ASSTT. C.I.T AMRAVATI CIR-, AMRAVATI vs. BHUWANESHWAR REFINERIES (PVT.)LTD, AMARAVATI

PER AMARJIT SINGH, J.M.

The present appeal preferred by the Revenue is directed against

the impugned order dated 13th August 2014, passed by the learned

Commissioner (Appeals)–II, Nagpur, for the assessment year 2011–12

on the following grounds of appeal:–

“1. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) was right in holding that the Assessing Officer without any material reasons, rejected the books of account under section 145 of the Act.

2 Bhuwaneshwar Refineries Pvt. Ltd. 2. When the case was called for hearing, none appeared on behalf

of the respondent assessee before us. Therefore, we proceed to

dispose off the appeal after hearing the learned Departmental

Representative and on the basis of material on record.

September 2010. The assessee company declared its income to the

tune of ` 70 lakh over and above regular income. The assessee, vide statement dated 8th October 2010, confirmed the said declaration. The assessee filed its return of income on 1st October 2011, declaring

income to the tune of ` 41,50,000. The case was selected for scrutiny. Notice under section 143(2) of the Act was issued on 20th July 2012,

and served upon the assessee. Notice under section 142(1) along with

questionnaire were issued and serviced upon the assessee. The

assessee company was engaged in processing of refining edible oil,

cocking and trading. The Assessing Officer rejected assessee’s books

of account u/s 145 of the Act and estimated the gross profit @ 2.10%

and assessed the income to the tune of ` 79,17,620. Being aggrieved,

the assessee was in appeal before the first appellate authority.

3 Bhuwaneshwar Refineries Pvt. Ltd. 4. The learned Commissioner (Appeals) allowed the appeal of the

assessee. Being aggrieved, the Revenue is in appeal before the

Tribunal.

ISSUE NO.1 & 2

are being taken up together. In fact, the issue involved in the

aforesaid grounds relate to deletion of addition to the tune of `

37,67,620.

Assessing Officer has rightly rejected the books of account and

estimated the gross profit @ 2.10% at turnover to the tune of `

1,91,18,723 i.e., to the tune of ` 37,67,620, but the learned

Commissioner (Appeals), by accepting the contentions of the assessee

has wrongly deleted the addition of ` 37,67,620, therefore, in the said

circumstances, the finding of the learned Commissioner (Appeals) is

against law and facts and is liable to be set aside.

reliance upon the findings of the learned Commissioner (Appeals) in

question.

4 Bhuwaneshwar Refineries Pvt. Ltd. 8. We have heard the rival contentions and perused the material

available on record. Before proceeding further, we deem it fit to advert

the findings of the learned Commissioner (Appeals) on this issue. The

relevant portion of the order of the learned Commissioner (Appeals) is

reproduced below for the sake of brevity:–

“5. I have carefully considered the facts of the case and the written submissions of the appellant. I find substantial force in the submission made by the appellant. The books of account of the appellant are subject to audit. The audit report was submitted during the course of assessment proceedings and contains complete quantitative details in respect of items of its manufacturing activity as well, as its trading activity. It is also a fact that the shortage/losses shown by the appellant are normal in nature and no adverse comments in respect of such quantitative details furnished and the quantity record produced has been made by the auditor or by the Id. AO during the course of assessment proceedings.

5.1 The appellant has also very validly explained that if the non delivery income is removed from the trading a/c there is a significant increase in GP percentage during the year vis-à-vis the immediately preceding assessment year. Also, as pointed out by the appellant, there are no defects pointed out by the Ld. AO what so ever though the books of account were produced and examined by the Ld. AO. It is to be noted that the Id. AO has used strong words and come to the wrong conclusion without any basis. He has stated that the NP claimed to have been worked out at Rs. 72.77 lacs including the survey declaration "sounds absurd" and has commented that the fall in GP "is beyond imagination". However other than these comments, not a single defect has been pointed out in the books and there is no comment or finding on the lack of completeness or the correctness of the books. With regard to rejection of books of accounts by the AO u/s 145 of the Act, the principle to be followed is accepting the books of accounts of the assessee is a rule and rejecting the same is an exception'. This is the principle in existence and an AO cannot reject the books unless the accounts of the assessee suffer from either of the twin reasons specified in the Act viz. the correctness or the completeness of the books of account. It is the settled law that the books cannot be rejected u/s 145 of the Act and estimation of income resorted to, unless the AO records any finding that the books of account

5 Bhuwaneshwar Refineries Pvt. Ltd. maintained by the assessee are incorrect rendering it impossible to deduce the profits. AO needs to indicate that he noticed any inconsistency or infirmity in the Audit report. A finding of lower GP is no ground for rejection of books u/s 145 of the Act. Thus, when no discrepancy is noticed in the accounts maintained by the assessee, AO cannot assume jurisdiction u/s 145 of the Act.

