No legal authority exist for revenue-authorities can make lump-sum disallowance

There is no legal authority by or under which the revenue-authorities can make a lump-sum disallowance. Lump sun disallowance made without rejecting books of account deleted.

ABCAUS Case Law Citation
ABCAUS 3652 (2023) (02) ITAT

Important Case Laws relied upon:
ACIT vs. Genda Lal Hazarilal & Company 134 Taxmann 384

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the action of Assessing Officer (AO) in rejecting the books of accounts u/s 145(3) of the Income Tax Act, 1961 (the Act).

The assessee was engaged in the business of civil contractor-ship and  mining contractor-ship. The return filed by assessee was subjected to scrutiny-assessment. While completing assessment, the AO invoked section 145(3) of the Act; thereby rejected books of account he estimated business income applying net-profit rate and thus made an addition to the income.

The CIT(A) made a clear finding and conclusion that the books of account of  assessee cannot be rejected. However, CIT(A) sustained a lump-sum addition primarily for the reason that the claim of labour charges was on higher side.

The Tribunal expressed disagreement to such an approach of CIT(A) whereby on one hand it is concluded that the books of account could not be rejected and on other hand sustained a lump-sum addition.

Further, the Tribunal observed that department had not filed any cross- objection against the conclusion taken by CIT(A) to the effect that the  books of accounts cannot be rejected. Thus, by not filing any cross-objection, the department is agreeing that the books of account were  not rejectable, in other words the books of account were acceptable to  the department.

The Tribunal opined that in particular situation of the case, there was no justification on the part of CIT(A) for sustaining a lump-sum disallowance.

The Tribunal stated that even otherwise, it is judicially well settled in numerous decisions that there is no legal authority in the Act by or  under which the revenue-authorities can make a lump-sum  disallowance. 

Accordingly, the Tribunal deleted the addition and allowed the appeal in favour of the assessee.

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