It is not necessary that books of account should compulsorily be rejected when a survey is conducted

The ITAT, Chandigarh in the case of M/s Venus Woolen Mills vs. The CIT-III, [2014] 36 ITR (Trib.) 388 Ludhiana, has held that it is not necessary that books of account should compulsorily be rejected when a survey is conducted.

Brief facts of the case:

The petitioner M/s Venus Woolen Mills preferred the aforesaid revision under section 263 of the Act against the assessment order dated 28th March, 2013, of the Commissioner of Income-tax-III, Ludhiana.
The Commissioner of Income Tax held that the assessee did not declare his total income because his surrender amount was of Rs. 2.15 crores but the income declared in his income tax returned was only Rs. 1,35,52,050/-
During the survey, the inventory disclosed a sum of Rs. 66, 22,665/- though the assessee surrendered a sum of Rs. 70 lakhs. A cash of Rs. 4, 63,570/- was found. Moreover a document was found which stated that the assessee has invested a sum of Rs. 1, 31, 00,000/- towards the construction of building and the said amount was also surrendered.
For the said reason no undisclosed purchases or sales were found. The assessee was maintaining proper details of all documents. Moreover, the reason for fall in rate of profit was also explained.
The confirmation of debtors and creditors were furnished by the assessee. Details of the expenses incurred by the assessee were also filed. The Assessing Officer examined all the details and did not find any defect.
The summary relating to variation of rates revealed that rates of some items suddenly increased in the assessment year 2007 – 08, due to which there was verification in the gross profit rate.
From the gross profit chart for earlier three years it was found that gross profit was 11.76% in the assessment year 2006 – 07 and the same was increased in 2007-08 to 17.2%. It decreased to 11.49 % in the assessment year 2008 – 09.
The copy of the trading account and copy of profit and loss accounts showed the net result was loss of Rs. 71, 25,651/- which meant that there were some additional expenses during the year and the assessee filed the details of such expenses before the Assessing Officer and the Commissioner.
However neither the Assessing Officer nor the Commissioner pointed out that such expenses were not authentic.
The Learned Commissioner observed that the assessee adopted methods to reduce his income after making surrender. Thereafter he rejected the books of account. The learned Commissioner held that assessment order was erroneous and the same was prejudicial to the interests of the Revenue. Accordingly the income of the assessee was enhanced.

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Issues raised before the Tribunal:

The assessee preferred the revision on the following grounds:
1. The Learned Commissioner of Income Tax has erred in issuing notice under section 263 of the Act.
2. That the Commissioner has erred in holding that the assessment done by the Assessing Officer was erroneous.
3. That the Commissioner has erred in not considering the facts that the assessee had proper books of accounts which were checked by the Assessing Officer during the hearing and assessment was framed after investigation and after applying mind.
4. That the Commissioner has erred in rejecting the books of account which were properly maintained as no defects were found in them by either himself or by the Assessing Officer during the hearing.
5. That the Commissioner has erred in making addition of Rs. 1, 83, 80,208/- in the income assessed by the Assessing Officer as per section 143(3) of the Act by applying the gross profit rate of 17.23 % on the basis that shown in the assessment year 2007 – 08 based on assumption by rejecting the books of account which had no defect.

The judgment:

It was argued on behalf of the Revenue that in the light of the facts of the case it cannot be said that assessment order was erroneous and detrimental to the interests of the Revenue.
It was held by the ITAT, Chandigarh that there was not a single case law stating that books should compulsorily be rejected when a survey is conducted. If such principle was accepted, then there would be no meaning of surrender as in any case books should be rejected. The revisional case was decided in favour of the assessee.

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