Unreliable trading accounts with low disclosed profits may justify rejection and estimated profit addition on available material.

Where disclosed profits are disproportionately low against a rising turnover, and the account books are unsupported by vouchers or other verifiable material, the income-tax authority may treat the trading account as unreliable and estimate additional profits on available material. The Lahore HC note states that the evidentiary value of such books is limited when they rest largely on the assessee's own assertion and cannot be properly checked. On that footing, the trading account was rejected and an estimated addition to income was sustained, with the issue answered against the assessee and in favour of the Revenue.

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Issues: Whether there was material on record justifying rejection of the trading account and the addition of Rs. 6,000 as estimated profits.

Analysis: The assessee's profits had shown a marked decline despite a rapidly increasing turnover, and the disclosed rate of profit was exceptionally low for the nature of the business. The account books were not supported by vouchers or other material enabling a detailed verification, so their evidentiary value was little more than the assessee's assertion. In these circumstances, the income-tax authorities had material to conclude that the trading account did not reflect the true profits and to make an addition on estimate.

Conclusion: The issue was answered against the assessee and in favour of the Revenue.

Final Conclusion: The application failed because the Court found sufficient material to support the rejection of the trading account and the estimated addition to income.

Ratio Decidendi: Where disclosed profits are disproportionately low and the accounts lack supporting vouchers or verifiable material, the income-tax authority may reject the trading account and estimate additional profits on the basis of available material.

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