Vedkiran Infra Projects Private Limited Vs DCIT (ITAT Hyderabad)
The ITAT Hyderabad allowed the appeal of the assessee by setting aside both the rejection of its audited books and the income estimation made by the Assessing Officer (AO). The Tribunal held that books of account can be rejected under Section 145 only when specific defects, inconsistencies, or false entries are identified—not on general remarks such as missing vouchers or high expenses. In this case, the AO pointed to no concrete discrepancies and relied only on general comparisons with the “industry,” without citing a single comparable entity. The Tribunal further held that estimating profit at 12.5% of turnover without data, supporting material, or reference to comparable cases was arbitrary, especially when the assessee’s declared 5.84% net profit was consistent with past results and not shown to be incorrect. Since both rejection of books and ad-hoc estimation lacked evidentiary foundation, the ITAT vacated the ₹1.21 crore addition and allowed the appeal.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The present appeal filed by the assessee company is directed against the order passed by the Commissioner of Income Tax (Appeals) [for short, “CIT(A)”) dated 10.02.2025, which in turn arises from the order passed by the Assessing Officer (for short, “AO”) under Section 143(3) of the Income-tax Act, 1961 (for short, “Act”) dated 30.12.2019 for AY 2017-18. The assessee company has assailed the impugned order passed by the CIT(A) on the following grounds of appeal before us:
“1. The order of the Ld. CIT(A) in upholding the order of the Ld. AO is without considering the facts of the case; hence the addition made u/s 143(3) in this regard is liable to be deleted.
2. The Lal. CIT(A) ought to have observed that the Ld. AO has passed a non-speaking order as there is no basis for rejection of books of accounts as well as there is no speaking, reference to the comparisons sought by the Ld. AO, and accordingly the addition made for Rs 1,25,45,525/- is liable for deletion.
3. The Ld. CIT(A) has upheld the order of the Ld. AO who estimated the income at a very higher rate of 12.5% by merely comparing with the general nature of industry which is not justifiable, hence the addition made shall be deleted.
4. The Ld. CIT(A) ought to have observed that there is no single comparable case mentioned in the assessment order, instead the Ll. AO has merely referred to the industry as a whole and rejected the Appellant’s books, which is bad in law.
5. The Ld. CIT(A) ought to have considered that the Ld. AO has erred on facts and in law in rejecting books of account which have been duly audited and the audit of which has not been disputed by the Id. AO at any stage of the assessment proceedings since the Ld. AO has made the addition basing on the industry comparison, which is not sustainable.
6. The Ld. CIT(A) ought to have observed that there is no base for making estimation of income at a higher rate of 12.5% and just by merely citing reference to various other entities, without displaying the comparisons numerically.
7. The Ld. CIT(A) ought to have observed that there is no justifiable basis for rejecting the audited books of accounts of the Appellant since there are no specific defects pointed out by the Ld. AO, except by making reference to other companies in the same industry, which is not valid.
8. The Ld. CTT(A) ought to have considered that the estimation made by the AO is very high pitched, hence the addition made is liable to be deleted.
9. The Appellant craves to add, alter, delete, modify or withdraw any of the above grounds of appeal.”
