Venkatesh Govindappa Vs DCIT (ITAT Bangalore)
Audited Books Cannot Be Rejected Without Identifying Specific Defects; Bangalore ITAT Sets Aside 5% Profit Estimation
The assessee operated three liquor bars and had purchased liquor worth ₹5.13 crore from Karnataka State Beverages Corporation Ltd. Although the accounts reflected a loss, the AO rejected the books under section 145(3) and estimated net profit at 5% of turnover, principally because the stock register and cash book were allegedly not produced.
The assessee explained that the statutory stock registers were issued and authenticated by the Excise Department and had to be surrendered to it upon renewal of the liquor licences. He specifically requested the AO to obtain the registers directly from the Excise Department under section 133(6). The assessee also stated that the cash book was voluminous and offered it for inspection at his premises.
The ITAT observed that the assessee’s books were duly audited under section 44AB, and the tax auditor had confirmed maintenance and verification of the cash book, sales register and other records. Neither the audit report nor the AO identified any specific defect in the accounts. Further, no adverse action had been taken by the Excise Department concerning stock maintenance.
The Tribunal held that the AO could not reject the books merely because the physical stock register was with the Excise Department or because the cash book was voluminous. The AO should have inspected the records or obtained the stock register directly from the Excise Department. Therefore, the rejection of books and estimation of profit at 5% of turnover were held unjustified.
