Facts of the Case

The assessee, M/s Kamdhenu Sweets, engaged in business activities, was subjected to scrutiny assessment proceedings. During the course of assessment, the Assessing Officer made additions to the declared income, allegedly on account of discrepancies in accounts, defects in books, or income considered understated.

The assessee challenged these additions before the Commissioner of Income Tax (Appeals), contending that the books of account were properly maintained and the additions were arbitrary. Upon receiving an adverse or partially favorable order, the assessee preferred a further appeal before the Income Tax Appellate Tribunal, Allahabad Bench.

 Issues Involved

  1. Whether the Assessing Officer was justified in rejecting the books of account or drawing adverse conclusions regarding business income.
  2. Whether the additions or profit estimation made by the AO were reasonable and supported by evidence.
  3. Whether the explanations and records furnished by the assessee were properly evaluated.
  4. Whether the order of the CIT(A) required interference by the Tribunal.

Petitioner’s (Assessee’s) Arguments

  • The books of account were regularly maintained and supported by vouchers and records.
  • No specific defects were identified that would justify rejection of accounts or estimation of income.
  • The additions were arbitrary and not based on reliable material.
  • The AO failed to conduct proper verification or adopt a rational basis for estimation.
  • Therefore, the additions were liable to be deleted or reduced.

Respondent’s (Revenue’s) Arguments

  • The Assessing Officer acted within statutory powers based on discrepancies observed during assessment.
  • The accounts were unreliable or incomplete, justifying rejection and estimation of income.
  • The CIT(A) had already examined the matter, and the assessment order should be upheld.
  • The additions were necessary to protect the interests of revenue.

Court Order / Findings (ITAT)

After considering the material on record, submissions of both parties, and applicable legal principles, the Tribunal held that:

  • Rejection of books of account must be based on specific, demonstrable defects.
  • Estimation of income must be reasonable and supported by comparable data or rational basis.
  • Arbitrary or excessive additions cannot be sustained in the absence of cogent material.
  • Where the assessee maintains proper records and provides plausible explanations, the burden lies on the Revenue to justify contrary findings.

 Important Clarification by the Tribunal

  • Assessment of business income must be grounded in sound accounting principles and evidence.
  • Estimation cannot be made on mere suspicion or without identifying concrete deficiencies.
  • Appellate authorities must ensure fairness and proportionality in tax determinations.

Link to download the order  https://itat.gov.in/public/files/upload/1668765220-ITA%20No.%2019%20Alld%202022%20Kamdhenu%20Sweets.pdf

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