Income estimation must reflect commercial realities in livestock trading; gross profit rate was reduced after book rejection.

Rejection of books of account and income estimation in livestock trading must reflect the business model and comparable trading results on record. The Tribunal noted that the assessee operated as a pass-through arrangement for a principal buyer, with purchases from itinerant suppliers and largely cash-based payments, and that the lower authorities had not properly appreciated these commercial realities. Although the books were rejected, the estimated gross profit could not be fixed at 2% of gross sales without regard to the consistent margins disclosed over the years. The gross profit rate was therefore reduced to 0.40% of gross sales, granting relief to the assessee.

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Issues: Whether rejection of the books of account and estimation of income at 2% of gross sales was justified, and if not, what gross profit rate should be applied.

Analysis: The assessee was engaged in livestock transactions with large turnover and a consistently low gross profit margin. The record showed that the business functioned as a pass-through arrangement for a principal buyer, with purchases made from itinerant suppliers and payments largely routed in cash. The Tribunal noted that the lower authorities had not adequately appreciated the business model, the limited control exercised by the assessee, and the comparable trading results placed on record. While the assessee's books had been rejected, the Tribunal found that the profit estimation had to reflect the commercial realities of the line of business and the consistent margins disclosed over the years.

Conclusion: The rejection of books was not accepted for sustaining the addition at 2%, and the estimated gross profit was reduced to 0.40% of gross sales, resulting in relief to the assessee.

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