Gross profit rate estimation revised after books showed lower declared margin and partial relief was granted.

The dispute concerned the gross profit rate applied for the assessment year, where the audited books reflected a gross profit rate of 3.84% and the lower authorities estimated it at 6.4%. The assessee did not specifically explain the fall in the declared gross profit rate, although the net profit rate had improved. On that basis, the original estimate was treated as excessive, and a revised lump-sum gross profit rate of 4.25% was applied. The addition was sustained only to that extent, resulting in partial relief to the assessee.

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Issues: Whether the addition made by estimating gross profit at 6.4% and confirming it in appeal was justified, and what gross profit rate should be applied on the facts of the case.

Analysis: The sole dispute related to the correctness of the gross profit rate applied by the lower authorities for the assessment year, against the audited books showing a gross profit rate of 3.84%. The assessee could not specifically explain the decline in the declared profit rate, though the net profit rate had improved. In the circumstances, the estimate made by the lower authorities was found not fully sustainable, and a revised lump-sum gross profit rate was considered appropriate.

Conclusion: The gross profit rate was reduced to 4.25%, and the addition was sustained only to that extent. The assessee succeeded partly.

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