Books of account rejection and profit estimation must match the evidence; prior-year rates cannot be applied mechanically.

Rejection of books under section 145(3) was not sustained because no specific defect in the accounts was established; the records were found correct and complete, with quantitative details, stock registers, and verifiable purchase and sales invoices, and the gross profit rate had improved over earlier years. A profit estimate taken mechanically from a prior year was held inappropriate where the factual foundation differed materially. The net profit was therefore directed to be estimated at 0.45% of turnover instead of 0.5%, granting the assessee partial relief and modifying the assessment accordingly.

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Issues: (i) Whether the rejection of books of account and estimation of net profit at 0.5% of turnover was justified.

Analysis: The assessment had proceeded on rejection of the books under section 145(3), but the appellate record showed that no specific defect in the accounts was established. The books were found to be correct and complete, with quantitative records, stock registers, and purchase and sales invoices maintained and verifiable, and the gross profit rate had improved over earlier years. The earlier year's profit estimate could not be mechanically applied because the factual basis for that year differed materially.

Conclusion: The rejection of the books was not upheld on the facts as found, and the net profit was directed to be estimated at 0.45% of turnover instead of 0.5%.

Final Conclusion: The assessee obtained partial relief on the rate of profit estimation, and the assessment was modified accordingly.

Ratio Decidendi: A profit estimate based on rejection of books cannot be sustained at an adopted rate from another year unless the factual foundation and defects in accounts are comparable, and the estimate must be aligned to the evidence on record.

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