Rejected books and estimated income: incomplete accounts justified estimation, and the gross profit rate was treated as a factual determination.
Incomplete cash book entries, absence of an opening cash balance and an unworked closing balance justified treating the accounts as incorrect and incomplete, so rejection of the books and estimation of income under section 145(2) was upheld. In the lottery business context, the fact-finding authority's selection of a gross profit rate was treated as a factual exercise based on comparable concerns and adjusted estimated expenses; no illegality was shown, and no substantial question of law arose from the rate adopted. The result was that the estimated assessment based on rejected accounts was sustained.
Issues: (i) Whether the Assessing Officer was justified in rejecting the books of account and invoking section 145(2) of the Income-tax Act, 1961 to assess the income on an estimated basis; (ii) Whether the Tribunal was justified in estimating the assessee's income from lottery business by applying a gross profit rate of 0.27 per cent. of turnover.
Issue (i): Whether the Assessing Officer was justified in rejecting the books of account and invoking section 145(2) of the Income-tax Act, 1961 to assess the income on an estimated basis.
Analysis: The assessment record showed incomplete cash book entries, absence of opening cash balance, and an unworked closing balance. On those facts, the books were treated as not correct and complete. The assessee had not effectively displaced that finding, and the rejection of the accounts formed a valid for estimation of income.
Conclusion: The rejection of the books of account and resort to estimation under section 145(2) was upheld, against the assessee.
Issue (ii): Whether the Tribunal was justified in estimating the assessee's income from lottery business by applying a gross profit rate of 0.27 per cent. of turnover.
Analysis: The Tribunal compared the material relating to similarly placed lottery concerns, rejected the assessee's reliance on the higher or lower rates cited from other cases as determinative, and selected a rate it considered fair on the facts, while also reducing estimated expenses. The High Court found no illegality in that exercise and held that no substantial question of law arose from the estimation adopted.
Conclusion: The estimation at 0.27 per cent. was sustained, against the assessee.
Final Conclusion: The appeal failed in entirety because the estimation of income based on rejected accounts and the gross profit rate adopted by the Tribunal disclosed no legal error warranting interference.
Ratio Decidendi: Where the books of account are found incomplete or unreliable, income may be assessed on an estimate basis, and a fact-based selection of gross profit rate by the final fact-finding authority will not give rise to a substantial question of law absent demonstrated illegality.