Past accepted results govern profit estimation; security-deposit interest with business nexus is business income, not other sources.

Where books are rejected for non-production of primary records, profit estimation must be based on the assessee's past accepted results and available comparable material; on that basis, an 8% net profit estimate was not sustained and the returned profit was accepted. Transportation and hire receipts were treated as business receipts, interest on fixed deposits kept as contract security was held to have a direct business nexus and was taxed as business income, while interest on income-tax refund was treated as income from other sources. TDS credit was to be allowed after verification of the physical certificates and correlation with income offered to tax.

---

---

Issues: (i) Whether the rejection of books of account and estimation of net profit at 8% of gross receipts was justified. (ii) Whether transportation and hire receipts and interest on fixed deposits were to be treated as separate from business income. (iii) Whether credit for TDS was to be granted on verification of the physical certificates.

Issue (i): Whether the rejection of books of account and estimation of net profit at 8% of gross receipts was justified.

Analysis: The books were rejected after the assessee failed to produce the primary records before the Assessing Officer, bringing the assessment within the scope of best judgment assessment. In estimating profit, the relevant guide was the past history of the assessee and comparable material. No comparable case was brought by the Revenue to support 8%, while the assessee's past accepted result pointed to a lower rate. When adoption of the earlier accepted rate would lead to income below the returned figure, the returned profit was taken as the appropriate basis.

Conclusion: The estimation at 8% was not sustained, and the returned profit was directed to be accepted.

Issue (ii): Whether transportation and hire receipts and interest on fixed deposits were to be treated as separate from business income.

Analysis: Transportation and hire receipts were accepted as part of the business receipts and not as an independent source requiring separate taxation. Interest on income-tax refund was held taxable under the head income from other sources. Interest on fixed deposits, however, was found to have a direct business nexus because the deposits were kept as security with the contract departments and lien was retained till completion of performance review; therefore, that interest formed part of business income.

Conclusion: Transportation and hire receipts were treated as business receipts, fixed-deposit interest was treated as business income, and interest on income-tax refund was treated as income from other sources.

Issue (iii): Whether credit for TDS was to be granted on verification of the physical certificates.

Analysis: The claim for TDS credit required verification of the physical certificates and correlation with the income offered to tax. The matter was to be decided on due verification in accordance with the relevant administrative circular.

Conclusion: The issue was remitted for verification and corresponding credit was directed to be allowed.

Final Conclusion: The assessee obtained relief on the profit estimation and on the characterisation of fixed-deposit interest, while the TDS claim was directed to be verified and granted accordingly.

Ratio Decidendi: Where books are rejected, net profit must be estimated on the basis of the assessee's past accepted results and available comparable material; interest on security deposits kept for executing contracts may bear the character of business income if the requisite business nexus is established.

---