Estimated income after rejection of books cannot include separate additions inconsistent with the gross profit rate adopted.

After rejection of the books of account, income had to be estimated on a flat gross profit rate under the applicable income-tax provision. Once that estimate was adopted on the total turnover, the Department could not retain separate additions based on the discarded accounts, because they were inconsistent with the estimate already made. The computation was also affected by an arithmetical error: the additions relating to oil and cake yields already brought the gross profit to about 9.5%, so a further addition for alleged unaccounted profit on permit sales could not stand. The disputed addition was therefore unsustainable.

---

---

Issues: Whether the addition of Rs. 1,37,189 sustained by the Tribunal was justified.

Analysis: The books of account were rejected and the income had to be estimated under the proviso to section 13 of the Income-tax Act, 1922. Once a flat gross profit rate was adopted on the total turnover, the Department could not simultaneously retain separate additions based on the very books that had been discarded. The Tribunal's computation proceeded on an arithmetical mistake, because the additions relating to the yield of oil and cake were sufficient to bring the gross profit to about 9.5%, and the further addition for unaccounted profit on sale of permits was inconsistent with the adopted estimate.

Conclusion: The addition of Rs. 1,37,189 was wrongly computed and could not be sustained.

Final Conclusion: The reference was answered against the Department and in favour of the assessee, with costs awarded to the assessee.

Ratio Decidendi: When income is estimated after rejection of books, separate additions cannot be retained on the basis of the discarded accounts if they are inconsistent with the flat rate estimate adopted for gross profit.

---