AO Can’t Sit On The Armchair Of Businessman Assessee To Replace His Business Strategy By His Own Whims And Fancies: ITAT

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that the Assessing Officer cannot sit on the armchair of a businessman assessee to replace his business strategy with his own whims and fancies.

The bench observed that Chandra Mohan Garg (Judicial Member) and Pradip Kumar Kedia (Accountant Member) have observed that the Assessing Officer only noted an abnormal fall in the GP rate of jewelry without pointing out any defects or discrepancies in the audited books of accounts of the assessee, and this approach without any other positive material or evidence, only on a standalone basis, is not correct and justified.

The department, while supporting the first appellate order, submitted that there was a significant rise in the turnover of the jewelry segment of the business, but there was a substantial reduction in the GP rate, which was very abnormal in the normal course of the jewelry business.

The department pointed out that in a similar trade with almost the same turnover, other traders in the market generally have a GP of around 1%, which clearly shows that there was a leakage of revenue in the business of the assessee from a tax angle. It was difficult to quantify the exact figure of leakage; therefore, the AO was right in applying the GP rate of 1% to the turnover of the assessee.

The department contended that the CIT (A) has granted relief to the assessee without any justified reasoning or basis; therefore, the impugned first appellate order may kindly be set aside and the order of the AO may be restored.

The assessee submitted that as per the provisions of Section 145(3), where there is a doubt regarding the correctness or completeness of the books of accounts of the assessee or where the accounting method prescribed under the Act (cash or mercantile) or the income computation and standards prescribed under the Act have not been followed by the assessee, the A.O. may reject the books of accounts of the assessee and resort to best judgment assessment for ascertaining the taxable income of the assessee. The AO, without complying with the requirement of Section 145(3), proceeded to estimate the income of the assessee under best judgment assessment by taking 1% of the total turnover as against 0.41% as declared by the assessee. Therefore, CIT (A) was right in deleting the addition made by A without any basis.

The tribunal noted that the Assessing Officer has not disputed the financial statements and books of accounts of the assessee, which were duly audited by the competent auditor. There is no finding in the assessment order that the appellant has failed to submit requisition documentary evidence and explanation with respect to claims made in the return of income arising from books of accounts maintained by him.

The tribunal held that CIT (A) was right in deleting additions made by the Assessing Officer without any justified reasoning or cogent basis.

Case Title: ACIT Versus Ashish Bansal

Case No.: ITA No.7427/Del/2018

Date: 02.06.2023

Counsel For Appellant: Kanav Bali

Counsel For Respondent: Ved Jain

Click Here To Read The Order