Books of account and stock records prevail where bare third-party denial does not rebut genuine purchase entries.

Regular books of account and stock records carry a presumption of correctness, and that presumption was not displaced here because the Revenue failed to make meaningful contemporaneous verification of stock position, corresponding records, or source documents. The assessee's explanation that the goods were moved as an inter-distributor accommodation with matching purchase and sale entries was commercially plausible and consistent with the records. A bare denial by the other party, without supporting inquiry, was insufficient to reject the accounts under section 145(3) or sustain disallowance of the purchase entries. The addition based on alleged bogus purchases could not be sustained, and the assessee's account-based explanation prevailed.

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Issues: Whether the assessee's purchase entries from another distributor were genuine, and whether rejection of books of account under section 145(3) of the Income-tax Act, 1961 and the consequent disallowance were justified.

Analysis: Regular books of account have evidentiary value and carry a presumption of correctness. The assessee's explanation, taken as a whole, was that the goods were received and later returned in kind as an inter-distributor accommodation without financial implication, with corresponding purchase and sale entries recorded to reflect stock movement. The Revenue did not undertake meaningful verification of the stock position, the corresponding distributor's stock records, the contemporaneous purchase and sale returns, or the source records with MTNL. The entries were found to be consistent with the assessee's stock records, commercially plausible, and not shown to be an afterthought. A mere denial by the other party, without further verification, was insufficient to displace the assessee's record-based explanation.

Conclusion: The purchase entries were held to be genuine, the invocation of section 145(3) was set aside, and the disallowance was directed to be deleted in favour of the assessee.

Final Conclusion: The assessee succeeded on the merits of the accounting dispute, and the addition based on alleged bogus purchases could not be sustained.

Ratio Decidendi: Where regular books of account and stock records support the assessee's version, a mere denial by the other party is insufficient to reject the accounts or disallow purchases unless the Revenue makes a proper contemporaneous verification that rebuts the entries.

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