While rejecting books of accounts of an assessee whether A.O. can still make dis-allowances u/s 40A(3) and sec 68?

Deepak Mittal vs. ACIT (ITAT Delhi)- 04 April 2018

Some of the important discussions/ pointers of the case (for easy references):

1- ".......Assessee relied upon several decisions of different High Courts in which it was held that “when A.O. rejected the books of account of the assessee and applied gross profit rate on suppressed sales, A.O. cannot make separate addition on account of unexplained investment, undisclosed income and even the provisions of Section 40A(3) could not be invoked.”

2- When books of account of the assessee are not reliable and rejected by the authorities below under section 145(3) of the I.T. Act and there is no challenge to these findings of the authorities below, there is no reason for the authorities below to rely upon the same books of account for the purpose of making addition under section 40A(3) of the I.T. Act as well as to make addition of peak under section 68 of the I.T. Act.

3- For considering the issue of peak credit, the authorities below have to laid-out the foundation that it was unaccounted money of the assessee having both debit and credit which assessee did not agree. It could not be taken into consideration for making such addition under section 68 of the I.T. Act in the hands of the assessee for making any alleged transaction with M/s. Hanuman Traders, which, according to the authorities below, did not exist and that no such entries appear in the books of account of the assessee,

4- Even if, some entries appeared in the books of account of the assessee regarding M/s. Hanuman Traders, according to the findings of the authorities below, such books of account of the assessee are not reliable, Therefore, the authorities below cannot rely upon the same entries in books of account for the purpose of making the addition of the nature of peak against the assessee. Thus, there is no justification for the authorities below to make addition of Rs.6,92,25,000/- under section 40A(3) of the I.T. Act and addition of Rs.7,12,15,150/- under section 68 of the I.T. Act.

For reading full text of the case please refer link - http://itatonline.org/archives/wp-content/uploads/Deepak-Mittal-Books-Rejection.pdf

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