Gross profit estimation after rejected books must consider past accepted results and succeeding year figures, not one year alone.

After rejection of books of account under section 145(3), gross profit should not be estimated solely by applying the succeeding year's gross profit rate. Estimation must be made on a fair and reasonable basis, considering the assessee's overall trading history, including accepted past results as well as the immediately succeeding year. Where the past trading results have been accepted by the department, ignoring them and relying only on the subsequent year's rate is not a proper basis for addition. The appropriate method in the stated facts was to adopt an average of the gross profit rates from the relevant past and succeeding years.

---

---

Issues: Whether, after rejection of books of account under section 145(3), the gross profit could be estimated solely on the basis of the subsequent year's gross profit rate, and whether the addition made on that basis was sustainable.

Analysis: The rejection of books of account was not disputed. The only surviving question was the proper basis for estimating gross profit after such rejection. The Tribunal held that estimation is a question of fact and must be made on a fair and reasonable basis having regard to the assessee's overall trading history and the results of the immediately succeeding year. It was found that the lower authorities erred in adopting the subsequent year's gross profit rate as the sole criterion while ignoring the assessee's past trading results, which had been accepted by the department. On the facts, the appropriate course was to take the average of the gross profit rates declared in the relevant past and succeeding years.

Conclusion: The addition sustained by applying only the subsequent year's gross profit rate was set aside and the gross profit was directed to be estimated at 2.68% of gross receipts, resulting in relief to the assessee.

Final Conclusion: The appeal succeeded in part, and the impugned addition was reduced by substituting a fair averaged gross profit estimate based on past and succeeding year results.

Ratio Decidendi: After rejection of books of account, gross profit cannot be estimated on the basis of the subsequent year's results alone; a fair estimate must account for the assessee's accepted past trading history as well as the succeeding year's results.

---