Gross-profit estimation based on contemporaneous industry comparables governs diary-based undisclosed sales, while uncorroborated RTGS commission additions fail.

Estimated business income must use reliable contemporaneous industry comparables rather than historical gross-profit averages; the applicable rate was 4.315% for declared turnover and determined undisclosed sales. Diary receipts were to be reduced for recorded sales through traders, substantiated contra entries and verified totaling errors, while no deduction applied to trader sales after the search date. A separate commission addition for alleged accommodation RTGS entries lacked independent corroboration and failed once recorded trader sales were adjusted. Cash withdrawals required verification, and any residual unexplained cash could be telescoped against income from undisclosed sales.

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Issues: (i) Whether the gross-profit rate for declared turnover and undisclosed sales should be estimated at the rate applied by the lower authorities; (ii) Whether cash receipts recorded in seized diaries represented undisclosed turnover after allowing deductions for sales to traders, contra entries and alleged totaling errors; (iii) Whether a separate addition for alleged commission paid for accommodation RTGS entries was sustainable; (iv) Whether cash found during search was unexplained.

Issue (i): Whether the gross-profit rate for declared turnover and undisclosed sales should be estimated at the rate applied by the lower authorities.

Analysis: Following the approach adopted in the assessee's own preceding-year case, the applicable rate was required to reflect contemporaneous industry results rather than an average of historical gross-profit rates. The entities relied upon by Revenue for a higher rate were not comparable because of their integrated operations, import-based sourcing and differing business profiles. Neither the exclusion of three entities by the first appellate authority nor the assessee's limited set of comparables had a valid basis. Results of all eight entities considered by the assessee and the first appellate authority produced an industry average of 4.315%.

Conclusion: Gross profit at 4.315% shall be applied to the declared turnover and the determined undisclosed sales, in favour of the assessee.

Issue (ii): Whether cash receipts recorded in seized diaries represented undisclosed turnover after allowing deductions for sales to traders, contra entries and alleged totaling errors.

Analysis: The diaries recorded total transactions through traders, part of which had been reflected in the regular books. Deduction of total sales to traders of Rs. 1,499 crore, rather than only RTGS receipts, was therefore justified. The diary entries supported the assessee's claim of Rs. 84 crore as contra entries. The claimed totaling errors of Rs. 87.77 crore could not be fully verified from the material before the Tribunal and required verification by the Assessing Officer. No deduction was available for sales to traders after the search date, since the diaries contained transactions only up to the date of search.

Conclusion: Undisclosed sales shall be computed after deducting Rs. 1,499 crore towards sales to traders, Rs. 84 crore towards contra entries, and verified totaling errors, with gross profit at 4.315%; Revenue's challenge to deduction of sales to traders is rejected.

Issue (iii): Whether a separate addition for alleged commission paid for accommodation RTGS entries was sustainable.

Analysis: The allegation of commission rested on an employee's statement without independent corroboration from traders and was not reaffirmed by the assessee's directors or principal officers. Once sales to traders recorded in the books were allowed as deduction from diary receipts, the basis for treating the RTGS entries as accommodation entries did not survive.

Conclusion: No separate addition for alleged commission is sustainable, in favour of the assessee.

Issue (iv): Whether cash found during search was unexplained.

Analysis: Bank withdrawals of Rs. 42 lakh were capable of verification and could not be rejected merely because they were absent from the incomplete cash book at search. The small balance of cash remaining unexplained was eligible for telescoping against income assessed from undisclosed sales.

Conclusion: Deletion of the addition for cash found is sustained, in favour of the assessee.

Final Conclusion: The taxable business income requires recomputation by applying the industry gross-profit rate of 4.315% after the specified adjustments to diary receipts; the separate additions for alleged commission and cash found do not survive.

Ratio Decidendi: Where books are rejected and income is estimated, gross profit must be based on reliable contemporaneous comparable industry results; diary-based receipts must be adjusted for substantiated recorded transactions and contra entries, and an uncorroborated allegation of related commission cannot support a separate addition.

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