Book rejection and profit estimation under income tax law reduced from 8% to 4% after considering past profit history.

Rejection of books under section 145(3) was sustained because the assessee failed to satisfactorily prove the claimed expenses, justifying estimation of income. However, the earlier profit history and the higher declared net profit for the relevant year showed that an 8% estimate was excessive. Balancing the defects in the books against the available past results, the profit rate was reduced to 4%.

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Issues: (i) Whether the rejection of the assessee's books of account and estimation of profit at 8% was justified, and if not, what rate of profit should be adopted.

Issue (i): Whether the rejection of the assessee's books of account and estimation of profit at 8% was justified, and if not, what rate of profit should be adopted.

Analysis: The books were rejected under section 145(3) of the Income-tax Act, 1961 because the assessee could not satisfactorily establish the expenses claimed. At the same time, the profit history of earlier years showed comparatively lower net profit rates, and the relevant year's declared rate was higher than those prior years. Balancing the deficiencies in proof with the need for a reasonable estimate, the estimation at 8% was considered excessive.

Conclusion: The estimation of profit at 8% was reduced to 4%, and the assessee succeeded to that extent.

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