Unverifiable purchases and reopening on tangible material sustained, while trading addition was restricted and delay was not condoned.

A delay of 293 days in filing the cross objection was not condoned because the explanation was vague and unsupported by specific facts, so the cross objection was dismissed as time-barred. Reopening under section 147 was upheld because the original assessment was under section 143(1) and there was tangible material indicating possible escapement of income from bogus purchases. Rejection of books under section 145(3) was sustained where purchases from several parties could not be verified, suppliers were untraceable, and day-to-day stock records were absent. The trading addition, however, was restricted to 15% of the unverifiable purchases, giving partial relief.

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Issues: (i) Whether the delay of 293 days in filing the cross objection should be condoned; (ii) whether reassessment under section 147 was valid; (iii) whether rejection of books of account under section 145(3) and estimation of trading addition on account of unverifiable purchases were justified.

Issue (i): Whether the delay of 293 days in filing the cross objection should be condoned.

Analysis: The explanation offered for the delay was found to be vague and unsupported by specific facts or a day-to-day account of the delay. The material placed before the Tribunal did not establish sufficient or reasonable cause for the prolonged default.

Conclusion: The delay was not condoned, and the cross objection was dismissed as time-barred.

Issue (ii): Whether reassessment under section 147 was valid.

Analysis: The assessment had originally been completed under section 143(1), and the record contained material indicating possible escapement of income on account of bogus purchases. The reopening was based on tangible information and prima facie belief of escapement, which was sufficient at the stage of initiation.

Conclusion: The reassessment was upheld and the challenge to reopening failed.

Issue (iii): Whether rejection of books of account under section 145(3) and estimation of trading addition on account of unverifiable purchases were justified.

Analysis: The purchases from several parties could not be verified, the suppliers were not found at the stated addresses, and the assessee did not maintain day-to-day quantitative stock records. The books were therefore treated as unreliable. However, for estimation of profit on such unverifiable purchases, the Tribunal followed its earlier view in similar gem and jewellery matters and held that a disallowance at 15% was in the facts of the case.

Conclusion: Rejection of the books was sustained, but the trading addition was restricted to 15% of the unverifiable purchases.

Final Conclusion: The cross objection failed, the reassessment and rejection of books were sustained, and the disputed addition was modified by reducing the rate of disallowance, resulting in partial relief to the assessee.

Ratio Decidendi: Where purchases are found unverifiable and the assessee fails to substantiate them with reliable records, the books may be rejected under section 145(3), and profit can be estimated on a reasonable basis having regard to the facts and precedent in similar cases; reopening is also sustainable where there is tangible material giving rise to a prima facie belief of escapement of income.

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