Envista Engineering & Construction Private Limited Vs ACIT (ITAT Chennai)
Summary: The ITAT Chennai held that rejection of books under Section 145(3) was justified where the assessee failed to maintain reliable and verifiable records. The Assessing Officer noted that major expenses were supported only by self-made cash vouchers, with no third-party confirmations, project-wise details, or reconciliations, and the assessee also failed to respond adequately to notices. Accordingly, the books were rejected and profit was estimated at 8% of turnover. While upholding rejection of books, the Tribunal found the 8% estimation excessive, as it relied on large listed companies not comparable to the assessee, a subcontractor operating in difficult terrains with lower margins. It also held that Section 44AD benchmarks cannot be applied mechanically. Considering business realities and deficiencies in accounts, the Tribunal reduced the profit estimation to 5% of turnover. Thus, the appeal was partly allowed, balancing the need for estimation with fairness and comparability principles.
Core Issue-The primary issue was whether rejection of books of account under section 145(3) was justified due to unverifiable expenses and whether estimation of profit at 8% of turnover by the Assessing Officer was reasonable, or required modification considering the nature of assessee’s business.
