Estimated profit in liquor trade reduced after low-margin history and comparable businesses made 3% excessive

Rejection of books and estimation of income in a country liquor wholesale business was examined against the assessee's consistently low historical margins and comparable traders in the same line. The lower authorities' reliance on a different liquor-business precedent was held distinguishable on facts. A flat 3% estimation was found excessive, but the declared profit was also considered too low for acceptance. Net profit was therefore sustained at 0.50% of sales, granting partial relief.

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Issues: Whether the rejection of books of account and estimation of income at 3% of sales was justified, and whether the profit should instead be restricted to a lower reasonable rate.

Analysis: The assessee was a wholesale dealer in country liquor with tightly controlled margins under government policy. The record showed consistent net profit rates of about 0.21% to 0.26% over the preceding years, and comparable traders in the same line of business also had similarly low margins. The precedent relied upon by the lower authorities was found distinguishable, as it related to different facts and a different liquor business model. In these circumstances, a flat 3% estimation was considered excessive, but the profit declared by the assessee was also held to be too low for acceptance as such.

Conclusion: The addition was reduced by sustaining net profit at 0.50% of sales, and the assessee obtained partial relief.

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