Case Law Details
Sanjay Agrawal Vs DCIT (ITAT Raipur)
Sanjay Agrawal Vs DCIT (ITAT Raipur) – Rejection of books, arbitrary income estimation, and legal principles – AY 2012-13.
There are large number of decisions which say in unison that AO cannot estimate gross profit rate without rejection of books and without showing defects. In CIT v. Paradise Holidays [2010] 325 ITR 13 (Delhi), the hon’ble Delhi High Court has held that if accounts which are regularly maintained in the course of business and are duly audited, free from any qualification by the auditors, should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. The onus is upon the Revenue to show that either the books of account maintained by the assessee were incorrect or incomplete or that the method of accounting adopted by him was such that true profits of the assessee cannot be deduced therefrom. For rejection of books of accounts, the AO is required to demonstrate specific defects in the books of accounts produced by the assessee and also as to how the books of accounts produced by the assessee is not giving clear picture of the profit earned from the business activity. In the absence of such finding, the books of accounts cannot be rejected and the addition cannot be sustained on the basis of such rejection of books of accounts. Even where the books are rejected, the discretion must be used by the AO judiciously. We also find considerable substance in the plea of the assessee for not indulging estimates of such whopping nature particularly when lesser net profit rates of 2.19% and 1.10% declared in A.Y. 2016-17 and A.Y. 2017-18 has been endorsed by the Revenue itself in regular assessments.
Hence, on giving due weightage to the peculiar facts and circumstances of the case, we find merit in the plea of the assessee for reversal of its consequent substitution by the actual income as per books as offered. Thus, we reverse the action of the lower authorities and restore the position of the assessee.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
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