While buying wheat from farmers a dealer uses a weight stamped 1 kg that really weighs 1250 g, so he pays for 1 kg and carries away 1250 g. He then sells with honest weights, at the same rate per kilogram at which he bought. His gain percent is:

Fix the rate at ₹100 per kg. He pays ₹100 and receives 1250 g, which he sells honestly for $1.25\times 100$ = ₹125, a gain of ₹25 on an outlay of ₹100, i.e. 25%. Selling at the buying rate does not make the profit zero — the cheating is on the pan, not on the price. And 250/1250 = 20% measures the extra grain against the grain handled rather than against the money spent.