Burden on assessee to explain unaccounted purchases and incomplete accounts may justify adverse inference or best judgment assessment.

In cases of unaccounted purchases, the primary burden lies on the assessee to explain and prove the source, because that fact is within the assessee's special knowledge and the Revenue is not expected to prove it directly. The burden may shift during evaluation of evidence, but the initial onus remains on the assessee, consistent with the evidentiary principle reflected in Section 110 of the Indian Evidence Act, 1872. Where books of account are found to be incompletely posted at inspection, the authority may draw an adverse inference if the assessee fails to give a satisfactory explanation; if the explanation is acceptable, no such inference need be drawn. Best judgment assessment may follow where accounts are found unreliable.

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Issues: (i) Whether, in cases of unaccounted purchases, the burden lies on the assessee to prove the source of purchase; (ii) whether an adverse inference can be drawn when books of account are found to be not fully posted at the time of inspection.

Issue (i): Whether, in cases of unaccounted purchases, the burden lies on the assessee to prove the source of purchase.

Analysis: The source of unaccounted purchases is a within the special knowledge of the assessee, and the Revenue cannot ordinarily be expected to prove from where such purchases were made. The assessee must adduce proper and cogent evidence to establish the source. The principle reflected in Section 110 of the Indian Evidence Act, 1872 supports a prima facie presumption of ownership and places the evidentiary burden on the person in possession, subject to rebuttal by cogent evidence. The distinction between burden of proof and onus of proof was recognised, and the onus may shift during appreciation of evidence, but the primary burden remains on the assessee.

Conclusion: The burden to prove the source of unaccounted purchases lies on the assessee.

Issue (ii): Whether an adverse inference can be drawn when books of account are found to be not fully posted at the time of inspection.

Analysis: The effect of incomplete posting of books depends on the facts of each case. If the assessee offers a satisfactory explanation, no adverse inference need follow. If the explanation is unacceptable or contrary to the material on record, the assessing authority may draw an adverse inference regarding the correctness of the accounts. Where accounts are not reliable, best judgment assessment may be warranted, and if the assessee does not establish the contrary, the inference that the accounts were not properly maintained can be drawn.

Conclusion: An adverse inference can be drawn where the assessee fails to satisfactorily explain incomplete posting of accounts.

Final Conclusion: The reference was answered by holding that the assessee bears the initial burden to explain unaccounted purchases and that adverse inference may be drawn on the facts where account books are not properly maintained or satisfactorily explained.

Ratio Decidendi: In matters of unaccounted purchases and incomplete accounts, the primary burden lies on the assessee to explain the source and correctness of the entries, and the authority may draw an adverse inference or resort to best judgment assessment if the explanation is not satisfactory.

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