Books rejection and ad hoc additions fail without specific defects or supporting material, while head office remittances were not unexplained investment.

Books of account cannot be rejected without specific defects or cogent material; audited accounts and a mere dissatisfaction with the revenue profile were insufficient, so the rejection was unsustainable. An ad hoc addition of foreign exchange fluctuation gain as fees for technical services, made after rejecting the books and without supporting factual or legal basis, was also unsustainable. Remittances from the foreign head office, routed through banking channels and explained as project office funding, could not be taxed as unexplained investment under section 69 because they were identified capital inflows from a known source.

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Issues: (i) Whether the rejection of the books of account was justified in the absence of specific defects, (ii) whether the foreign exchange fluctuation gain could be added on an ad hoc basis as fees for technical services, and (iii) whether remittances received from the head office could be taxed as unexplained investment under section 69.

Issue (i): Whether the rejection of the books of account was justified in the absence of specific defects.

Analysis: The books were rejected only because the assessee had reported no revenue and had claimed expenses. No cogent material or specific defect in the accounts was brought out to support such rejection. The accounts were audited and the material on record did not justify ignoring the books merely because the Assessing Officer was dissatisfied with the revenue profile.

Conclusion: The rejection of the books of account was not justified and the finding was in favour of the assessee.

Issue (ii): Whether the foreign exchange fluctuation gain could be added on an ad hoc basis as fees for technical services.

Analysis: After rejecting the books, the Assessing Officer picked up the foreign exchange fluctuation gain and brought 25% of it to tax without supporting material. The addition was made on an arbitrary basis and was not backed by a proper factual or legal foundation.

Conclusion: The ad hoc addition on account of foreign exchange fluctuation gain was unsustainable and was in favour of the assessee.

Issue (iii): Whether remittances received from the head office could be taxed as unexplained investment under section 69.

Analysis: The remittances were shown as funds received from the foreign head office for project office expenses and were reflected in the books through banking channels. Such receipts were treated by the Assessing Officer as unexplained investment despite the explanation that the project office had no share capital and the amounts represented internal funding for business purposes. On the facts, the receipt was a capital inflow from an identified source and not an unexplained investment.

Conclusion: The addition under section 69 was rightly deleted and the finding was in favour of the assessee.

Final Conclusion: The Revenue failed to show any material infirmity in the appellate order, and the additions made on rejection of books, foreign exchange fluctuation, and head office remittances were not sustained.

Ratio Decidendi: Books of account cannot be rejected, and consequential additions cannot be sustained, unless the Assessing Officer identifies specific defects and supports the adjustment with cogent material; a remittance from an identified head office source cannot be treated as unexplained investment merely because it is routed through the project office accounts.

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