Rejection of account books for not producing vouchers quashed by High Court

Rejection of account books for not producing vouchers quashed. The High Court held that mere absence thereof did not give rise to presumption that there was any non-disclosure when no evidence existed to doubt the correctness or completeness of the books of account.

ABCAUS Case Law Citation:
ABCAUS 2145 (2017) (12) HC

The Challenge/Grievance:
The instant appeal was filed by the assessee under Section 260A of the Income Tax Act, 1961 (the Act), against the order of the Income Tax Appellate Tribunal (ITAT) on the issue of rejection of books of account u/s 145 of the Act and resultant estimation of income.

Brief Facts of the Case:
The appellant assessee was a practicing doctor (surgeon) who had been running a nursing home offering surgery and consultancy. During the relevant Assessment Year (AY) a survey under Section 133A of the Act was conducted at the nursing home of the assessee. During that survey, various account books and registers were examined and also seized, including the OPD register, Indoor Patient register and certain other loose papers.

The return of income of the assessee for the said assessment was taken up for scrutiny wherein the Assessing Officer (AO) noted that upon test check some discrepancy were found between the entries recorded in the books of account of the assessee and registers and documents seized during the survey.

However, the nature and extent of such discrepancy was not disclosed in the assessment order. The AO then rejected the assessee’s books of account under Section 145(3) of the Act on the reasoning that the entries made in the OPD and Indoor Patient register and books of account were not supported by vouchers of payments received from patients.

Accordingly, t AO estimated the income of assessee at Rs. 20,83,000/- as against the returned income of Rs. 2,24,600/-.

Upon appeal before the Commissioner (Appeals), it was partly allowed but in so far as rejection of the books of account was concerned, the same was upheld.

Both the Income Tax Department (ITD/Revenue) and the assessee being aggrieved, appealed before ITAT. The Tribunal rejected both the appeals and confirmed the order passed by the CIT (Appeals).

Contention made on behalf of the Petitioner Assessee:
It was submitted that in order to sustain the rejection of the books of account, the revenue must establish existence of the conditions prescribed under Section 145(3) of the Act. In view of the fact that there was no dispute as to the method of accounting or computation in accordance with standards notified, the books of account of the assessee could have been rejected only if the same had been incomplete or incorrect.

It was submitted that admittedly at the time of survey difference between the OPD register as also Indoor Patient register were found maintained wherein details such as the names of the patients, payment received were found recorded. Merely because there were no vouchers in support of such entries or because the address of the patients from whom the assessee received payments have not been recorded, could not be a ground to reject the books of account of the assessee as either incomplete or incorrect in absence of any evidence of assessee being in receipt of any undisclosed income.

It was submitted that the revenue did not find any evidence that may lead to the conclusion that the assessee’s books of account were such as were not reflecting full and true income of the assessee. In absence of any evidence either documentary or oral led by the revenue suggesting that the receipts recorded by the assessee in the OPD register and indoor patient register were under disclosed, there did not arise any presumption that those books of account of the assessee were incomplete or incorrect.

It was contended that in the assessment order the AO had himself recorded that test check was made with the OPD/Indoor Patient register from the books of account of the assessee. Also, it had been further recorded that in the OPD register and Indoor Patient register the assessee had made entries of admission of patients, fee charged from them operation fees bed fee etc. Thereafter, a mere observation had been made in the assessment order that the books of account produced in which the entries were made did not tally with the register that was seized during the course of survey conducted under Section 133A of the Act without giving any further detail of the extent to which entries allegedly did not match and without drawing any conclusion as to how the assessee had under disclosed his income.

It was submitted that as evident from the assessment order the assessee had produced his cash book, ledger, indoor patient register, OPD register and bank pass book. It was therefore submitted that the books of account of the assessee had been rejected arbitrarily in absence of satisfaction of the statutory condition. Alternatively, it was submitted that the enhancement made on estimate was wholly arbitrary.

Contentions made on behalf of the Respondent Revenue:
Opposing the contentions of the assessee, it was submitted that the burden to establish correctness and completeness of the books of account was of the assessee. In so far as the assessee did not produce the vouchers and did not disclose the address of the patient and no person was produced before the assessing officer for examination, the assessee never discharged the burden. Therefore it was contended that the books of account of the assessee were rightly rejected and the estimation made being a matter of guess work, the same did not give rise to any substantial question of law.

Observations made by the High Court:
The Hon’ble High Court observed that the assessee had been subjected to a survey wherein the OPD register as also Indoor Patient register had been found to have been maintained and entries of receipts of money from different patients were found recorded therein. Then as to the alleged discrepancy, the allegation made in the assessment order is wholly vague inasmuch as the AO had not recorded the nature and extent of discrepancy, if any noticed between entries found recorded in various books of account produced by the assessee during the course of the survey and assessment proceedings. Besides the above the assessee had also produced his cash book, ledger as also bank pass book. No specific discrepancy or deficiency had been pointed out in the assessment order on account of other books of account.

The Hon’ble High Court opined that it appeared that the books of account of the assessee had been rejected merely because the assessee did not produce the vouchers. Though, such vouchers may have been maintained, however, in the entirety of the facts found, the assessee had maintained his accounts and recorded his professional receipts therein. No evidence exists to doubt the correctness or completeness of the books of account of the assessee. In the instant case, books of account of the assessee were rejected unfounded suspicion. Absence of vouchers, in the peculiar facts of the case did not give rise to any presumption that there was any non-disclosure of income inasmuch as there is no evidence to doubt the correctness of the entries made in the OPD register as also Indoor Patient register.

From the supplementary affidavit filed by the assessee, the Hon’ble High Court noted that the returned income and the income assessed under Section 143(3) of the Act for different assessment years showed that the income disclosed by the assessee in the current year was similar or comparable to the income which the department had assessed. The Hon’ble High Court opined that this fact itself indicated that the rejection of books of account and the consequential best judgment assessment made by the assessing officer was wholly excessive, arbitrary and unfounded.

Decision/ Conclusion/Held:
It was held that the rejection of books of account was unfounded. Consequently the estimation and enhancement of income that followed also could not be sustained.

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