2025 (2) TMI 1684 - AT - Income Tax

Rejection of books under section 145(3) requires specific defects; estimated turnover addition deleted where accounts were not shown incomplete.

Books of account cannot be rejected under section 145(3) unless identifiable defects show that the accounts are not correct or complete. On the facts, no ... Rejection of books of account u/s 145 - Estimated addition on turnover - application of GP rate - addition at 1% of total sales on the footing that the sales represented bogus or accommodation entries was not sustainable - HELD THAT: - The Tribunal held that, on the facts of the present year, the controversy stood covered by the co-ordinate Bench decision in the assessee's own cases for later years [2023 (7) TMI 1646 - ITAT MUMBAI] involving an identical addition. Adopting that reasoning, it found that rejection of books under section 145(3) requires specific defects in the books to be made out, whereas the present case reflected only a general allegation regarding fictitious purchases and sales leading to an estimated addition at 1% of turnover. Since the facts were the same apart from variation in amounts, the rejection of books and the application of the 1% rate on total revenue were held to be unjustified. [Paras 9] The addition made at 1% of total sales was deleted and the assessee succeeded on this issue. Final Conclusion: Following the co-ordinate Bench decision in the assessee's own case on identical facts, the Tribunal held that the books could not validly be rejected and the estimated addition on turnover could not be sustained. The appeal was accordingly allowed. Issues: (i) Whether the books of account could be rejected under section 145(3) of the Income-tax Act, 1961 and the addition of 1% of turnover sustained as bogus turnover.Analysis: Rejection of books of account under section 145(3) requires identifiable defects showing that the accounts are not correct or complete. The material on record did not establish such specific defects in the assessee's books so as to justify rejection of the books and estimation of income at 1% of turnover. The identical addition in the assessee's later assessment years had already been deleted on the same reasoning, and the facts for the year under appeal were found to be materially the same.Conclusion: The books of account could not be rejected under section 145(3), and the addition based on estimation of 1% of turnover was deleted in favour of the assessee.