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| The Tax Publishers2020 TaxPub(DT) 0554 (Guj-HC) INCOME TAX ACT, 1961
Section 145(3)
Where AO rejected assessee's books of account merely on the basis of material collected by the Excise Department, which were yet to be verified and no independent material was brought by him to justify his action of rejection, the AO was not correct in rejecting assessee's book of account and estimating its profit margin.
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Accounting method - Rejection of books of account - Estimation - Rejection based on material collected by Excise Department
Assessee-company was issued a show-cause notice by Excise Department indicating that it suppressed sales and thereby evaded tax duty. On the basis of such materials collected by the Excise Department, AO called upon the assessee to respond to the said materials. Assessee's response was that the contents of the show-cause notice issued by the Excise Department were not true and correct and it was also pointed out that the said show-cause notice was yet to be adjudicated by the Excise Authorities. However, the AO was not convinced by such explanations and after relying on the contents of the show-cause notice and on the statements of the witnesses cited in such show cause notice, he rejected assessee's books of account and estimated profit margin @ 25% of the suppressed sales. Held: It was found that broad modus operandi behind rejection of assessee's books of account was the show cause notice issued by Excise Department, which indicated suppression of sales on the part of the assessee. Admittedly, the said show-cause notice was yet to be adjudicated by the Excise Authorities, thus, the same merely showed the material collected by the Excise Department suggesting the view of the department. Further, if the AO wanted to make additions on the basis of such materials, the same had to be brought on record. By merely producing the copies of the statements of the witnesses accompanying the show-cause notice, such statements and the veracity thereof did not get automatically established. Further, there was no independent material brought on record by the AO other than those which were already collected by the Excise Department and which were yet to be verified. Hence, the AO was not correct in rejecting assessee's books of account and estimating profit margin @ 25% of the suppressed sales.
Followed:Principal CIT v. Vrundavan Ceramics (P.) Ltd. (2018) 95 taxmann.com 13 (Guj) : 2018 TaxPub(DT) 2720 (Guj-HC)
REFERRED :
FAVOUR : In assessee's favour.
A.Y. :
IN THE GUJARAT HIGH COURT
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