By TIOL News Service

NEW DELHI, JULY 04, 2018: THE ISSUE IS - Whether Revenue can opt only one of the method for computing taxable income, either accepts the surrender and admission of the assessee or estimate the income by rejecting books of accounts but can not opt for both simultaneously. YES IS THE VERDICT.

Facts of the case

The assessee company, engaged in the business of manufacturing had filed return for relevant AY. A survey u/s 133A was conducted on the assessee. On the basis of survey, it came to knowledge of AO that assessee was indulged in bogus transactions. The assessee admitted the same and surrendered the amount. The assessee also made surrender of Rs. 2.05 crores u/s 41(1) of the Act on account of liabilities that are no longer required to be paid under the Head "Remission of Liabilities" in the case of assessee and group concerns. Further, the assessee during the course of survey made surrender of various other amounts u/s 41(1) of Act. The AO, considered the case on the basis of the seized material. The assessee in order to avoid litigation, agreed for estimating net profit @ 8% of the turnover. The AO noted that assessee did not produced books of account and the vouchers and seized material were not been reconciled. The AO in absence of any satisfactory explanation by assessee, rejected the books of account u/s 145(3) of the Act. The AO made the addition of Rs.4.52 crores to the returned income which was inclusive of the surrender made by the assessee during the course of assessment proceedings. The AO also noted that there was a difference of Rs.1,08,003/- pertaining to the confirmation called for in the case of Graphite India Ltd., which had not been explained. Therefore, further addition of Rs.1,08,003/- was made. On appeal, CIT(A) upheld the order of AO.

Tribunal held that,

++ the AO held that since books of account have not been produced by assessee, therefore, he is not satisfied about correctness and completeness of the accounts of the assessee, therefore, same were rejected. The AO instead of rejecting the books of account of assessee should have computed the income of the assessee based upon the books of account which were produced before him as per explanation of assessee. However, he has not taken any figure from the books of account and accepted the admission of the surrender of Rs.4.52 crores for the purpose of making the addition. The Assessee, therefore, rightly contended that AO cannot go with both the methods for the purpose of making the addition against the assessee. Either the AO should go with the surrender and admission of the assessee or may go to estimate the income of the assessee by referring to the books of account and other material on record. The surrender was on account of unexplained investment in purchase of land and machinery which is different from estimation of profit by rejecting the books of account. The AO did not accept surrender of assessee at the assessment stage and rejected books of account of assessee under section 145(3) of the Act, but, later on, AO did not estimate the income of assessee based on books of account, but accepted the surrender of Rs.4.52 crores so surrendered during the course of survey. The assessee on the other hand, has pleaded that books of account have been produced before AO. Therefore, there is contradiction in the statement of assessee and findings of the AO. The AO also noted in the assessment order that at the time of reconciliation books of account of the assessee may not be ready by that time. These facts, therefore, clearly show that the matter requires reconsideration at the level of the AO because if the AO wanted to rely upon the seized material, he has to compute the income based on the seized material. However, nothing has been done in the matter. Accordingly, it was decided to set aside the orders of the authorities below on the issue of addition of Rs.4.52 crores and restore to AO for fresh determination. The AO shall pass the order afresh in accordance with law by considering the entire evidence on record, books of account to be produced by the assessee along with other details. The AO shall give reasonable, sufficient opportunity of being heard to the assessee.

(See 2018-TIOL-1006-ITAT-DEL)