Estimated income after rejection of books must follow comparable cases, and separate ad hoc disallowance from trading results is not sustainable.

After rejection of books of account, the ITAT applied parity with a comparable liquor trading case and held that the gross profit rate should be reduced to 3.13% because no distinguishing facts justified a higher estimate. It also held that once income is estimated on rejection of books, a separate ad hoc disallowance from the same trading results is not sustainable. The further disallowance from the profit and loss account was deleted and the trading addition was to be recomputed accordingly, in favour of the assessee.

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Issues: (i) Whether the gross profit rate adopted after rejection of books of account required reduction from 4% to 3.13%. (ii) Whether any further ad hoc disallowance could be sustained after estimation of income on rejection of books.

Issue (i): Whether the gross profit rate adopted after rejection of books of account required reduction from 4% to 3.13%.

Analysis: The assessee produced comparative material showing that in a similar liquor trading case for the same assessment year, the Department had accepted a gross profit rate of 3.13%. No distinguishing feature was brought on record to justify adoption of a higher rate in the assessee's case. In the absence of rebuttal, parity with the comparable case was treated as the proper basis for estimation.

Conclusion: The gross profit rate was directed to be reduced to 3.13%, and the addition based on estimation was to be recomputed accordingly, in favour of the assessee.

Issue (ii): Whether any further ad hoc disallowance could be sustained after estimation of income on rejection of books.

Analysis: Once the books were rejected and income was estimated by applying a gross profit rate, separate addition on the basis of further disallowance from the profit and loss account was held impermissible. After such estimation, no further addition could be made merely from the same trading results.

Conclusion: The ad hoc disallowance of Rs. 1 lakh was directed to be deleted, in favour of the assessee.

Final Conclusion: The appeal succeeded on both substantive issues, with the estimated trading addition reduced and the further disallowance deleted, resulting in only a partial allowance of the appeal for statistical purposes.

Ratio Decidendi: After rejection of books of account and estimation of business income, a further separate disallowance from the same trading account is not sustainable, and an estimated gross profit rate should be applied consistently with comparable cases absent distinguishing facts.

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