Rejecting books of accounts because there is no tax audit report is not justified

Fact and issue of the case

This appeal by the Revenue is directed against the order dated 14.09.2020 of Commissioner of Income Tax(Appeal)-III Indore for Assessment Year 2012-13.

The present appeal has been filed on 27.04.2022. The registry has pointed out a delay of 499 days in filing the present appeal. We have heard the Ld. DR as well as the Ld. AR on the point of delay in filing the present appeal. The Ld. AR of the assessee has fairly admitted that the delay in filing the present appeal is covered by the judgment of Hon’ble Supreme Court in case of Suo-moto Cognizance of extending the Limitation reported in 441 ITR 722 (SC) wherein the Hon’ble Supreme Court has finally issued the following direction in Para 5 as under:

Taking into consideration the arguments advanced by learned counsel and the impact of the surge of the virus on public health and adversities faced by litigants in the prevailing conditions, we deem it appropriate to dispose of the M.A. No. 21 of 2022 with the following directions:

The order dated 23-3-2020 is restored and in continuation of the subsequent orders dated 8-3-2021, 27-4-2021 and 23-92021, it is directed that the period from 15-3-2020 till 28-22022 shall stand excluded for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings.

Consequently, the balance period of limitation remaining as on 3-10-2021, if any, shall become available with effect from 13-2022.

In cases where the limitation would have expired during the period between 15-3-2020 till 28-2- 2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 1-3-2022. In the event the actual balance period of limitation remaining, with effect from 1-3-2022 is greater than 90 days, that longer period shall apply.

It is further clarified that the period from 15-3-2020 till 282-2022 shall also stand excluded in computing the periods prescribed under sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015 and provisos (b) and (c) of section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings.” Accordingly, in view of the judgment of Hon’ble Supreme Court in suo-moto cognizance for extension of the limitation, the appeal of the revenue is treated as filed within the period of limitation.

The Revenue has raised following ground of appeal:

The Ld. CIT(A) was not justified in deleting the addition of Rs.5,20,37,486/- out of the total addition made of Rs.5,38,80,806/-admitting the additional documents, violating the Rule 46 of the I.T Rules, 1962 regarding admission of additional evidences.

The Ld. CIT(A) was not justified in not considering the letter of AO to extended the time limit for filing the final remand report as she (AO) was busy in completing the time barring assessments. However, the Ld. CIT(A) proceeded and passed appellate order without obtaining the said remand report for the AO.

The Ld. CIT(A) was not justified in ignoring the remand report dated 11.11.2016 in which specifically mentioned that the assessee was entitled for set off of earlier loss amounting to Rs.2,55,25,774/-however the Ld. CIT(A) allowed the loss of Rs.13,43,58,600/- without any specific findings.

The Ld. CIT(A) was not justified in allowing the appeal of the assessee on account of rejection of books of account invoking the provisions of section u/s 145 of the IT Act, 1961 by A.0.

The appellant craves leave to add or deduct form or otherwise amend the above grounds of appeal.”

The assessee company was engaged in the business of food process and cold storage. The assessee filed its return of income on 29.09.2012 declaring total income at loss of Rs.13,43,58,600/-. The AO completed the assessment u/s 144 on 25.03.2015 at the total income of Rs.5,38,80,006/-. Aggrieved by the assessment order, the assessee filed before the Ld. CIT(A). The Ld. CIT(A) after calling remand report twice from the AO has deleted the majority of the additions made by the AO. Therefore, aggrieved by the impugned order of the Ld. CIT(A) the revenue has filed the present appeal.

The Ld. DR has submitted that the assessee neither attended assessment proceedings nor produced books of account or any documentary evidence with respect to claim of loss in the return of income and therefore, the AO rejected the books of account by invoking provision of section 145(3) of the Act and framed the assessment as on the basis of best judgement.

The AO has passed assessment order u/s 144 of the Act when there was no response or compliance on the part of the assessee to the notices issued by the AO u/s 142(1) as well as summons u/s 131 of the Act issued by the AO. The AO given sufficient opportunity to the assessee to present the case and file the supporting evidence however, the assessee failed to produce the supporting evidence and requisite details. Accordingly, the assessment was framed by the AO u/s 144 on the basis of the information available with the AO. He has further submitted that the assessee filed the additional evidence before the Ld. CIT(A) but the same was not allowed to be verified and examined by the AO in the remand proceedings as the Ld. CIT(A) did not allow the sufficient time to the AO. The Assessing Officer requested for allowing him some more time to verify and examine the books of account and additional evidence filed by the assessee as he was busy in time barring assessments however, ld. CIT(A) did not allow the same and passed impugned order. Thus, the Ld. DR has submitted that the impugned order of the Ld. CIT(A) may be set aside and the matter may be remanded to the record of the AO for fresh examination and adjudication. He has relied upon the order of the Ld. AO.

Observation of the court

It is pertinent to note that the AO while computing the total income has rejected the claim of loss for want of tax audit report and other details and even refused to entertain the CA for want of power of attorney though the reply along with balance sheet and other details as well as statutory audit report were filed before the AO. The AO even did not allow the brought forward loss which were allowed in the preceding year to be carry forward and therefore, it shows that the AO has passed the assessment order by ignoring the undisputed facts available before him and rather contrary to the fact so far as the brought forward loss of Rs.2.55 crores which was subsequently accepted by the AO in the remand proceedings. The assessee stated that it has produced books of account along with vouchers and when the AO has not considered the books of account and vouchers but rejected the books of account of the assessee the same were produced before the ld. CIT(A) and therefore, there is no violation of Rule 46A of the Income Tax Rules. The Ld. CIT(A) has confirmed these facts while passing impugned order that the record was brought before the AO but it was not considered. Thus, the AO misconducted himself while passing the assessment order and therefore, the record which was already filed before the AO was rightly considering by the Ld. CIT(A) while passing the impugned order. Accordingly, in the facts and circumstances of the case we do not find any error or illegality in the impugned order of the Ld. CIT(A) same is upheld.

In the result, appeal of Revenue is dismissed.

Order pronounced in the open court on 08.06.2023.