Gross profit estimation in trading accounts was reduced where lower rates were already treated as reasonable and sales evidence was partly available.

Gross profit estimation must be supported by the assessee's books and comparable trading rates: where regular books were maintained, purchases were vouched and sales were generally evidenced by cash memos and bills, estimation of sales was justified only for unsupported petty sales below Rs. 10. The higher gross profit rates applied by the Income-tax Officer were excessive because reasonable rates of 15% in hardware and 10% in medicine had been accepted in other cases and matched the assessee's own disclosures. The assessment was modified by applying 15% gross profit to hardware and 10% to medicine on the estimated sales.

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Issues: Whether the gross profit rates applied by the lower authorities in the assessee's hardware and medicine were excessive and required modification.

Analysis: The assessee maintained regular books of account; purchases were vouched and sales were generally supported by cash memos and bills, save for petty sales below Rs. 10. The Tribunal accepted that the rates of gross profit of 15 per cent in hardware and 10 per cent in medicine had been treated as reasonable in other cases, and noted that the assessee had itself disclosed 14 per cent in hardware and 10 per cent in medicine. At the same time, it found that the sales below Rs. 10 were unsupported by evidence, so estimation of sales by the Income-tax Officer was justified. However, the rates of 17 1/2 per cent and 15 per cent adopted by the Income-tax Officer were held to be excessive.

Conclusion: The gross profit rates were reduced to 15 per cent in hardware and 10 per cent in medicine on the estimated sales, and the assessment was directed to be modified accordingly.

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