Gross profit estimation after rejection of books: rate reduced for one receipt stream, while the other estimate was left undisturbed.

Once books of account are rejected under section 145(3) of the Income-tax Act, gross profit may be estimated on a reasonable factual basis, and appellate interference is limited to cases where the adopted rate is shown to be unjustified. For receipts from M/s. Pandit Homes, the lower authorities' estimation was found excessive and the gross profit rate was reduced to 8% in favour of the assessee. For receipts from M/s. Bankey Bihari Builders and Developers, the assessee's declared rate already exceeded the reduced estimate of 7.5%, so no further interference was warranted. The appeal succeeded only to that limited extent.

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Issues: (i) Whether the gross profit rate for receipts from M/s. Pandit Homes required further reduction from the rate adopted by the lower authorities. (ii) Whether the gross profit estimation for receipts from M/s. Bankey Bihari Builders and Developers called for any further interference.

Issue (i): Whether the gross profit rate for receipts from M/s. Pandit Homes required further reduction from the rate adopted by the lower authorities.

Analysis: The books of account had already been rejected under section 145(3) of the Income-tax Act, 1961, and the dispute was confined to the rate of gross profit estimation. The assessee's declared gross profit of 5.75% was compared against the rates adopted by the lower authorities, which had estimated a higher figure. On the facts, a lower estimation was considered appropriate.

Conclusion: The gross profit rate for M/s. Pandit Homes was reduced to 8%, in favour of the assessee.

Issue (ii): Whether the gross profit estimation for receipts from M/s. Bankey Bihari Builders and Developers called for any further interference.

Analysis: The assessee had declared gross profit at 11.92%, while the lower appellate authority had already reduced the estimated rate to 7.5%. Since the estimation was already below the declared rate, no further interference was warranted.

Conclusion: No further reduction or interference was granted for M/s. Bankey Bihari Builders and Developers, against the assessee.

Final Conclusion: The appeal succeeded only to the extent of further reduction in the gross profit estimation for one segment of receipts, while the remaining estimation was left undisturbed.

Ratio Decidendi: Once books are rejected, gross profit may be estimated on a reasonable basis using comparable material, and appellate interference is limited to cases where the adopted estimation is shown to be unjustified on the facts.

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