Net profit estimation after rejection of book results must rest on past performance and surrounding facts, not an unsupported rate.

Where book results are rejected, income must be estimated on a reasonable net profit rate having regard to past results and the totality of circumstances. The first appellate authority's addition based on an additional income offer at 1% of turnover was not sustained because no satisfactory basis was shown for that rate. The estimated profit was instead directed to be computed at 4.5% of turnover, reflecting the assessee's earlier profit rates and the current year's declared margin. The appellate order was modified accordingly, with the computation to follow the revised net profit rate.

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Issues: Whether the addition sustained by the first appellate authority on the basis of an additional income offer could be upheld, and what net profit rate should be applied to the assessee's turnover after rejection of book results.

Analysis: The assessee had not produced the requisite details before the Assessing Officer, and the book results were rejected. The first appellate authority accepted additional evidence and sustained addition by adopting an additional income of 1% of turnover, but no satisfactory basis was shown for that figure. In view of the past profit rates reflected in earlier years and the current year's declared margin, the estimated profit had to be aligned with the surrounding facts and the totality of circumstances.

Conclusion: The addition based on 1% turnover was not upheld. The net profit rate was directed to be adopted at 4.5% on the turnover, resulting in a modification of the appellate order in favour of the Revenue to that extent.

Final Conclusion: The appellate order was modified and the income was to be computed by applying a 4.5% net profit rate on the assessee's turnover.

Ratio Decidendi: Where book results are rejected and the profit rate adopted by the appellate authority lacks a sound basis, income must be estimated on a reasonable net profit rate having regard to past results and the totality of circumstances.

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