Rejection of books upheld for unexplained stock mismatch, but estimated suppressed turnover failed for lack of rational basis.

Non-maintenance of manufacturing accounts and an unexplained stock discrepancy were treated as substantive defaults, making the books of account unreliable and justifying rejection and best-judgment assessment. However, the estimated suppressed turnover could not be sustained because the record did not disclose any rational basis for fixing it at the stated figure. The rejection of accounts was therefore upheld, but the quantum of suppressed turnover was set aside and remitted for fresh determination on a reasoned basis from the material on record.

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Issues: (i) Whether rejection of the books of account was justified on account of non-maintenance of manufacturing account and discrepancy in stock found at the time of survey. (ii) Whether the estimate of suppressed turnover at Rs. 20 lacs could be sustained without any basis.

Issue (i): Whether rejection of the books of account was justified on account of non-maintenance of manufacturing account and discrepancy in stock found at the time of survey.

Analysis: Non-maintenance of manufacturing account under the governing trade tax law was treated as a substantive default, not a mere technical lapse. The unexplained difference in stock found during survey also remained unaccounted for, and the explanation offered by the dealer was not accepted. In these circumstances, the books of account could not be relied upon and assessment by best judgment was warranted.

Conclusion: The rejection of the books of account was upheld, and this issue was decided against the assessee.

Issue (ii): Whether the estimate of suppressed turnover at Rs. 20 lacs could be sustained without any basis.

Analysis: Although rejection of the books was sustained, the estimate of suppressed sales required some rational basis from the material on record. The Tribunal did not disclose the basis for fixing the suppressed turnover at Rs. 20 lacs. Since the quantum of suppression had not been determined on adequate reasoning, the estimate could not stand as framed.

Conclusion: The estimation of suppressed turnover was set aside and the question of quantum was remitted for fresh determination.

Final Conclusion: The revision succeeded only to the extent of reopening the quantum of turnover, while the rejection of the accounts was maintained.

Ratio Decidendi: Rejection of books is justified where manufacturing accounts are not maintained and stock discrepancy remains unexplained, but the estimated turnover must rest on a reasoned basis from the record.

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