Estimated business income must reflect the relevant year, with depreciation separately allowed where books are absent.

In estimating business income where books of account are absent, the rate must be fixed on the material relevant to the assessment year in question, and an earlier year's accepted rate does not mechanically control the later year. The Andhra Pradesh HC upheld the 4% profit estimate because the record did not justify applying the higher prior-year rate. It also held that depreciation must be allowed separately when income is estimated, unless the estimation expressly includes that allowance. The appellate order was therefore sustained, with estimated income at 4% and depreciation separately deducted.

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Issues: (i) Whether the estimated profit rate of 4% could be sustained instead of 5% merely because a higher rate had been accepted for the earlier assessment year. (ii) Whether depreciation was required to be separately allowed while estimating income in the absence of books of account.

Issue (i): Whether the estimated profit rate of 4% could be sustained instead of 5% merely because a higher rate had been accepted for the earlier assessment year.

Analysis: The estimate for the year under consideration could not be controlled by the assessee's earlier acceptance of a different rate for a preceding year. In the absence of books of account, income may be estimated on the basis of the material available on record, and the estimation must relate to the relevant assessment year. The record did not justify fastening the earlier agreed rate mechanically on the later year.

Conclusion: The lower estimate of 4% was upheld and the challenge to it failed.

Issue (ii): Whether depreciation was required to be separately allowed while estimating income in the absence of books of account.

Analysis: When profit is estimated, gross receipts or gross profit are first determined and statutory allowances are then to be separately worked out. The reasoning followed the settled view that depreciation is not absorbed into the estimated profit rate unless the estimation order clearly includes it; rather, depreciation must be deducted separately where applicable.

Conclusion: Depreciation had to be allowed separately.

Final Conclusion: The assessment could proceed on estimated income at 4% with depreciation separately deducted, and no interference with the appellate order was warranted.

Ratio Decidendi: In estimating business income in the absence of books of account, the estimate must be made for the relevant year on available material, prior-year acceptance does not bind a subsequent year, and depreciation and similar allowable deductions are to be separately considered unless expressly covered by the estimation.

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