Books of account cannot be rejected for low yield alone; specific defects are needed before estimating income.

Rejection of books under section 145 requires specific defects showing that accounts are incorrect, incomplete or incapable of yielding proper income; low yield, alleged shortage in waste cotton, or the absence of a day-to-day stock register alone was held insufficient, and the addition on that basis was deleted. The disallowance of stores and spare parts expenditure was found excessive because increased consumption was explained by overhauling and restarting a closed plant, so it was reduced. The disallowance of depreciation on plant and machinery was sustained because no error in that adjustment was shown. The assessee obtained partial relief overall.

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Issues: (i) Whether the books of account could be rejected and an addition made on account of low yield and alleged shortage in waste cotton production under section 145 of the Income-tax Act, 1961; (ii) whether the disallowance of expenditure on stores and spare parts required reduction; (iii) whether the disallowance of depreciation on plant and machinery was to be sustained.

Issue (i): Whether the books of account could be rejected and an addition made on account of low yield and alleged shortage in waste cotton production under section 145 of the Income-tax Act, 1961.

Analysis: The accounts were supported by audit report and quantitative particulars, and no specific defect in the books or in the month-wise consumption and production figures was pointed out. Mere absence of a day-to-day stock register was held insufficient by itself to invoke section 145. The finished-goods yield was found to be satisfactory, and the low production of waste cotton alone did not justify rejection of the book results or estimation of income. The addition sustained by the lower authority on the alleged shortage in waste cotton was therefore unsustainable.

Conclusion: In favour of the assessee. The addition on account of low yield and rejection of book results was deleted.

Issue (ii): Whether the disallowance of expenditure on stores and spare parts required reduction.

Analysis: The increase in consumption was explained by the need to overhaul and restart the closed plant, and the record did not show how much of the vouchers were actually unsupported. In the circumstances, the lump-sum disallowance sustained below was considered excessive.

Conclusion: In favour of the assessee. The disallowance was reduced to a nominal amount.

Issue (iii): Whether the disallowance of depreciation on plant and machinery was to be sustained.

Analysis: No error in the disallowance was demonstrated at the hearing.

Conclusion: Against the assessee. The depreciation disallowance was sustained.

Final Conclusion: The appeal succeeded on the principal addition relating to low yield and partly succeeded on the disallowance of stores and spare parts, but failed on the depreciation issue; overall, the relief granted was partial.

Ratio Decidendi: Rejection of books under section 145 requires a finding that the accounts are incorrect, incomplete, or incapable of yielding proper income, and low profit or absence of a day-to-day stock register, without specific defects in the accounts, is not enough by itself to estimate income.

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