Incomplete books of account justified gross profit estimation, but the addition was recomputed at a lower rate on the available record.

Incomplete books of account justified invocation of section 145(2) of the Income-tax Act, 1961, because the records remained unfinished until the date of search. The estimate of gross profit had to be made on the basis of the available material and surrounding facts, and the 1.5 per cent rate adopted by the Assessing Officer was found excessive in light of the immediately preceding years' declared rates of about 0.78 per cent and 0.9 per cent. The addition was therefore recomputed by applying a 0.9 per cent gross profit rate on total sales, and the Tribunal's view was upheld.

---

---

Issues: Whether, on the facts of the case, the Assessing Officer was justified in rejecting the incomplete books of account and in making the addition by applying a gross profit rate of 1.5 per cent instead of 0.9 per cent.

Analysis: The books of account remained incomplete till the date of search, justifying invocation of section 145(2) of the Income-tax Act, 1961. On the material available, the Tribunal found that the gross profit rates declared in the immediately preceding years were about 0.78 per cent and 0.9 per cent, and that the rate of 1.5 per cent adopted by the Assessing Officer was on the higher side. The Tribunal therefore directed recalculation of the additions by applying a gross profit rate of 0.9 per cent on total sales.

Conclusion: The Tribunal's view was upheld and the addition was to be recomputed by applying a gross profit rate of 0.9 per cent.

Final Conclusion: The appeal failed and the order of the Tribunal was left undisturbed.

Ratio Decidendi: Where the books of account are incomplete and section 145(2) is validly invoked, the estimated gross profit addition must be based on the facts and surrounding record and cannot be sustained if found excessive.

---