Unverifiable purchases can justify book rejection, but trading addition must be reasonably estimated on past results and business activity.

Unverifiable purchases justified rejection of the books of account, but the resulting addition had to be estimated on a reasonable basis by reference to past gross profit and the nature of the year's trading activity. In view of the shift from manufacturing to trading and the assessee's past results, only a limited trading addition was sustained and the balance disallowance was deleted.

---

---

Issues: Whether the addition made on account of unverifiable purchases was to be sustained in full or restricted to a lower trading addition.

Analysis: The purchases were found unverifiable, justifying rejection of the books of account. However, the addition had to be estimated on a reasonable basis having regard to the assessee's past gross profit rate and the nature of the activity in the year under consideration. Considering the past results and the change from manufacturing to trading activity, a limited trading addition was found sufficient to meet the ends of justice.

Conclusion: The addition was restricted to Rs. 10,000, and the balance disallowance was deleted.

---