Facts of the Case

The assessee initially filed a return declaring income of ₹14,49,900 and subsequently filed a revised return declaring ₹6,17,900. The case was selected for scrutiny due to the significant reduction in income and claim of refund.

The Assessing Officer observed discrepancies between the original and revised returns, including reduction in gross receipts from truck operations by ₹3,80,000 and increase in salary expenses by ₹7,00,000 relating to the liquor business. As the assessee did not furnish supporting documents despite multiple notices, the Assessing Officer rejected the revised return and made an addition of ₹10,80,000 under a best-judgment assessment.

Issues Involved

  1. Whether variations between original and revised returns justify additions without examining books of account.
  2. Whether revised returns filed to correct accounting errors should be rejected in absence of supporting documents.
  3. Whether dismissal of appeal for non-prosecution without adjudicating merits is sustainable.

Petitioner’s Arguments

The assessee contended that the discrepancies arose due to errors committed by staff of the earlier Chartered Accountant while preparing financial statements, not due to any manipulation of accounts.

  • Books of account were maintained and audited
  • Salary payments were actually higher than originally reported
  • Truck receipts were wrongly overstated in the original return
  • Revised return reflected the true figures from the books
  • Affidavits from the CA’s staff acknowledging mistakes were furnished
  • Cash book and salary register had been uploaded during assessment

Respondent’s Arguments

The Revenue contended that the assessee failed to comply with notices and did not furnish adequate documentary evidence during assessment or appellate proceedings. However, it suggested that if relief were to be granted, the Assessing Officer should be allowed to verify the books of account.

Court Order / Findings (ITAT Allahabad)

The Tribunal noted that the assessee had indeed been non-compliant before the lower authorities, which prevented verification of whether the revised return reflected the correct financial position. However, since the revised return was filed within the statutory time limit and explanations regarding accounting errors were plausible, the matter required examination on merits.

The Tribunal held that additions for suppression of receipts or inflation of expenses cannot be sustained without scrutinizing the books of account. It was necessary to determine whether the revised return genuinely corrected mistakes or was filed to conceal income.

Accordingly, the Tribunal restored the matter to the Assessing Officer for a de novo assessment, directing the assessee to produce books of account and supporting evidence for verification. The appeal was allowed for statistical purposes.

Important Clarification

The Tribunal emphasized that while non-compliance may justify adverse inference, determination of taxable income must ultimately be based on examination of primary records. Revised returns filed within time cannot be dismissed outright without verifying underlying accounts.

Link to download the order -     https://www.mytaxexpert.co.in/uploads/1771065459_AYUSHJAISWALALLAHABADVS.ITO11ALLAHABADALLAHABAD.pdf

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