failed to offer rental income despite the fact that the appellant made a credit for TDS of Rs.1,15,000/-.

We heard rival submissions and perused the material available on record. The Assessing Officer had rejected the book results on the ground that the appellant had failed to produce the bills, vouchers in support of the expenditure incurred. Similarly, the Assessing Officer made addition of rental income of Rs.7,15,000/- as Assessing Officer of the opinion that the appellant had failed to offer rental income received from house property despite the fact the appellant made credit for TDS payment of Rs.1,15,000/-.

On appeal before the ld.CIT(A), the action of the Assessing Officer was confirmed. However, we find merit in the submission of the ld.Counsel for the appellant firm that the income returned by the appellant is higher than the income estimated and also the income from house property was offered to tax as the same was credited to profit and loss account without reducing the same from business profits. These submissions requires verification by the Assessing Officer, therefore, we remit the matter back to the file of Assessing Officer for denovo assessment in accordance with law after affording an opportunity of being heard to the appellant.

In the result, appeal filed by the assessee is partly allowed for statistical purpose. Order pronounced in the open court on 25th May, 2026.