5.2 It has been held in various cases that where no specific discrepancies or defects in the books of account of the assessee has been pointed out nor was any material brought to establish that purchases were inflated or receipts suppressed, there is no justification in involving the provisions of section 145 of the Act. If there was no challenge to the transactions represented in the books, then it is not open to the ld. AO to contend that what was shown by the entries is not the real state of affairs. Thus, suspicion, however, strong it may be, is no ground for the AO for invoking the provisions of section 145(3) of the Act.

5.3 In this case, the appellant was under statutory obligation to maintain the books specified in sec. 2(12A) of the Income Tax Act. It is a case where books of accounts were duly audited by the statutory auditors as required under the statute. They were under obligation to provide categorical findings about the verification of the books of account, consistency in the method of accounting adopted, accuracies or completeness if any of the books of accounts. In a case where books are maintained and the same were audited, the AO should accept the said books so long as he has not found out any defects or incompleteness of transactions or discrepancies or any inaccuracies, whatever may be the name given to them. Further, it has been the rule that when the books are rejected by the AO by invoking the provisions of sub- section 3 of sec. 145 of the Act, the onus is on the AO to pinpoint or enlist the deficiencies or inaccuracies in the said books of account of the assessee. Without pointing out the same either directly expressing in the order or indirectly by implication, the AO cannot resort to rejection of the accounts of the assessee and further, he cannot resort to the best judgment assessment in the manner prescribed in sec. 145(3) of the Act. The onus is on the Id. AO to enlist the defects or discrepancies or entries or failure of the assessee in maintaining some requisite books in the order before the books are rejected u/s 145(3) of the Act. The Id. AO might not have mentioned expressively the provisions of sec. 145(3) of the Act in the order but the requirement is, AO must enlist the defects or discrepancies or incompletion or inaccuracies of the accounts of the assessee. In the instant case Id. AO did not bother to honour the law in its true spirit. The Id. AO cannot resort to estimation of income without rejection of accounts systematically maintained by the assessee for all the years under consideration and also by

6 Bhuwaneshwar Refineries Pvt. Ltd. invoking the provisions of section 145 of the Act even though he has not brought on record any material reason for the rejection of the books. In view of the above facts the action of the Id. AO of rejecting the books of accounts and estimation of the profits cannot be upheld and consequently the addition of Rs. 3767620/- is hereby deleted.”

of account of the assessee were duly audited and audit report was also

submitted before the Assessing Officer. No substantive defect of any

kind was found in the audit report as well as in the books of account.

The Assessing Officer has only pointed out the defect that the net

profit claimed to have been worked out at ` 72.77 lakh including the

survey declaration “sound absurd” and has commented that the fall of

gross profit is beyond imagination. No particular defect of any kind

was pointed out in the books of account. The reasons mentioned

above are not the plausible explanation for rejection of the books of

account under section 145 of the Act. Without pointing out any defects

in the books of account, the same cannot be rejected. Finding the

lower gross profit cannot be a ground at all to reject the books of

account under section 145 of the Act. Having doubt in books is also

not sufficient to arrive at this conclusion that the books of account are

not liable to be sustained in view of the provisions of section 145(3) of

the Act. The facts are similar in the present appeal also. No

distinguishable material has been placed on record on the basis of

which it can be assumed that the findings of the learned Commissioner

7 Bhuwaneshwar Refineries Pvt. Ltd. (Appeals) are incorrect and against law & facts and is not liable to be

sustainable in the eyes of law. In view of the said circumstances, we

are of the view that the learned Commissioner (Appeals) has passed

the order in question judiciously warranting no interference at the

instance of the Revenue. Consequently, upholding the order of the

learned Commissioner (Appeals) on this issue, we dismiss the grounds

raised by the Revenue on the above said issues.

Order pronounced in the open Court on 21.06.2017

Sd/- Sd/- P.K. BANSAL AMARJIT SINGH VICE PRESIDENT JUDICIAL MEMBER

NAGPUR, DATED: 21.06.2017

Copy of the order forwarded to:

(1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary

(Dy./Asstt. Registrar) ITAT, Nagpur