Facts of the Case

The assessee, Savla Agencies, was engaged in business activities and maintained regular books of account. During the assessment proceedings, the Assessing Officer rejected the books of account and proceeded to estimate the income, making additions to the declared income.

The additions were sustained by the Commissioner of Income Tax (Appeals). Aggrieved by the appellate order, the assessee filed an appeal before the Income Tax Appellate Tribunal, Allahabad.

Issues Involved

  1. Whether rejection of books of account by the Assessing Officer was justified.
  2. Whether additions made on estimated basis were legally sustainable.
  3. Whether the assessment was made in accordance with statutory provisions.

Petitioner’s Arguments (Assessee)

  • The books of account were properly maintained and supported by records.
  • No material defects were pointed out to justify rejection of books.
  • The estimation of income was arbitrary and without reasonable basis.
  • The additions resulted in excessive and unjustified assessment of income.
  • The order of the CIT(A) confirming the additions was erroneous in law.

Respondent’s Arguments (Revenue)

  • The Assessing Officer found discrepancies warranting rejection of books.
  • Estimation of income was necessary to determine the correct taxable income.
  • The additions were reasonable and based on available material.
  • The orders of the lower authorities were valid and should be upheld.

Court Order / Findings (ITAT)

The Tribunal examined the assessment records and observed that rejection of books of account must be supported by specific defects and reasons. It held that estimation of income cannot be arbitrary and must be based on rational material.

The Tribunal found that the Assessing Officer had not established sufficient grounds to sustain the additions made on estimated basis. Accordingly, the Tribunal granted relief to the assessee and modified/removed the additions.

Important Clarification

The ruling emphasizes that:

  • Books of account cannot be rejected without pointing out specific defects.
  • Estimated additions must be reasonable and evidence-based.
  • Arbitrary assessment is not permissible under the Act.
  • The burden lies on the Revenue to justify rejection of accounts.

Link to download the order - 

https://itat.gov.in/public/files/upload/1673004089-ITA%20No.%2028%20alld%202022%20Savla%20Agencies.pdf

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