ENVISTA ENGINEERING & CONSTRUCTIN PVT. LTD.,CHENNAI vs. ACIT, CORPORATE CIRCLE-2(1), CHENNAI

PER MANU KUMAR GIRI, Judicial Member:

The captioned appeal filed by the Assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi, [CIT(A)] dated 30.10.2025 for Assessment Year 2015-16.

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selected for limited scrutiny under CASS for verification of “large other expenses claimed.” The original assessment was completed by estimating profit @ 8% of turnover, which was upheld by the CIT(A). Subsequently, the Tribunal set aside the matter to the file of the Assessing Officer for de novo assessment.Pursuant to directions, the Assessing Officer issued notices u/s. 142(1). The assessee filed partial details and explained that due to infrastructure project delays and cost escalations, profitability was low. The assessee also suggested a profit range of 5-6%.However, the Assessing Officer observed that:

Major expenses (especially labour payments) were supported by • self-made cash vouchers • No third-party confirmations or verifiable evidence were furnished • No project-wise details, measurement books, or reconciliations were produced

Accordingly, the Assessing Officer rejected the books of account u/s. 145(3) of the Act and estimated profit @ 8% of turnover, determining total income at Rs.2,22,51,910/-.The AO held that the books of account were not reliable due to heavy reliance on self-made vouchers, lack of verifiable supporting evidence and absence of project-wise and third- party corroboration. The assessee also failed to comply with the show cause notice u/s 144. The declared profit rate of 2.28% was abnormally low. Industry comparison with companies such as IRB Infrastructure Developers, J. Kumar Infraprojects, and Larsen & Toubro showed profit margins exceeding 8%. Section 145(3) was invoked and income was estimated @ 8% of turnover. Thus, income was determined at: • Business income: Rs.2,19,62,228/- • Other income: Rs.2,89,685/- • Total: Rs.2,22,51,910/-

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The assessee failed to provide credible comparables or documentary support. Accordingly, both grounds relating to rejection of books and estimation of income were dismissed. Now assessee is in appeal before this Tribunal. 4. The ld.AR for the assessee contended that the AO mechanically repeated earlier assessment without fresh application of mind. No new defects were identified in de novo proceedings. Rejection of books u/s 145(3) was without valid basis. Books were audited and maintained as per law. Low profit is due to nature of business (labour-intensive), work in remote/hilly areas and project delays and cost escalations. Comparison with large listed companies is invalid due to size difference. Comparable smaller companies show profit of 2–3%, consistent with assessee’s 2.28%. Estimation @ 8% is arbitrary and excessive hence he prayed for the deletion or reasonable estimation (5–6%). 5. Per contra, the ld. DR for the revenues upported the orders of the lower authorities and submitted that specific defects were recorded that self-made vouchers without verification, no confirmations or

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reconciliations and absence of project-wise details. She further contended that the assessee failed to discharge the burden of proof. Non-compliance with show cause notice further weakens the case. Rejection of books is supported by judicial precedents. Estimation @ 8% is justified based on industry benchmarks, section 44AD analogy and abnormally low declared profit. The assessee failed to provide credible comparables. The estimation is reasonable and not arbitrary. 6. We have heard both parties and perused the material on record. Regarding rejection of Books [Section 145(3)], It is observed that the assessee failed to produce verifiable labour records, third-party confirmations and project-wise details and reconciliations. Major expenses are supported only by self-made vouchers, which lack credibility. The assessee also failed to respond to the show cause notice. In such circumstances, we are of the considered view that the AO was justified in invoking section 145(3) and rejecting the books of account. Accordingly, the action of the AO and CIT(A) in rejecting the books is upheld. Regarding estimation of Profit, we are of the view that while estimation is warranted, the rate of estimation must be reasonable and fair. In the present case the AO adopted 8% primarily based on large listed companies and section 44AD benchmark. However, the assessee is a sub-contractor, not a principal contractor and works are executed in remote and difficult terrains. Comparables used by AO are not strictly comparable in scale and operations. Section 44AD cannot be mechanically applied where turnover exceeds limits. At the same time the assessee’s declared profit of 2.28% is not fully reliable due to rejected books. Considering the totality of facts, including nature of

ITA No 3970/Chny/2025 (AY 2015-16) Envista Eng & Const Pvt Ltd (Vs)ACIT CC 2(1) :: 5 :: business, deficiencies in accounts and industry variability and Judicial precedents favoringreasonable estimation, we are of the view that 8% is on the higher side.In the interest of justice, profit is reasonably estimated at 5% of turnover. 7. In the result, rejection of books u/s 145(3) is upheld. Estimation @ 8% is reduced to 5%. Appeal of the assessee is partly allowed. 6. In the result, appeal filed by the assessee is allowed for statistical purpose. Order pronounced on the 30th day of April 2026, in Chennai.

Sd/- Sd/- (इंतूरी रामा राव) (मनु कुमार िग�र) (INTURI RAMA RAO) (MANU KUMAR GIRI) लेखा सद)य/ACCOUNTANT MEMBER �या�यक सद)य/JUDICIAL MEMBER

चे�नई/Chennai, *दनांक/Dated: 30th April, 2026. SNDP, Sr. PS आदेश क ��त,ल-प अ.े-षत/Copy to: 1. अपीलाथ�/Assessee 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF