Best judgment turnover estimation upheld where branch sales below transfer value justified gross profit addition to cost.

Best judgment assessment by adding gross profit to the cost of goods transferred from head office to a branch was sustained where the branch sold below the transfer value and the returns were treated as incomplete. The appellate authority reduced the gross profit addition from 10% to 5% but accepted that a claimed loss sale could not be accepted on explanation alone. The revision court held that a branch was not expected to sell below the head office's indicated value and found the cited precedent inapplicable on the facts. The estimation of turnover was therefore upheld, and the legal questions were answered against the assessee.

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Issues: Whether the sales turnover could be estimated by adding gross profit to the cost of goods transferred from the head office to the branch and sold below the transfer value, and whether the appellate authorities were justified in sustaining such estimation.

Analysis: The assessee's branch sold goods supplied by the head office at a price below the transfer value, while the sale price was fixed by the head office and trade discount was claimed. The assessing authority treated the returns as incomplete and made a best judgment assessment by adding gross profit to the cost of the goods. The first appellate authority found the 10% addition excessive but accepted that a loss sale could not be accepted merely on the assessee's explanation, and therefore sustained the assessment with a reduced gross profit addition of 5%. The revision court found no merit in the challenge, held that a branch was not expected to sell goods below the head office's indicated value, and found the relied-upon precedent inapplicable on the facts.

Conclusion: The estimation of turnover by adding gross profit was upheld and the challenge failed; the questions of law were answered against the assessee and in favour of the Revenue.

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