Books Rejected, section 68 addition not sustainable without first following best judgment assessment procedure.

Where sundry creditor entries in the books are found not genuine, the Assessing Officer cannot straightaway treat them as taxable cash credits under section 68 without first rejecting the books and following the statutory procedure for best judgment assessment. The proper course is to invoke section 145(3), then make a fresh assessment under section 144. On the facts, the creditor entries were held unreliable, but the assessment was set aside because the officer accepted the returned profit while adding the disputed credits without adopting the required procedure. The matter was remanded for fresh assessment.

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Issues: Whether, after rejecting the genuineness of sundry creditor entries in the books of account, the income could be added straightaway under section 68 of the Income-tax Act, 1961, or whether the Assessing Officer ought to have proceeded under section 145(3) and made a fresh assessment under section 144.

Analysis: The disclosed names of the alleged suppliers were examined and their statements did not support the genuineness of the transactions. On the facts, the findings that the sundry creditor entries were not genuine were upheld. However, the assessment order was found to be internally inconsistent because the Assessing Officer accepted the returned profit while simultaneously treating the creditor entries as taxable cash credits without first making the assessment in the manner required after rejecting the books of account. Once the books were found unreliable, the proper course was to invoke section 145(3) and then assess the income in accordance with section 144 rather than make a straight addition under section 68.

Conclusion: The addition under section 68 could not be sustained in the manner adopted by the Assessing Officer. The appeal was allowed, the assessment order and the Tribunal's order were set aside, and the matter was remanded for fresh assessment.

Ratio Decidendi: Where the books of account are rejected for lack of genuineness, the Assessing Officer must adopt the statutory procedure for best judgment assessment and cannot straightaway tax the disputed entries under section 68 without first proceeding under section 145(3) and section 144.

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