Uncorroborated admission cannot justify estimated gross profit addition when audited books remain unrejected and reliable.

An addition based solely on a managing partner's statement estimating about 15% gross profit was held unsustainable where the estimate was not backed by corroborative evidence and the audited books of account had not been rejected. The legal position applied is that an admission is relevant but not conclusive, and a retracted or unsubstantiated statement cannot, by itself, support an income addition without independent and cogent material. Low gross profit, without defects in the accounts or proof that the books are unreliable, was treated as insufficient for an estimated addition. The deletion of the addition was therefore upheld.

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Issues: Whether an addition to income could be sustained by estimating gross profit at 15% solely on the basis of a statement recorded under section 131(1) of the Income-tax Act, 1961, without corroborative material and without rejection of the books of account.

Analysis: The managing partner's statement that the firm planned to achieve approximately 15% gross profit was treated by the Revenue as an admission, but the statement was only an approximation of pricing and profitability and was not supported by books or independent evidence. The books of account were audited and had not been rejected. The legal position applied was that an admission is important evidence but is not conclusive, and a retracted statement or admission cannot, by itself, justify an addition unless it is substantially corroborated by independent and cogent evidence. The authorities also relied on the principle that low gross profit, without defects in the accounts or proof that the accounts are unreliable, is not enough to make an estimated addition. The CBDT instructions discouraging coercive or uncorroborated disclosures during survey or similar proceedings also supported the requirement of evidentiary support.

Conclusion: The addition based solely on the sworn statement was unsustainable, and the deletion of the addition was upheld.

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