Examination of Books of Accounts is mandatory before rejection of books of accounts

Manish Kumar Shukla Vs ITO (ITAT Agra)

The case of Manish Kumar Shukla vs. Income Tax Officer (ITO) arises from an appeal against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2018-19. The appellant, an individual, filed his income tax return on 31st October 2018, declaring an income of Rs. 19,67,970. The case was selected for scrutiny due to alleged excess contributions to Provident Fund or Superannuation Fund by the employer.

Assessment by the Assessing Officer:

The Assessing Officer proceeded with the assessment in the absence of the assessee, as the latter failed to appear despite several notices. Consequently, the Assessing Officer rejected the books of accounts and disallowed expenses claimed by the assessee, totaling Rs. 39,20,456. Additionally, separate additions were made on account of payments to the Provident Fund and inflated expenses related to insulation work.

Appeal to the CIT(A):

The appellant contested the Assessing Officer’s decision before the Commissioner of Income Tax (Appeals), arguing that the assessment was completed without considering all relevant facts. However, due to the appellant’s non-appearance at the appeal proceedings, the CIT(A) decided the matter ex parte and upheld the Assessing Officer’s order.

Appeal to ITAT Agra:

The appellant, dissatisfied with the CIT(A)’s decision, appealed to the Income Tax Appellate Tribunal (ITAT) Agra. During the hearing, neither the appellant nor any representative appeared, but the Tribunal proceeded with the case.

ITAT Agra’s Decision:

After considering the grounds of appeal and the orders of the Assessing Officer and the CIT(A), the ITAT observed that the rejection of books of accounts by the Assessing Officer under Section 145(3) was challenged by the appellant before the CIT(A). However, the CIT(A) did not address this issue in his order.

Given this oversight, the ITAT set aside the CIT(A)’s order and remanded the matter back to the CIT(A) for fresh consideration, specifically directing him to address the grounds of appeal raised by the appellant.

Additionally, the ITAT noted that the Assessing Officer had rejected the books of accounts without examining them, despite the mandatory requirement to do so before rejection. The Tribunal highlighted the department’s powers to enforce the attendance of the assessee and recover the books of accounts or other relevant materials. It emphasized that the absence of the assessee does not absolve the Assessing Officer from the obligation to examine the books before taking such action.

Conclusion:

In conclusion, the ITAT allowed the appeal for statistical purposes, setting aside the CIT(A)’s order and directing a fresh adjudication while ensuring compliance with procedural requirements, including the mandatory examination of books before their rejection.

FULL TEXT OF THE ORDER OF ITAT AGRA

Present appeal of the assessee is arising from the order dated 07.08.2023 of Ld. CIT(Appeals), NFAC, Delhi, having DIN No. ITBA/NFAC/S/250/2023-24/1054908652(1) for the assessment year 2018-19.

2. Facts leading to the present appeal are that the assessee is an individual and filed his return of income on 31.10.2018 declaring an income of Rs.19,67,970/-. Case of the assessee was selected for scrutiny on the ground of “Excess contribution to Provident Fund or Superannuation Fund by Employer (Rule 87 of the IT Rules”. It is the case of the Assessing Officer that despite several notices, assessee could not appear and hence, the Assessing Officer rejected the books of assessee and disallowed expenses claimed by the assessee under various heads to the tune of Rs.39,20,456/-.

3. Learned Assessing Officer has separately made an addition of Rs.3,47,606/- on account of payments made in Provident Fund Account to the tune of Rs.3,47,606/-. The Assessing Officer has also made an addition of Rs.1,39,41,758/- on the ground that the assessee has claimed inflated expenses with respect to insulation work. At last, the Assessing Officer framed the assessment u/s. 143(3) read with section 143(3A) & 143(3B) of the Income tax Act.

4. Aggrieved with the order of the Assessing Officer, the assessee filed appeal before ld. CIT(Appeals) and contended in the grounds of appeal that the Assessing Officer has erred in completing the assessment without considering entire gamut of the facts of the case. Ld. CIT(Appeals) observed that the assessee could not participate in the appeal proceedings despite issuance of two notices of hearing and hence, he decided the appeal ex parte and affirmed the order of the Assessing Officer.

5. Aggrieved with the order of ld. CIT(Appeals), the assessee has come up in appeal before us.

6. On the date of hearing, none appeared on behalf of the assessee nor any adjournment application has been filed. However, considering the totality of facts, we deem it appropriate to decide the matter here only. Ld. DR relied upon the order of ld. CIT(Appeals).

7. We have heard ld. DR and perused the assessment order, grounds of appeal as well as order of ld. CIT(Appeals). It is pertinent to note that Assessing Officer has rejected books of account of assessee by invoking provision of section 145(3). This rejection of books has been specifically challenged by assessee in ground No. 2 before ld. CIT(Appeals). Since the ld. CIT(Appeals) has not dealt with the merits of the issue involved in appeal, we set aside the order of ld. CIT(Appeals) and restore the matter to the file of ld. CIT(Appeals) for deciding afresh keeping in view the grounds of appeal, particularly ground No. 2 and 3. Ld. CIT(Appeals) is directed to decide the matter afresh in terms of section 250(6) after providing reasonable opportunity to the assessee.

8. Before parting with the order, it is also interesting to note in this case that in para 3 of the assessment order, the Assessing Officer observed that the assessee failed to appear before him and to produce the evidence in respect of the expenses incurred and also failed to produce the books of account. However, the Assessing Officer invoked provisions of section 145(3) in a haste manner without even seeing and examining the books of account, which condition is mandatory before rejection of the books of account. Now the question may arise, when the assessee did not appear how the Assessing Officer can examine the books. The answer is, the Act has given enough powers to the department to enforce the attendance of an assessee to recover the book of account or any other material lying in the possession of the assessee. Therefore, merely because the assessee remained absent on one or two occasions, rejection of books of account whether justifiable or not would also be examined by ld. CIT(Appeals) while deciding the appeal in set aside proceedings.

9. In the result, appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 21.05.2024 after conclusion of hearing and reduced in writing and signed on 29.05.2024.