Net profit estimation after book rejection: tribunal directs lower comparable rate of 0.17% replacing AO's 0.20%.

Dispute concerns estimation of taxable income after rejection of books of account where the AO applied a net profit rate derived from averaging two comparables. Tribunal (ITAT) found the AO relied on a net profit rate (0.20%) inconsistent with the earlier assessment year benchmark (0.23%) and without demonstrating comparability between the assessee and the selected firms. The tribunal concluded that, on the available record, the lower net profit rate (0.17%) should be applied in estimation and directed revision accordingly; the assessee's appeal was dismissed.

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Issues: Whether the Assessing Officer and the Commissioner of Income-tax (Appeals) were justified in estimating the assessee's income by applying a net profit rate of 0.20% of turnover after rejecting books of account, instead of applying a lower net profit rate of 0.17% based on comparable cases.

Analysis: The Tribunal examined the basis on which the Assessing Officer applied the 0.20% net profit rate, noting reliance on net profit rates of two other parties (0.23% and 0.17%) without establishing comparability of their business profiles with that of the assessee. The Tribunal observed that one of the relied-upon years (AY 2013-14) had a net profit rate of 0.23% and that an appeal for that year remained pending, undermining reliance on it. Given the absence of any formal foundation or comparability showing to support applying 0.20%, the Tribunal considered it appropriate to apply the lower of the comparable rates available (0.17%) rather than sustain the AO's estimate. The Tribunal therefore modified the assessment by directing the Assessing Officer to apply a net profit rate of 0.17% for the purpose of estimation.

Conclusion: The appeal is partly allowed in favour of the assessee by directing the Assessing Officer to apply a net profit rate of 0.17% instead of 0.20% for estimation of income; the order of the lower authorities is modified to that extent.

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