Gross profit addition cannot stand without book rejection under section 145(3) when no specific defect is shown.

Gross profit additions based solely on a lower profit ratio were found unsustainable where the books of account were not rejected under section 145(3) of the Income-tax Act, 1961. The record showed higher power and manganese ore costs, but also improved profit per metric tonne, and no specific defect, discrepancy, or comparable case was identified to justify estimation of income. Non-production of certain bank-related statements, by itself, did not warrant an estimated addition once the relevant records had been examined in remand proceedings without adverse findings. The deletion of the addition was therefore upheld and the Revenue's challenge failed.

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Issues: Whether the addition made on account of fall in gross profit ratio and rejection of the manufacturing account was sustainable in the absence of rejection of the books of account under section 145(3) of the Income-tax Act, 1961.

Analysis: The assessee's cost of power and manganese ore had increased materially, while the overall profit per metric tonne produced had also improved in the year under consideration. The assessment record did not show any specific defect, discrepancy, or comparable case to justify estimation of gross profit. The books of account were not rejected under section 145(3) of the Income-tax Act, 1961, and the addition was founded mainly on the lower gross profit rate and non-production of certain bank-related statements, which by itself did not warrant estimation of income once the relevant records had been examined in remand proceedings without adverse finding.

Conclusion: The deletion of the addition was upheld and the Revenue's challenge to the estimated gross profit addition failed.

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