Arbitrary gross profit estimation in block assessment cannot sustain additions absent consistent evidence across the full period.

In a block assessment under Chapter XIV-B, additions based on an estimated gross profit rate and alleged stock suppression were held unsustainable where the estimate was derived from a part-period trading result rather than the full block period. The assessment method was treated as arbitrary because no material showed that the 15 per cent gross profit rate applied throughout the relevant period, and the reasoning on the second addition was internally contradictory. While estimation may be used where documentary evidence is lacking, it must rest on a consistent and rational basis. The Tribunal's deletion of the additions was upheld and the Revenue's challenge failed.

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Issues: Whether additions made in block assessment under Chapter XIV-B of the Income-tax Act, 1961 could be sustained on the basis of an estimated gross profit rate and alleged suppression of stock.

Analysis: The addition was founded on a recast trading account using a 15 per cent gross profit rate derived from a part-period, without considering the average gross profit rate for the full block period. The estimation was also found to be arbitrary because there was no material showing that the rate applied for the entire period, and the Assessing Officer's reasoning on the second addition was internally contradictory. In a block assessment, estimation may be permissible where documentary evidence is lacking, but it cannot be based on an arbitrary or inconsistent method.

Conclusion: The additions were not sustainable and the deletion by the Tribunal was correct, against the Revenue and in favour of the assessee.

Final Conclusion: No substantial question of law arose from the Tribunal's order, and the Revenue's challenge failed.

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