Estimated income based on gross profit comparison resulted in application of a 5% net profit rate and partial relief.

Higher turnover was treated as making gross profit rate the more appropriate benchmark for comparing book results, and the assessee's declared gross profit of 13.70% was found close to the three-year average of 14.51%. On that factual basis, only a limited estimation was warranted, and income was directed to be computed by applying a 5% net profit rate on gross receipts, granting partial relief to the assessee.

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Issues: Whether, on the facts of the case, the assessee's income should be estimated by applying a net profit rate of 5% on the gross receipts instead of sustaining the higher addition confirmed by the first appellate authority.

Analysis: The assessee's turnover in the relevant year was substantially higher than in the preceding years. For comparison of book results, the gross profit rate was found to be the more appropriate indicator. On that basis, the average gross profit rate for the relevant three-year period was 14.51%, while the assessee had declared 13.70% in the year under appeal. The difference was considered to justify only a limited estimate, and the estimation at 5% net profit was found to be a fair measure of the addition warranted on the facts.

Conclusion: The income was directed to be determined by applying a net profit rate of 5% on the gross receipts, granting partial relief to the assessee.

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