https://www.taxtmi.com/css/info/rss_sitemap/rss_feed.css?v=1746094055 https://www.taxtmi.com Business/Tax/Law/GST/India/Taxation/Policies/Legal/Corporate Tax/Personal Tax/Vat Law/Legal Information/Tax Information/Legal Services/Tax Services Tax Management India. Com / MS Knowledge Processing Pvt. Ltd. All rights reserved. One stop solution for Direct Taxes and Indirect Taxes https://www.taxtmi.com/caselaws?id=65350 https://www.taxtmi.com/caselaws?id=65350 Rejection of books of accounts - suppression of sales or purchases - stock of gold jewellery - Statements of auditor recorded u/s 131 - Addition on account of local turnover - Unexplained investment by not showing wastage of gold - Deduction u/s 80HHC. HELD THAT:- The basis for rejection of the books of accounts by the AO and the CIT(A) has been that there are cuttings, overwriting, use of fluid and some of the totals made in pencil besides totalling and posting errors in the cash book, ledger. The AO has also indulged in surmises whereby he has stated that totals in pencils gives a free hand to the assessee to change the figures. The cutting, overwriting, use of fluid, totals with pencils cannot by itself be the basis for rejection of books of accounts unless these are corroborated with some other material or evidence such as sales, purchases or the expenditure outside the books of accounts which has been incorporated or adjusted by way of overwriting or cutting. No such instance has been pointed out by the AO or the CIT(A) despite the fact that books of accounts and vouchers were impounded and continues to be in his custody. As regards the second contention of the AO that there are totalling/posting errors in books of accounts and stock records, the assessee has explained these errors and the impact of these errors have already been taken into consideration in the P L a/c on the basis of which the return has been filed. So on this ground also the results declared by the assessee cannot be disturbed. We may further point out that even rejected books of accounts do not lose the character of material or evidence despite mistakes and AO cannot ignore these books of accounts altogether. Even rejected books of accounts are valid piece of evidence. Further, rejection of books of accounts is not justified when mistakes in the books of accounts are of general or technical nature and there is no evidence of suppression of sales/purchases, income or expenditure as has been held in the case of [ 1996 (3) TMI 514 - KERALA HIGH COURT] . Accordingly, we hold that the CIT(A) was not justified in upholding the rejection of books of accounts. Addition on account of local turnover - We find that the AO has made the addition on the basis that assessee has failed to produce the purchase invoices and books of accounts are not reliable whereas the CIT(A) has confirmed the addition on the ground that looking to the facts of the case estimation of 5 per cent of total turnover as concealed profits is more than justified. Thus, there are two different basis adopted for sustaining the addition by the AO and the CIT(A), respectively. But in our view both the basis adopted by the AO and the CIT(A) are wrong and addition on this ground need to be deleted. For sustaining an addition there has to be some basis. The AO is not supposed to make a pure guesswork. The various case laws cited by the authorised representative on this point supports the case of the assessee. As regards the stand of the CIT(A) as discussed above, the assessee having taken into account all the differences pointed out in the books of accounts while preparing P L a/c, there were no reason for sustaining the addition. Accordingly we hold that addition of Rs. 15,50,005 is without any basis and the same is deleted. Unexplained investment by not showing wastage of gold - This is an admitted fact that assessee is getting the jewellery manufactured from Karigars and not doing himself. If that be so then the loss in making, even if it there, has to be, at the end of the Karigar. The CIT(A) in her order has held that the appellant has not produced any evidence to support his claim that wastage is borne by the Karigar. However, this is an allegation by the Revenue that the wastage has not been shown. The onus is on Revenue to prove that there is wastage and that wastage has been borne by the assessee and has been met from unexplained sources. The assessee in his statement has explained the procedure and method being adopted by him. That procedure and method cannot be rejected by shifting onus upon him. The addition has been made u/s 69C and that be so, the onus will be on Revenue to establish that there is an unexplained expenditure incurred by the assessee. After taking into consideration the argument and the material before us we hold that addition of Rs. 4,00,000 is unjustified and the same is deleted. Deduction u/s 80HHC - It is for the chartered accountant to decide how he issues such report. The assessee cannot enforce anything on the chartered accountant. Moreover, as per Form 10CCAC which is the prescribed form, the chartered accountant is not required to do the audit for issue of this certificate. He is required to examine the accounts and records. In this case the assessee has furnished the report in the prescribed form and the chartered accountant having confirmed in his statement recorded u/s 131 having issued the certificate, the requirement of s. 80HHC(4) gets complied with and the deduction cannot be denied on the basis of certificate being not based on proper auditing of accounts. Accordingly, we hold that CIT(A) was not justified in denying benefit of deduction u/s 80HHC and the assessee be allowed deduction u/s 80HHC of the Act. The certificate of chartered accountant is based on the profits and gains as computed by the assessee, and once the AO does not agree with the profits and gains of business or profession as computed by the assessee, then he is required to suitably modify the deduction u/s 80HHC based on the profits and gains of business or profession computed by him. We are in agreement with the contention of the learned counsel in this regard. Accordingly, we direct that the deduction u/s 80HHC be computed on the basis of assessed profits or gains of business as finally assessed after taking into consideration addition, if any. In the result, the appeal filed by the assessee is partly allowed. Case-Laws Income Tax Fri, 23 Jan 2004 00:00:00 +0530