Trading results in first-year retail business accepted where 10% gross profit was not unreasonably low on the facts.

The assessee's first-year retail cloth business was operated in competition with established traders, so the disclosed gross profit rate of 10% was not unreasonably low on the facts. The rejection of the trading results, and the resulting estimation of turnover and gross profit by the tax authorities, was not justified. The trading results disclosed by the assessee were therefore accepted, and the estimated figures were set aside in favour of the assessee.

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Issues: Whether the estimates of turnover and gross profit adopted by the Income-tax Officer, and affirmed by the Appellate Assistant Commissioner, were justified on the facts of the assessee's retail cloth business.

Analysis: The assessee's business was in its first year and was being carried on in competition with established traders. In that background, the disclosed gross profit rate of 10% could not be treated as unreasonably low. The rejection of the trading results and the consequential estimation of turnover and gross profit were therefore not warranted.

Conclusion: The estimates were set aside and the trading results disclosed by the assessee were directed to be accepted. The decision is in favour of the assessee.

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