Rejection of books and estimated trading addition fail where sales, purchases, and audited results remain verifiable.

Rejection of books under section 145(3) was found unjustified where no specific defect was shown in trading results, purchases, sales, or closing stock, and the accounts were otherwise audited and verifiable. Mere non-production or non-maintenance of a stock register did not, by itself, justify rejection of book results, particularly when additional evidence explained the earlier non-production and the directors' dispute constituted sufficient cause. In the absence of incriminating material from search or other independent adverse evidence, the estimated trading addition based on alleged suppression of profit was unsustainable, and relief was granted to the assessee.

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Issues: Whether rejection of the books of account under section 145(3) was justified and whether the trading addition based on estimation of gross profit could be sustained.

Analysis: The assessee's books were rejected primarily for non-production of the stock register and allied records, but no specific defect in the trading results, purchases, sales, or closing stock was found. The appellate record also showed that the assessee had furnished additional evidence explaining non-production of books, and the dispute between directors constituted sufficient cause for the earlier non-production. The Tribunal noted that mere non-maintenance or non-production of a stock register, by itself, does not automatically justify rejection of book results where sales and purchases are otherwise verifiable and the accounts are audited. It further observed that no incriminating material from search or independent adverse material supported the estimated suppression of profit.

Conclusion: Rejection of books of account and the consequent trading addition were held to be unsustainable, and relief was granted to the assessee.

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