Books rejection under Section 145 upheld, but 12% net profit addition deleted for lack of supporting comparable evidence.

Rejection of books of account was justified because the records did not enable true income to be ascertained, so the proviso to Section 145 of the Income-tax Act, 1961 applied. However, the higher net profit rate of 12% was not sustained because the Department produced no comparable case or other supporting material, while the declared receipts were accepted and the business was in its first year with nominal capital employed. In the absence of contrary evidence, the declared net profit rate was accepted and the addition based on 12% profit was deleted.

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Issues: Whether the rejection of the assessee's books of account justified application of the proviso to Section 145 of the Income-tax Act, 1961, and whether the addition made by applying a net profit rate of 12% was sustainable.

Analysis: The books maintained by the assessee did not enable the true income to be ascertained, and the rejection of the book results was held to be justified. The proviso to Section 145 was therefore applicable. However, the Department did not produce any comparable case or other material to support the higher rate of 12%, while the declared receipts were accepted, the business was in its first year, and the capital employed was nominal. In the absence of contrary evidence, the declared net profit rate was accepted.

Conclusion: The addition made by applying 12% net profit was deleted and the issue was decided in favour of the assessee.

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