Observations in auditor’s report may not constitute a valid ground for rejection of books of accounts u/s. 145(3) of the Act unless the observations of the auditor have a bearing on correctness of books of accounts

Italian Thai Development Vs ADIT (ITAT Delhi)- The taxpayer has been computing its estimated revenue as per AS-7 issued by Institute of Chartered Accountants of India since AY 2003-04 on wards and the AO has not objected to this method in the prior years. Therefore, as per the principle of consistency, the same cannot be rejected in the year under consideration. The observations in the auditor’s report do not have a bearing on correctness of books of accounts and cannot form the basis for rejection of books of accounts.

In the prior years, the books of accounts were maintained in the same manner, which were never objected by the AO. The books of accounts are audited and a regular system of accounting has been followed which has been accepted in the past. Therefore, there is no basis for rejecting the books of accounts. Observations in auditor’s report may not constitute a valid ground for rejection of books of accounts under section 145(3) of the Act unless the observations of the auditor have a bearing on correctness of books of accounts.

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