Validity of Rejection of Books of Accounts
This query is : Resolved
16 December 2009
IT Department issued notice u/s 133(6)to the unsecured loans (lenders) and creditors of the assessee for confirmation of account balance of and did not receive the reply from some of such parties, so the ITO wants to reject the books of accounts. Is it the valid ground for rejection of books of accounts? please provide case laws with your suggestion if any.
16 December 2009
ITO is not correct to reject the books of account in the given circumstances.
If books of account are not regularly maintained from which profits cannot be computed properly only then he can reject the books of account.
Since in your case; loans and creditors are not confirmed by the third parties; it cannot be said the books of account maintained are wrong.
There are lots of case law. If ITO rejects; we have to see on what grounds he has rejected the books. Accordingly; appeal can be filed.
But; don't forget that now provisions are such that if any demand is raised by him due to assessment order passed; you may be required to pay demand. Although stay order can be taken against that.
Better you hire services of some expert in the matter.
CA Rakhecha,Surat
If books of account are not regularly maintained from which profits cannot be computed properly only then he can reject the books of account.
Since in your case; loans and creditors are not confirmed by the third parties; it cannot be said the books of account maintained are wrong.
There are lots of case law. If ITO rejects; we have to see on what grounds he has rejected the books. Accordingly; appeal can be filed.
But; don't forget that now provisions are such that if any demand is raised by him due to assessment order passed; you may be required to pay demand. Although stay order can be taken against that.
Better you hire services of some expert in the matter.
CA Rakhecha,Surat
30 December 2009
Thank you sir for your reply. But I kindly request you to provide one case law based on the subject.
02 August 2025
Case Laws supporting this view:
CIT vs. B.C. Srinivasa Setty (1965) 57 ITR 192 (SC):
Supreme Court held that books of account cannot be rejected merely because entries cannot be verified or because there is discrepancy in account balances.
CIT vs. B.C. Srinivasa Setty (1965) 57 ITR 192 (SC) (another part of the judgment):
If the books are regularly maintained and the income can be computed therefrom, they cannot be rejected on the ground of suspicion or non-confirmation of parties.
CIT vs. D.N. Jatia (1987) 166 ITR 637 (Bom):
Books of accounts cannot be rejected merely on the ground of non-confirmation of balances by third parties.
CIT vs. Sheela Laxman Rao (2002) 254 ITR 570 (SC):
The Supreme Court held that rejection of books must be based on material irregularity and not merely because the ITO could not verify certain entries.
CIT vs. B.C. Srinivasa Setty (1965) 57 ITR 192 (SC):
Supreme Court held that books of account cannot be rejected merely because entries cannot be verified or because there is discrepancy in account balances.
CIT vs. B.C. Srinivasa Setty (1965) 57 ITR 192 (SC) (another part of the judgment):
If the books are regularly maintained and the income can be computed therefrom, they cannot be rejected on the ground of suspicion or non-confirmation of parties.
CIT vs. D.N. Jatia (1987) 166 ITR 637 (Bom):
Books of accounts cannot be rejected merely on the ground of non-confirmation of balances by third parties.
CIT vs. Sheela Laxman Rao (2002) 254 ITR 570 (SC):
The Supreme Court held that rejection of books must be based on material irregularity and not merely because the ITO could not verify certain entries.
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