TaxTMI 
TaxTMI 
2026 (2) TMI 1369
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....bill (BI-06) was found and impounded, as the entries of sales for Rs. 48,49,112/- were found to be not accounted in the computerized accounts in Tally software. Shri. Sanjay Gupta, partner of assessee firm admitted that the purchase and sales of Rs. 48,49,112/- were made completely out of accounts and declared Rs. 48,49,112/- as the income of the firm for the current year and voluntary surrender the same. During the assessment proceedings, the assessee retracted from the statement through the sworn affidavit dated 10.03.2020. The contention of the assessee firm was not accepted by tile assessing officer as the partner of assessee firm, Shri Sanjay Gupta himself stated in his statement that the transactions of sale/purchase found in bill book "Chandan estimate cash memo Bill" is not recorded in tally data and regular books of account and disclosed Rs. 48,49,112/- as unrecorded sales without any pressure built up by the survey team. The Assessing Officer concluded that the GP i.e. 22.17% (i.e. 10,75,050/-) of total unrecorded sales of Rs. 48,49,112/- was added back to the total income of the assessee." 3. The Ld. CIT(Appeals) had dismissed the appeal of the asses....
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....to suggest that this GP rate is not applicable to the unrecorded sales. Therefore, the ld. AO's estimation of GP is reasonable and justified." 4. At the time of hearing, the contention in law raised by the Ld. Counsel for the assessee was that the estimated GP addition @22.17% on unrecorded sales made by the A.O without rejecting the books of account u/s. 145(3) of the Income Tax Act, 1961 (for short 'the Act') is illegal, unsustainable and bad in law and liable to be deleted. The Ld. Counsel further submitted that if at all, additions were to be made by the A.O, in such circumstances, the A.O need to have rejected the books of account first and only after that he could have proceeded to make addition over and above the transaction reflected in the books of account. In absence of such exercise by the A.O, the entire action is bad in law. 5. Per contra, the Ld. Sr. DR vehemently supported the findings of the Revenue authorities. 6. I have heard the submissions of the parties herein, carefully considered the documents placed on record and analyzed the facts and circumstances in this case. The limited point of argument as assailed by the Ld. Counsel was that in the presen....
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....tion 144 of the IT Act. Section 145 enables the A.O to invoke the power under section 144 when certain conditions adumbrated in sub-section (3) of Section 145 are satisfied. Therefore, it becomes necessary and useful to extract Section 145(3) of the I.T Act, which reads as follows: "145(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub- section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under subsection (2), the Assessing Officer may make an assessment in the manner provided in Section 144." 4(c) Therefore, it is sine qua non that the AO to come to a conclusion that the Books of Accounts maintained by the Assessee are incorrect, incomplete or unreliable and reject the Books of Accounts before the proceeding to make his own assessment. In the instant case, there is no reference in the Assessment Order of the AO regarding rejection of Books of Account. 4(d) Therefore, there is nothing on record to show that the AO came to the conclusion that the Books of Acc....
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....the case of Pr. CIT Vs. Forum Sales (P). Ltd. (supra.) has observed and held as follows: "19. A plain reading of the aforementioned provisions would indicate that the AO wields an authority to make additions on the basis of estimation of income upon fulfillment of the conditions mentioned in Section 145(3) of the Act. Once the AO is satisfied about the existence of irregularities in the books of account as per Section 145(3) of the Act, it shall proceed in the manner provided under Section 144 of the Act. At this juncture, what needs consideration is the question whether such an addition must be made only after the rejection of the books of account by the AO. 20. The Division Bench of the High Court of Bombay in the case of Principal Commissioner of Income-tax v. Swananda Properties Pvt. Ltd. [2019 SCC OnLine Bom 13359] had an occasion to consider the said question and the same was accordingly answered as under:- "11. We note that the books of account of the respondent were rejected by the Commissioner of Income-tax (Appeals) under section 145(3) of the Act. However, the Tribunal found in the impugned order that the invocation of section 145(3) of the Act....
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....nor the Commissioner of Income-tax (Appeals) have rejected the books of account maintained by the assessee in the course of the business. As such the Tribunal has rightly rejected or set aside the partial addition made by the Assessing Officer for arriving at gross profit and sustained by the Commissioner of Income-tax (Appeals) and rightly held that the entire addition made by the Assessing Officer was liable to be deleted. The said finding is based on sound appreciation of facts and it does not give rise for framing substantial question of law." [Emphasis supplied] 22. In another case of Principal Commissioner of Income-tax v. Marg Ltd. [2017 SCC OnLine Mad 37852], the Division Bench of the High Court of Madras has held that the rejection of books of account is sine qua non before the AO proceeds to make his own assessment. Paragraph 4(c) of the said decision is reproduced as under:- "4(c). Therefore, it is sine qua non that the Assessing Officer to come to a conclusion that the books of account maintained by the assessee are incorrect, incomplete or unreliable and reject the books of account before the proceeding to make his own assessment. In the instant ca....
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....that despite the fact that the AO was provided with the requisite bills, vouchers and addresses of the transacting parties, it did not make any effort to confirm the veracity of the alleged bogus or inflated bills. 26. We, hereby, also take note of the observations made by the ITAT in its order dated 22.10.2018 in Paragraph 25, wherein, while affirming the deletion of additions vide order of the CIT (A), it was held as under:- "25. We find although the Assessing Officer was having complete address of the parties, however, he did not bother to call for any information from the said parties if he had some doubts. The entire addition by disallowing of 40% of the purchases in our opinion is not justified when the books of account are not rejected. We find the Hon'ble Gujarat High Court in the case of Yunus Haji Fazawala Vs. CIT (supra) has held that action of the Assessing Officer in disallowing 25% of purchases by doubting its genuineness without rejecting the books of account cannot be sustained. The order of the Tribunal confirming the disallowance was accordingly reversed. Since in the instant case also the books of account are not rejected, therefore, action ....