Stock records and survey entries alone cannot justify book rejection or inter-State sales additions without supporting material.

Account books cannot be rejected for alleged non-compliance with section 12(2) of the U.P. Sales Tax Act, 1948 where stock registers, production records, sales registers, challans, cash memos and purchase vouchers make manufacturing activity, purchases and sales reasonably verifiable, especially when the same method was accepted in earlier assessments. An addition for inter-State sales cannot be sustained on survey entries alone unless there is material showing that the movement of goods was occasioned by a contract of sale or that the assessee's explanation for stock discrepancies is unreliable. On the stated facts, the Tribunal's findings were upheld and the revisions failed.

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Issues: (i) whether the rejection of the assessee's account books for alleged non-compliance with section 12(2) of the U.P. Sales Tax Act, 1948 was justified; (ii) whether the addition made towards inter-State sales on the basis of the survey paper could be sustained.

Issue (i): whether the rejection of the assessee's account books for alleged non-compliance with section 12(2) of the U.P. Sales Tax Act, 1948 was justified.

Analysis: The statutory requirement under section 12(2) was to maintain the necessary stock books showing raw materials and products at various stages of production, so that the opening and closing stock could be reasonably verified. The assessee maintained stock registers, production records, sales registers, challans, cash memos and purchase vouchers, and the Tribunal found that the manufacturing activity, purchases and sales were fully verifiable from these records. The Tribunal also noted that the books had been maintained in the same manner in earlier years and had been accepted in the preceding assessments. On these facts, the prescribed maintenance requirement was treated as satisfied.

Conclusion: The rejection of the account books was not justified and the finding of the Tribunal was upheld in favour of the assessee.

Issue (ii): whether the addition made towards inter-State sales on the basis of the survey paper could be sustained.

Analysis: The alleged discrepancy in stock position was explained by the assessee to the satisfaction of the Tribunal, which accepted the explanation regarding production, rejected hosiery and entries in the stock register. As to the survey paper, the Tribunal found no material to show that the sales by the Delhi branch were not of stock transferred by the head office, and no material was produced to establish any privity of contract so as to convert the movement of goods into a sale occasioned by contract. The addition rested only on the survey entries and was therefore unsupported once the explanation was accepted.

Conclusion: The addition towards inter-State sales was not sustainable and was rightly deleted in favour of the assessee.

Final Conclusion: The revisions failed on both counts, the Tribunal's factual findings were sustained, and no question of law arose for interference.

Ratio Decidendi: Where account books and stock records enable reasonable verification of production, purchases and sales, rejection of books is unwarranted; and an addition for inter-State sales cannot stand without material showing that the movement of goods was the result of a contract of sale.

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