Flat-rate income estimation and partner interest need clear material before section 40(b) adjustment is accepted.

In estimating business income on a flat-rate basis, partner's interest cannot be assumed to be covered by the estimate under section 40(b) unless the material shows it was actually taken into account. The record did not contain definite evidence that interest paid to partners had been included when the estimated income was fixed, so the finding that all probable expenses were absorbed in the flat rate was unsupported. As each assessment year is a separate unit, the matter required reconsideration in light of the treatment of partner's interest in earlier years and all relevant circumstances, and the Tribunal was directed to rehear the issue.

---

---

Issues: Whether, in computing business income on an estimated flat-rate basis, interest paid to partners could be treated as already included in the estimate under section 40(b) of the Income-tax Act, 1961, and whether the Tribunal's deletion of the addition could stand on the material available.

Analysis: The assessment had been made by estimating income from each bus on the basis of past results, but the record did not show whether interest paid to partners had in fact been taken into account while fixing the estimated income. The finding that all probable expenses, including partner's interest, were covered by the flat rate was unsupported by any definite material. Since each assessment year is a separate unit and the assessment was based on past-year results as a guide, the matter required reconsideration of the earlier years' treatment of partner's interest and of all relevant circumstances.

Outcome: The reference was disposed of by directing the Tribunal to rehear and reconsider the issue.

---