Facts of the Case

The assessee, Mr. Rajul Tandon of Allahabad, filed an appeal before the Income Tax Appellate Tribunal (ITAT), Allahabad Bench, against the order of the Commissioner of Income Tax (Appeals) arising from assessment proceedings conducted under Section 143(3) of the Income-tax Act, 1961 for the relevant assessment year.

During scrutiny, the Assessing Officer examined the trading results of the assessee’s business and found them unsatisfactory. Without identifying specific defects in the books of account, the Assessing Officer rejected the results and estimated a higher profit, resulting in an addition to income.

The Commissioner (Appeals) partly upheld the action of the Assessing Officer, leading the assessee to prefer a further appeal before the Tribunal.

Issues Involved


Whether addition based on estimated profit can be sustained when the Assessing Officer has not properly rejected the books of account by pointing out specific defects as required under Section 145(3).

Petitioner’s (Assessee’s) Arguments

  • Regular books of account were maintained in the ordinary course of business.
  • All purchases, sales, and expenses were duly recorded and supported by evidence.
  • The Assessing Officer did not point out any concrete discrepancies or defects in the accounts.
  • The addition was made purely on estimation and conjecture.

It was therefore argued that the trading addition was arbitrary and liable to be deleted.

Respondent’s (Department’s) Arguments

  • The Assessing Officer had found the declared profits to be low compared to expectations.
  • Estimation of income was necessary to determine the correct taxable income.
  • The Commissioner (Appeals) had already granted partial relief, and the remaining addition was justified.

Court Order / Findings

  • Rejection of books under Section 145(3) requires identification of specific defects or inconsistencies.
  • Mere dissatisfaction with the profit rate or comparison with other cases is not sufficient.
  • Estimation of income cannot be made arbitrarily in the absence of proper rejection of books.

Important Clarification

The ruling reiterates that estimation of business income is permissible only after valid rejection of books of account. Without demonstrating unreliability of accounts, trading additions based solely on suspicion or low profit cannot be upheld.

 Link to download the order –https://itat.gov.in/public/files/upload/1613123954-ita%20no.%2086%20Alld%202019%20typed%20by%20AM%20himself.pdf


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