Rejection of books of account and estimation of gross profit: appeal dismissed where no ground challenged appellate direction

Rejection of books of account and estimation of gross profit were central: the Tribunal found that no ground was taken in the memo of appeal against the Commissioner (Appeals) direction that books should not be rejected under section 145, and held that without rejection the books are to be treated as representing the correct picture so the Assessing Officer could not estimate gross profit. Because the impugned appellate direction was unchallenged, the Tribunal's dismissal of the revenue appeals was upheld and the appeals were dismissed.

---

---

Issues: Whether the Appellate Tribunal was correct in holding that the Revenue did not take any ground against the Commissioner (Appeals)'s direction not to reject the assessee's books of account under section 145 of the Income-tax Act, 1961, and consequently whether the deletion of the addition on account of estimation of gross profit was justified.

Analysis: The Tribunal's factual finding records that the Assessing Officer rejected the books of account and made an addition by estimating gross profit; the Commissioner (Appeals) held that rejection of the books was unjustified and directed that the books should not be rejected under section 145 of the Income-tax Act, 1961, and deleted the addition. The Tribunal examined the memo of appeal and the hearing and found that the Revenue challenged deletion of the gross profit addition but did not challenge the Commissioner (Appeals)'s direction restoring the books; no ground against the direction not to reject the books was taken in the memo of appeal nor argued before the Tribunal. Under the statutory scheme, where books of account are not rejected, entries in the books are treated as representing the true picture and there is no basis for making an estimate of gross profit under section 145. The Tribunal therefore concluded there was no infirmity in the Commissioner (Appeals)'s order and no substantive question of law arose from the impugned order.

Conclusion: The Tribunal was correct in holding that no ground was taken by the Revenue against the Commissioner (Appeals)'s direction not to reject the books of account under section 145 of the Income-tax Act, 1961; consequently the deletion of the addition by way of estimation of gross profit is sustained and there is no substantial question of law warranting interference. The appeals are dismissed.

Ratio Decidendi: In the absence of any challenge to the appellate direction restoring the books of account under section 145 of the Income-tax Act, 1961, the Assessing Officer cannot make an addition by estimating gross profit because, where books are not rejected, their entries are to be taken as representing the correct and true picture.

---