Rejection of accounts and best judgment estimation require material evidence and rational basis, not suspicion or guesswork.

Rejection of books of account in tax assessment must rest on material evidence, not on suspicion or a mistaken shift of the burden of proof. Where disputed purchases were covered by two way-bills, the assessee's explanation linking them to entries already in the books had to be examined on its merits; in the absence of proof that the book entries did not cover the consignments, the rejection of accounts could not stand. Best judgment estimation also requires a rational factual basis: an addition to purchase turnover cannot be sustained if the figure is arbitrary and unsupported by comparative material or a disclosed basis. The assessment enhancement was therefore held unsustainable.

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Issues: (i) Whether the Tribunal was justified in rejecting the assessee's books of account and returned purchase turnover on the ground that certain purchases evidenced by two way-bills were not entered in the accounts; (ii) Whether there was material to support the addition of Rs. 1,00,000 to the purchase turnover made by the Tribunal.

Issue (i): Whether the Tribunal was justified in rejecting the assessee's books of account and returned purchase turnover on the ground that certain purchases evidenced by two way-bills were not entered in the accounts.

Analysis: The rejection of accounts must rest on material evidence and not on a mere failure to disprove the assessing officer's inference. The record showed that the supposed discrepancies related only to two consignments, and the assessee offered a specific explanation by linking the goods to purchases already entered in its books. The burden lay on the revenue to show that the book entries did not cover the consignments in question. The Tribunal did not examine the explanation on its merits and proceeded on an incorrect approach, namely that the assessee had to disprove the officer's finding. In the absence of material showing that the entries in the books were unrelated to the disputed consignments, the rejection of accounts could not stand.

Conclusion: The rejection of the assessee's books of account was not justified and was held to be unsustainable.

Issue (ii): Whether there was material to support the addition of Rs. 1,00,000 to the purchase turnover made by the Tribunal.

Analysis: The addition was made without a proper factual foundation. The method adopted by the assessing authority was arbitrary, and the Tribunal's own basis for the figure of Rs. 1,00,000 was not supported by disclosed comparative material or by any explanation put to the assessee. A best judgment assessment must still be grounded in relevant facts and rational estimation, and it cannot rest on guesswork or unverified assumptions. Since no reliable material justified the estimate, the addition could not be sustained.

Conclusion: There was no material to support the addition of Rs. 1,00,000, and it was held to be unsustainable.

Final Conclusion: The assessment order and the Tribunal's enhancement could not be sustained, and the revision was allowed with costs.

Ratio Decidendi: Rejection of accounts and best judgment estimation in tax assessment must be supported by material evidence and rational inquiry; findings based on suspicion, conjecture, or an incorrect burden of proof cannot be sustained.

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