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Facts
The assessee, a trader, did not file a return of income for AY 2017-18, leading to a notice u/s 148 for high-value financial transactions. Despite the assessee submitting details and ledgers, the AO rejected the books of accounts without specific defects and estimated income at 8% of turnover, which the CIT(A) confirmed.
Held
The tribunal observed that both the AO and CIT(A) failed to provide valid reasons or factual findings for rejecting the assessee's books of accounts and estimating income. Emphasizing that a quasi-judicial authority must provide reasons, the tribunal set aside the lower authorities' orders and remitted the matter back to the AO for fresh adjudication in accordance with law, after hearing the assessee.
Key Issues
Whether the rejection of the assessee's books of accounts and the estimation of income by the lower authorities were justified without providing valid reasons or specific defects.
Sections Cited
148, 142(1), 143(3), 145(2)
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Income Tax Appellate Tribunal, COCHIN BENCH : COCHIN
Before: SHRI INTURI RAMA RAO & SHRI SOUNDARARAJAN K.
ORDER
PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 27/02/2024 in respect of the A.Y. 2017-18 and raised the following grounds:
2. The assessee is a trader in sanitary wares, tiles, marbles and granites and during the assessment year, he had not filed his return of income. Thereafter, notice u/s. 148 was issued on the ground that the assessee had entered high value financial transactions during the year. Thereafter, the assessee filed his return of income on 01/12/2021. The AO issued notices u/s. 142(1) of the Act for which the assessee filed their response along with the relevant documents and clarifications. The AO issued a show cause notice in which he directed the assessee to substantiate the claim of expenses debited in the profit and loss account. The assessee also filed the copies of the ledgers and the financial statements in support of his claim of expenses. The AO not accepted the said objections, had estimated the income at 8% of the turnover.
3. As against the said order, the assessee filed an appeal before the Ld.CIT(A) and the Ld.CIT(A) had confirmed the estimation of income. The assessee had challenged the said order of the Ld.CIT(A) before this Tribunal.
4. At the time of hearing, the Ld.AR submitted that the AO had not given any valid reasons for rejecting the books of accounts when the assessee had maintained the books and produced it before him. The Ld.AR further submitted that the assessee is having all the records to show that the expenses were actually incurred. The Ld.AR further submitted that the estimation of the income at 8% of the turnover is also not warranted and prayed to allow the appeal. The Ld.AR also filed two paper books and enclosed the copies of the reply filed by the assessee and also the screenshot of the details available in the portal. The Ld.AR also filed the financial statements of the assessee. Further, the Ld.AR filed an addendum to the appeal which is nothing but the explanations given to the grounds already raised.
The Ld.DR relied on the orders of the lower authorities and prayed to dismiss the appeal.
We have heard the arguments of both sides and perused the materials available on record.
We have perused the assessment order from which we understand that the assessee had filed some copies of the ledgers to show that the expenses were incurred to earn the said income. But the Ld.AO had observed that the assessee had not submitted the documents in support of the claim of deduction of expenses since the assessee had not submitted their audit report and also on the reason that the books of accounts are rejected by him.
From the finding given by the AO, we are not able to find any valid reasons why the assessing officer had rejected the books of accounts and what evidence the AO is having to reject the said books of accounts. When the assessee is having the details for the expenses claimed, the AO without considering the said expenses had rejected the same without assigning any valid reasons, that too after rejecting the books of accounts. The AO could very well reject the books of accounts if there is any mistakes or evidences available against the assessee but in the present case, the AO had not given any such factual finding. No reasons were also furnished by the AO for rejecting the books of accounts and for denying the deduction claimed under the head expenses. The assessing officer being the quasi judicial authority, ought to have given a finding so that the appellate authorities could verify the said facts. But unfortunately, the order of the AO is very silent. The Ld.CIT(A) also without considering the said facts, had confirmed the order of the AO. In such circumstances, we find that the order of both the authorities are not giving any valid reasons for rejecting the books of accounts as well as in estimating the income at 8%.
We, therefore, set aside the order of the AO and remit the issue to the file of the jurisdictional assessing officer to decide the issue afresh in accordance with law, after hearing the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 28th May, 2025.