How can AO reject the Books of accounts of Assessee

By | December 8, 2015
(Last Updated On: December 8, 2015)

When can the Assessing Officer Reject the books of Accounts of the Assessee  under Income Tax Act 1961?

As per Section 145(3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2) of Section 145, the Assessing Officer may make an assessment in the manner provided in section 144.

Can the Books of Accounts be rejected by Assessing Officer  on the ground that average GP rate in current year was slightly lower than the average GP rate of the earlier year ?

The decline of growth profit rate by itself cannot be a ground for rejection of books of account. M. Durai Raj v. CIT [1972] 83 ITR 484 (Ker.)

Can the Books of Accounts be rejected on the ground that no Vouchers are maintained by the Assessee ?

since sellers were agriculturists from whom it was not possible in ordinary course of business to have vouchers and maintenance of bought notes by purchasers was common feature in assessee’s line of business, fact that assessee did not obtain bought notes from sellers was not a defect by itself therefore books of account cannot be rejected in total on the basis of such finding.The Kerala High Court in the case of CM. Francis & Co. (P.) Ltd. v. CIT [1970] 77 ITR 449 (KER.)

Whether Non Maintenance of  quantitative details of spare parts  could be the Ground for rejection of Books of Accounts by the AO ?

Asstt. CIT v. L.M.P. Tractors (P.) Ltd.IT APPEAL NO. 1103 (AHD.) OF 1998 the Ahmedabad Bench of the ITAT held that non-maintenance of quantitative details of spare parts could not be a ground for rejection of books of account and the Assessing Officer is not justified in rejecting the books of account without pinpointing specific defects and thereby making an ad hoc addition when discrepancies were duly reconciled before lower authorities.

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