Gross profit estimation on undisclosed purchases was reduced after comparing past and later year trading results.

Undisclosed purchases were required to be benchmarked against the assessee's overall gross profit trend, and the estimate was moderated where the comparative results of earlier and later years supported a lower rate. The dispute concerned only the appropriate profit rate on such purchases, with the lower authorities having applied 8% gross profit. On review of the surrounding facts and past and subsequent gross profit levels, the addition was restricted to 2% of total purchases, reflecting partial relief to the assessee.

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Issues: Whether the addition made on account of undisclosed purchases could be sustained at 8% gross profit, or whether a lower gross profit rate was warranted.

Analysis: The assessee had made undisclosed purchases, and the only dispute was the rate at which income was to be estimated on such purchases. The lower authorities had sustained the addition by applying an 8% profit rate, while the assessee pointed to the gross profit disclosed in earlier and later years. Considering the overall facts and the comparative gross profit trend, the estimate required moderation.

Conclusion: The gross profit addition was restricted to 2% of the total purchases, which is partly in favour of the assessee.

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