Sumukha Travels Vs ITO (ITAT Bangalore)
Bengaluru ITAT: Books Cannot Be Rejected Merely for Non-Audit; 8% Profit Estimation Set Aside
The Bengaluru ITAT held that non-audit of books of account under section 44AB, by itself, is not a valid ground to reject the book results and estimate income at 8% of turnover. The assessee, engaged in the rent-a-cab business, claimed a business loss of Rs. 39.35 lakh on a turnover of Rs. 4.55 crore, explaining that fixed-rate contracts coupled with a steep rise in diesel prices and the impact of the COVID-19 pandemic had resulted in heavy losses. The Assessing Officer, however, rejected the claim and estimated the business income at 8% of turnover, primarily on the ground that the books were not audited and some expenses were supported by self-made vouchers. The CIT(A) confirmed the addition.
The Tribunal observed that failure to get the accounts audited is a separate statutory default and does not automatically justify rejection of the books or estimation of profits. It held that the Assessing Officer was required to examine whether the expenditure claimed was genuine before discarding the book results. The ITAT also noted that the assessee had not been afforded an adequate opportunity to substantiate its loss, particularly when it had attempted to file a return in response to the notice under section 148 but claimed that technical glitches prevented its acceptance. Observing that important expenses such as diesel costs could not be dismissed merely because some vouchers were self-made, the Tribunal restored the matter to the Assessing Officer with directions to verify the assessee’s claim of loss and decide the issue afresh in accordance with law. The appeal was allowed for statistical purposes.
