Best judgment estimation requires rejection of books first; selective additions from un-rejected accounts are impermissible.

Ad hoc estimations of wages, interest and sundry creditors were held unsustainable where the Assessing Officer had not rejected the books of account under section 145(3). The note explains that best judgment assessment under section 144 is permissible only after a finding that the accounts are incorrect, incomplete or unreliable and the books are rejected on statutory grounds. Selective additions from entries already reflected in un-rejected books, while the recorded purchases, sales and other transactions remain undisturbed, are impermissible. The additions were directed to be deleted and the assessee succeeded.

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Issues: Whether ad hoc additions and estimations of wages, interest and sundry creditors were sustainable when the books of account were not rejected under section 145(3) and no best judgment assessment was made.

Analysis: The additions were made on an estimated and selective basis while the recorded books, purchases, sales and transactions were not disturbed. The applicable legal framework requires the Assessing Officer to first reach a finding that the accounts are incorrect, incomplete or unreliable and to reject the books before resorting to assessment by estimate under section 144. In the absence of such rejection, pick-and-choose additions from entries already reflected in the books are not permissible.

Conclusion: The ad hoc additions were unsustainable and were directed to be deleted; the issue was decided in favour of the assessee.

Final Conclusion: The assessment additions founded on estimation without rejection of books could not stand, and the assessee succeeded in full.

Ratio Decidendi: Estimation of income on a best judgment basis is permissible only after the books of account are rejected on the statutory grounds contemplated by section 145(3); selective ad hoc disallowances from un-rejected books are impermissible.

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