Business of travel and tourism accounting: rejection of books under Section 145(3) not justified, appeal dismissed

Dispute concerns whether books of a travel and tourism operator could be rejected under Section 145(3) for alleged defects. The legal basis is that Revenue bears the onus to prove books are incorrect or incomplete or that the accounting method prevents deduction of true profits; finding that no mandated accounting standard applied and that absence of formal foreign agreements did not render accounts incomplete, accounts could not be rejected. Unverified individual expenses may be disallowed separately, but that does not justify wholesale rejection of accounts. Tribunal fact findings were unchallenged as perverse; therefore the appeal failed.

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Issues: Whether the Assessing Officer was justified in rejecting the assessee's books of account under Section 145(3) of the Income-tax Act, 1961 and assessing income on presumptive rates instead of accepting the returned income.

Analysis: Section 145(3) permits assessment under Section 144 where the Assessing Officer is not satisfied about correctness or completeness of accounts; however, it applies only if specific defects, incompleteness, or non-adherence to an accounting method or notified accounting standards are shown. The assessee maintained regular books of account, audited without qualification, produced vouchers and tour-wise ledgers, and explanations for variations between tour itineraries and expenses were accepted. The Assessing Officer did not point to any specific defect in the accounts nor produce positive evidence of concealment; instead general assertions about low profit rates and absence of formal agreements were relied upon. Findings by the first appellate authority and the Tribunal that the accounts were neither defective nor incomplete are factual findings and have not been demonstrated to be perverse. Where only particular expenses are unverified, disallowance of those items rather than wholesale rejection of accounts is the appropriate exercise of assessment powers.

Conclusion: The rejection of the assessee's books under Section 145(3) and consequent assessment on presumptive rates was not justified; the returned income, subject to allowable deductions, must be accepted.

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