Books of account reliability: flat turnover estimates for derivative trading without factual basis are unsustainable and may be quashed.

Assessing Officer's rejection of audited books and application of a flat 12% turnover estimate for futures and options trading was found arbitrary where audited accounts and detailed trading statements provided particulars of income and expenditure; absence of material justifying book rejection or a factual basis for turnover-based estimation renders the percentage estimate unsustainable, and the estimation was deleted, favouring the assessee.

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Issues: (i) Whether the Assessing Officer was justified in rejecting the assessee's books of account and estimating business income at 12% of turnover in respect of futures and options trading for AY 2018-19.

Analysis: The Tribunal examined the assessment record, the audited books and trading statements submitted before the authorities, and the assessment officer's basis for rejecting books and applying a 12% turnover estimation. The Ld. CIT(A) found that the books were audited and that in the case of trading in shares and derivatives, detailed trading statements exist which provide particulars of income and expenditure; accordingly the fixed 12% estimation was held to be arbitrary. The Tribunal noted that the Assessing Officer did not place material on record to justify rejection of the books or to demonstrate why a flat percentage estimation was appropriate for derivative trading, where turnover-based percentage estimates cannot be applied without a reasonable factual basis.

Conclusion: The Tribunal confirms the Ld. CIT(A)'s finding and deletes the Assessing Officer's estimation; the Revenue's appeal is dismissed and the decision is in favour of the assessee.

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