Estimation of profits requires material-supported calculation, and the estimation must rest on an articulated evidentiary basis rather than conjecture.

Estimation of profits under the proviso to section 13 must be a judicial, material-based exercise of discretion requiring relevant evidentiary support and principled calculation; where books are rejected the revenue may estimate profit only if correct profits cannot be deduced, but arbitrary uplift is impermissible. The Tribunal's use of subsequent years' gross profit rates and exclusion of lot sales to derive an arithmetical margin was permissible, but its additional uplift (producing the contested add-back) lacked articulated material and amounted to conjecture, so the extra add-back could not be sustained while the arithmetical exclusion-based calculation could stand.

---

---

Issues: Whether there was any material before the Tribunal to justify an addition of Rs. 65,000 to profits on sales of disposal goods when the books were rejected and an estimate of profit was made under the proviso to section 13.

Analysis: The proviso permitting estimation of profits where book results are rejected requires a judicial, material-based exercise of discretion and not an arbitrary addition. Although purchases and sales were vouched, the revenue was entitled to estimate profit if correct profits could not be deduced from the records; however any estimation must be supported by relevant materials and principled calculation rather than conjecture. The Tribunal relied on subsequent years' gross profit rates and on the observation that sales in lots reduced margins, and computed that exclusion of lot sales yielded a little over 13% gross profit. The further uplift of about 2% (to produce an add-back of Rs. 65,000) was not shown to rest on articulated or material facts and amounted to guess-work. The Tribunal therefore lacked adequate materialary justification for the additional uplift beyond its own arithmetical calculation based on excluding lot sales.

Conclusion: The question is answered in the negative; there was no sufficient material before the Tribunal to justify the add-back of Rs. 65,000. The Tribunal could, however, proceed on the basis of its arithmetical calculation excluding the lot sales percentage.

---