Estimation of Income cannot be made without formal rejection of books and invoking best judgment assessment; addition deleted.

Where an Assessing Officer estimated commission income while accepting purchases and sales in the books without formally rejecting the assessee's books under Section 145(3) or framing a best judgment assessment under Section 144, the power to estimate was held legally unavailable; precedents require a recorded finding that books are incorrect, incomplete or unreliable and formal rejection before invoking estimation or Section 144, and selective acceptance of entries with ad hoc estimation is arbitrary and unsustainable - applying these principles ITAT Raipur allowed the appeals and deleted the addition.

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Issues: (i) Whether the Assessing Officer can make an estimated addition of commission income by selectively accepting books of account and simultaneously estimating income without rejecting the books of account under Section 145(3) and without framing assessment under Section 144 of the Income-tax Act, 1961.

Analysis: The Court examined whether estimation of income by the Assessing Officer is permissible in the absence of a recorded rejection of the assessee's books of account under Section 145(3) and without proceeding to make a best judgment assessment under Section 144 of the Income-tax Act, 1961. The Court relied on settled precedents which establish that the power to estimate income and make a best judgment assessment arises only after the Assessing Officer is satisfied that the books of account are incorrect, incomplete or unreliable and has formally rejected them under Section 145(3); only thereafter can assessment be framed under Section 144. The judgments cited emphasize that partial acceptance of entries while rejecting others without rejecting the books as a whole results in arbitrary and unsustainable computation, and that estimation substituted for computation under Section 29 must follow the statutory safeguards in Sections 145(3) and 144. Applying these principles to the facts, the Court found that the Assessing Officer had accepted the purchases and sales in the books yet made an additional estimated commission income without rejecting the books or framing assessment under Section 144, rendering the addition legally impermissible.

Conclusion: The addition of estimated commission income made without rejecting the books of account under Section 145(3) and without framing assessment under Section 144 of the Income-tax Act, 1961 is unsustainable; the appeals are allowed and the impugned additions are directed to be deleted.

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