Estimation on discarded accounts must be based on stated material and may be sustained when corroborated by the assessee's own documents.

When books are discarded, the authority must state the basis of estimation and afford an opportunity to rebut; nevertheless an estimate is sustainable where the Tribunal itself examines material on record and bases computation on the assessee's own papers and available evidence, as happened here with unexplained cash credits and a branch profit and loss account supporting the Rajpur figure and comparative indication for Visakhapatnam, leading to upheld estimates. Separately, penalty liability turns on fact-findings of concealment or deliberate inaccuracy; findings of manipulated accounts, omitted explanations and a branch balance-sheet showing higher income justified the reduced penalty, so both assessments were sustained against the assessee.

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Issues: (i) Whether the estimates of Rs. 55,000 for the Visakhapatnam business and Rs. 70,000 for the Rajpur branch were justified; (ii) Whether the penalty of Rs. 25,000 sustained by the Appellate Tribunal under section 28(1)(c) of the Act was justified in law.

Issue (i): Whether the assessing and appellate authorities validly estimated income at Rs. 70,000 for the Rajpur branch and Rs. 55,000 for the Visakhapatnam branch after discarding the books.

Analysis: When accounts are discarded, the estimating authority must state basis for the estimate and afford an opportunity to rebut that basis; however, an estimate may be sustained if the Tribunal itself examines material on the record and bases computation on the assessee's own papers and available evidence. Material included unexplained cash credits and a profit and loss account for the Rajpur branch showing substantial profit, which the authorities used in arriving at the figure for Rajpur and, by comparative indication in the revised return, for Visakhapatnam.

Conclusion: The estimates of Rs. 70,000 for the Rajpur branch and Rs. 55,000 for the Visakhapatnam branch are justified; decision is against the assessee.

Issue (ii): Whether penalty under section 28(1)(c) was rightly sustained (reduced to Rs. 25,000 by the Tribunal).

Analysis: Levy of penalty under section 28(1)(c) depends on fact-finding whether particulars were concealed or inaccurate particulars were deliberately furnished. Evidence of manipulated accounts, omission of material explanations for cash credits, and possession of a branch balance-sheet showing higher income substantiated the finding of concealment or deliberate inaccuracy. The Tribunal considered excessiveness of quantum and reduced the penalty.

Conclusion: The penalty of Rs. 25,000 sustained by the Appellate Tribunal is justified; decision is against the assessee.

Final Conclusion: Both issues are answered in the affirmative and the assessing and appellate determinations (estimate of income and levy of penalty, as reduced) are sustained, resulting in dismissal of the assessee's challenges.

Ratio Decidendi: If books are discarded, the assessing authority must state the basis of estimation and give an opportunity to rebut, but an estimate supported by material on record and corroborated by the assessee's own documents may be sustained and justify a penalty where accounts are manipulated and particulars are concealed.

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