Reasonable net profit estimation leads to reduction where neither declared profits nor comparable business data support the higher rate.

Income may be estimated on a reasonable basis where the assessee does not satisfactorily prove the declared net profit and the Revenue also fails to produce comparable material to justify a higher rate. On the facts, the tribunal found that an 8% net profit estimate was not supported by comparable cases from the same line of business and reduced the estimate to 4%, with income recomputed accordingly. The assessee obtained partial relief as the addition based on the higher profit rate was substantially curtailed.

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Issues: Whether the net profit from the assessee's turnover should be estimated at 8% as sustained by the first appellate authority, or at 4% as a reasonable estimate in the facts of the case.

Analysis: The assessee did not satisfactorily establish the declared net profit, and the Revenue also did not bring on record comparable cases from the same line of business to justify the 8% estimate. In these circumstances, a lump sum estimation was considered appropriate to balance the rival claims and arrive at a fair determination of income.

Conclusion: The net profit rate was reduced from 8% to 4%, with the resulting income recomputed accordingly. The issue was decided partly in favour of the assessee.

Final Conclusion: The addition based on the higher estimated profit rate was substantially curtailed and the assessee obtained partial relief.

Ratio Decidendi: Where neither the assessee substantiates the declared profit nor the Revenue produces comparable material to support the adopted rate, income may be estimated at a reasonable figure on the facts of the case.

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