Rejection of audited books and estimated gross profit cannot stand without specific defects in records or supporting evidence.

Audited books of account cannot be rejected under section 145(3) merely because the assessee did not furnish details in the exact format preferred by the Assessing Officer, where quantity-wise and rate-wise records, sample bills, and supporting documents were produced and no specific defect or falsity was shown. Profit also cannot be estimated by mechanically applying earlier gross profit rates when the current year's turnover and business mix materially changed. On these facts, the rejection of books and the gross profit addition were held unsustainable, and the assessee succeeded.

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Issues: Whether the Assessing Officer was justified in rejecting the audited books of account under section 145(3) and estimating gross profit by applying past gross profit rates to the current year's turnover.

Analysis: The assessee's turnover had increased sharply in the relevant year due to a substantial shift towards wholesale , and the profitability of wholesale trading was materially lower than the earlier retail-heavy years. The record showed that quantity-wise and rate-wise details of purchases and sales had been furnished during the assessment and remand proceedings, along with sample bills and supporting documents. No specific defect, falsity, or discrepancy in the books or the quantitative records was pointed out by the Assessing Officer; the rejection rested mainly on the non-furnishing of details in the exact format sought by the Assessing Officer. In these circumstances, the estimation of profit by merely averaging prior-year gross profit ratios was held to be based on assumption rather than concrete evidence.

Conclusion: The rejection of books under section 145(3) was unjustified and the gross profit addition was not sustainable; the issue was decided in favour of the assessee.

Final Conclusion: The Revenue's challenge to the deletion of the gross profit addition failed, and the assessed addition based on estimated gross profit did not survive.

Ratio Decidendi: Audited books of account cannot be rejected, and profit cannot be estimated merely for want of the Assessing Officer's preferred format, where the assessee has furnished substantive quantitative and supporting material and no specific defect in the records is established.

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