Stock discrepancies and unreliable books justified income estimation, while notice service objection failed due to recorded issuance and participation.

Survey proceedings under section 133A and the stock inventory prepared during survey were upheld because the stock-taking was conducted at the business premises with assistance from the assessee's representatives, supported by contemporaneous records, and no material infirmity or fabrication was shown. Rejection of books under section 145(3) and the trading addition were sustained because material discrepancies existed between physical stock, the stock register and computer-generated figures, and no satisfactory reconciliation was furnished; the gross profit rate of the preceding year was applied to estimate income. The assessment was also held valid because notice under section 143(2) was issued and dispatched, and the assessee participated in the proceedings.

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Issues: (i) whether the survey proceedings under section 133A and the stock inventory prepared during survey were liable to be quashed; (ii) whether rejection of books under section 145(3) and the trading addition based on stock discrepancy and gross profit estimation were sustainable; and (iii) whether the assessment was invalid for alleged non-service of notice under section 143(2).

Issue (i): whether the survey proceedings under section 133A and the stock inventory prepared during survey were liable to be quashed.

Analysis: The stock-taking exercise was found to have been conducted during the survey at the business premises with assistance from the assessee's representatives and supported by contemporaneous record. The assessee's non-cooperative conduct, failure to complete the statement, and failure to establish any material infirmity in the survey record were taken into account. No reliable basis was shown to hold the survey or inventory to be unlawful, arbitrary, or fabricated.

Conclusion: The survey proceedings were upheld and the challenge failed against the assessee.

Issue (ii): whether rejection of books under section 145(3) and the trading addition based on stock discrepancy and gross profit estimation were sustainable.

Analysis: The authorities found material differences between the physical stock, the stock register, and the computer-generated stock figures, and the assessee did not furnish a satisfactory reconciliation. In these circumstances, the books were treated as incomplete and unreliable. The gross profit rate of the preceding year was then applied to estimate income from the unexplained stock difference and declining gross profit.

Conclusion: Rejection of books and the consequential trading additions were sustained against the assessee.

Issue (iii): whether the assessment was invalid for alleged non-service of notice under section 143(2).

Analysis: The record showed issuance and dispatch of notice under section 143(2), and the assessee had participated in the assessment proceedings. In view of such participation, the objection to service was not accepted, and the assessment was held to be valid. The alleged contrary material was not found sufficient to displace the official record.

Conclusion: The objection regarding notice service was rejected against the assessee and the assessment was held valid.

Final Conclusion: The additions and the assessment were sustained in full, and the appeal was dismissed.

Ratio Decidendi: Unreconciled stock discrepancies, coupled with unreliable books and participation in assessment proceedings, justify rejection of books, estimation of income, and invocation of the deeming rule on notice service.

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