Burden of proof in stock variation cases: assessee must explain discrepancies, failing which adverse inference and best judgment assessment may follow.

Where stock variation or unposted accounts are found on inspection, the assessee bears the initial burden of explaining the discrepancy because the source of unexplained purchases or stock is especially within its knowledge. The Court applied the Full Bench principle that an unsatisfactory explanation permits an adverse inference, and that unreliable or incompletely posted accounts justify best judgment assessment. The earlier single-judge view placing the burden on the Revenue was not treated as a universal rule. The addition based on stock variation and the consequent estimation were upheld, with no interference called for.

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Issues: Whether the rejection of accounts and the addition made on the basis of stock variation found during inspection were justified.

Analysis: The assessee's explanation for the discrepancy was examined against the material on record. The earlier single-judge view in favour of placing the burden on the Revenue was not treated as laying down a universal rule. The controlling principle was the Full Bench view that the source of unaccounted purchases or unexplained stock is a matter especially within the assessee's knowledge; the initial burden of proving correctness of the accounts lies on the assessee, and where the explanation is not satisfactory, an adverse inference may be drawn. The Court also noted that where accounts are not fully posted or are unreliable, best judgment assessment is permissible, and the quantum fixed by the first appellate authority had already granted substantial relief.

Conclusion: The addition based on stock variation and the consequent estimation were upheld, and no interference was called for.

Ratio Decidendi: In cases of unexplained stock variation or unposted accounts, the assessee bears the initial burden to explain the discrepancy, and if the explanation is unacceptable, the assessing authority may draw an adverse inference and make a best judgment assessment.

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