TaxTMI 
TaxTMI 
2026 (4) TMI 1460
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.... has not rejected the books of account in terms with Section 145(3) of the Act. In other words, on one hand, the A.O had accepted the genuineness of the books of account and on the other hand, had made further ad-hoc disallowances over and above the transactions reflected in the books of account of the assessee. Whether it is disallowance of wages, whether it is disallowance of interest paid, whether it is disallowance of sundry creditors, all these transactions finds place in the books of account of the assessee which was not disturbed by the A.O. Therefore, it is not open for the A.O to resort to further addition on ad-hoc basis without restoring to Section 145(3) of the Act. This issue is no more "Res-Integra". I take guidance from the judgment of the Hon'ble High Court of Madras in the case of Pr. CIT, Chennai Vs. Marg Ltd., (2017) 396 ITR 580 (Madras), wherein the Hon'ble High Court has held and observed as follows: "4. We now proceed to merits of the matter under the caption "Discussion' infra. DISCUSSION 4(a) As stated supra, the Assessee is a Public Limited Company engaged in the business of Civil Construction and related services. 4(b) A....
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....presentative very fairly submitted that there is no reference in the assessment order in the rejection of books of account" 4(f) As this factual position has been admitted, ITAT, dismissed the appeal 9f the Revenue by holding that profits of an Assessee cannot be estimated without rejecting the books of account. 4(g) ITAT has expressed its considered opinion that only when an assessee is not maintaining Books of Accounts properly and the correct income cannot be estimated on the basis of the Books of Accounts, the Books of Accounts can be rejected. ITAT has gone on to hold that the AO can estimate profit only thereafter." 4. Further, I find that similar issue has been adjudicated by the ITAT, SMC Bench, Raipur in the case of Anil Kumar Jain Vs. ACIT (Central, Bilaspur, ITA No.584 & 585/RPR/2025, dated 06.01.2026 wherein, this issue has been answered in favour of the assessee against the Revenue observing as follows: "9. Having heard submissions of the parties herein even without going into the factual merits of the matter, the legal contention that is there before me for adjudication is where the Revenue has failed to reject the books of account and pr....
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.... of the Act, such an action is unsustainable as per law. The relevant paragraph of the said decision is reproduced as under:- "11. In so far as the estimation of gross profit made by the Assessing Officer modified by the Commissioner of Income- tax (Appeals), the Tribunal has rightly held that when the books of account of the assessee had not been rejected and assessment having not been framed under section 144 of the Income-tax Act the said authorities were in error in resorting to an estimation of income and such exercise undertaken by them was not sustainable. Section 145(3) of the Act lays down that the Assessing Officer can proceed to make assessment to the best of his judgment under section 144 of the Act only in the event of not being satisfied with the correctness of the accounts produced by the assessee. In the instant case the Assessing Officer has not rejected the books of account of the assessee. To put it differently the Assessing Officer has not made out a case that conditions laid down in section 145(3) of the Act are satisfied for rejection of the books of account. Thus, when the books of account are maintained by the assessee in accordance with the system ....
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....on 144 of the Act. When an estimate is made to the best judgment of an Assessing Officer, he substitutes the income that is to be computed under section 29 of the Act. Once the best judgment assessment is made by fixing a rate of net profit, the assessee's claim for deduction on account of expenses cannot be deemed to have been ignored. The net profit rate is applied after taking into consideration all factors and it accounts for all the deductions which are referred to under section 29 and are deemed to have been taken into consideration while making such an estimate." [Emphasis supplied] 24. The series of judgments referred to hereinabove clearly allude to the settled position of law that the books of account have to be necessarily rejected before the AO proceeds to the best judgment assessment upon fulfilment of conditions mentioned in the Act. The underlying rationale behind such an action is to meet the standards of correct computation of accounts for the purpose of a more transparent and precise assessment of income. Therefore, any pick and choose method of rejecting certain entries from the books of account while accepting other, without an appropriate ....
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....nexplained investments as per the scheme of Section 69 of the Act. In Paradise Holidays, the issue pertained to the rejection of books of account without an appropriate justification and therefore, unlike the present case, the challenge was laid with respect to the rejection of books of account itself. 28. So far as the proposed question (D) is concerned, the same is a matter of fact which has been settled by the ITAT which states that the action of the AO in making an addition of Rs. 1,00,000/- on the protective basis, which already stood explained, deserved to be deleted. The ITAT further held that the substantive addition has already been made in the hands of Mr. Moin Akhtar Qureshi, which has been mentioned by the AO himself and therefore, there is no infirmity in deletion of the said addition by the CIT(A). 29. Admittedly, the addition of income as discussed in questions (B), (C) and (D) on estimate basis has been done without rejecting the books of account. In view of the aforesaid, we find that no substantial question of law arises in the present appeals. 30. Consequently, we do not find any merit in the case of the Revenue and have no reason to in....