Gross profit estimation and stock suppression claim rejected where records showed no adequate basis for a higher trading addition.

Defects in the stock and trading records justified application of section 145, but the alleged stock suppression was rejected because the insurance cover did not exceed actual stock-in-hand. The assessee had disclosed gross profit at 14% on higher sales than in the preceding year, and later assessments also accepted lower profit rates. Gross profit is not a fixed or sacrosanct figure and may vary marginally; on these facts, there was no adequate basis to estimate sales upward or apply a higher gross profit rate. The trading addition was therefore deleted as unjustified.

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Issues: Whether, in the facts of the case, an addition to the trading account could be sustained by estimating sales and applying a higher gross profit rate after holding that there was no suppression of stock.

Analysis: The provisions of section 145 of the Income-tax Act, 1961 were applicable because of defects in the stock and trading records. However, the finding of stock suppression was rejected since the insurance cover did not exceed the actual stock-in-hand. The assessee had declared gross profit at 14% on higher sales than in the earlier year, and the later assessments also showed acceptance of lower profit rates. Gross profit is not a fixed or sacrosanct figure and may vary marginally; on the facts, there was no sufficient basis to enhance the gross profit rate or sustain the trading addition.

Conclusion: The addition of Rs. 12,905 was not justified and was deleted in favour of the assessee.

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