Rejection of books and on-money estimation fail without corroboration, reliable diary evidence, or serious defects in accounts.

Rejection of books under section 145(3) was held unjustified because the Revenue relied on impounded diary entries, survey statements and a minor commission omission, while the assessee showed the diary related to another project and no serious accounting defect was established. The Tribunal also held that an estimated sale rate and alleged on-money addition could not stand on uncorroborated survey statements or unreliable diary entries, especially where no independent evidence from purchasers or other external material supported the estimate. The books rejection was set aside and the addition based on estimated receipts was deleted, in favour of the assessee.

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Issues: (i) whether rejection of the books of account under section 145(3) of the Income-tax Act, 1961 was justified; (ii) whether the addition based on estimated sale rate and alleged on-money receipt could be sustained.

Issue (i): whether rejection of the books of account under section 145(3) of the Income-tax Act, 1961 was justified.

Analysis: The books were rejected mainly on the basis of entries in impounded diaries, statements recorded during survey, and an alleged omission of a small commission expense. The Tribunal found that the diary entries relied upon by the Revenue were shown by the assessee to relate to another project, and the alleged commission lapse was too insignificant to justify rejection of the entire accounts. In the absence of serious defects in the method of accounting or reliable material showing that correct profits could not be deduced, rejection of the books was not warranted.

Conclusion: The rejection of the books of account was unjustified and is set aside, in favour of the assessee.

Issue (ii): whether the addition based on estimated sale rate and alleged on-money receipt could be sustained.

Analysis: The addition rested substantially on survey statements and an estimated uniform sale rate of Rs. 1,500 per sq. yard. The Tribunal held that the survey statement recorded without proper compliance with the statutory safeguards could not, by itself, sustain the estimate, and no independent corroboration such as examination of purchasers or other external evidence was brought on record. The Tribunal also accepted the assessee's documentary explanation that the impugned diary entries did not pertain to the assessee's project. In these circumstances, the estimated rate and consequential on-money addition were held to be unsupported.

Conclusion: The addition based on estimated sale rate and alleged on-money receipt is unsustainable and is deleted, in favour of the assessee.

Final Conclusion: The assessee succeeded on the core grounds, the Revenue's cross appeal failed, and the assessment additions based on rejection of books and estimated project receipts were annulled.

Ratio Decidendi: Rejection of accounts and estimation of income cannot be sustained on the basis of uncorroborated survey statements or unreliable diary entries when the assessee produces contrary documentary evidence and no serious defect in the books is established.

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