Unexplained purchases, section 35(2AB) deduction, and book profit under section 115JB turn on reconciliation, eligibility, and actual transaction.

Unexplained purchase additions require examination of the assessee's reconciliation and surrounding evidence; mere third-party mismatch or non-response is insufficient to sustain the full disallowance, while unsupported claims against non-served suppliers may still be upheld or verified further. A short-claimed deduction for capital expenditure under section 35(2AB) may be allowed where entitlement is otherwise established and the omission is an inadvertent mistake, subject to document verification. For book profit under section 115JB, profit on sale of subsidiary shares cannot be taxed as a notional gain unless the underlying transfer actually fructified; incomplete records may justify fresh examination and remand.

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Issues: (i) Whether the disallowance made towards unexplained purchases could be sustained in full on the basis of third-party confirmations and non-response from certain suppliers. (ii) Whether the assessee was entitled to the differential deduction on capital expenditure under section 35(2AB) despite having claimed only 100% in the return. (iii) Whether the profit on sale of subsidiary shares could be excluded while computing book profit under section 115JB where the transfer transaction had not fructified.

Issue (i): Whether the disallowance made towards unexplained purchases could be sustained in full on the basis of third-party confirmations and non-response from certain suppliers.

Analysis: The additions arose from mismatches between the assessee's purchase records and the confirmations received from suppliers, as well as from cases where notices were not responded to or could not be served. The reconciliation furnished by the assessee was not examined by the lower authorities, and the purchases relating to the discrepant confirmations were not found to be bogus or unsupported by any adverse finding on the books. However, in respect of suppliers on whom notices could not be served and no meaningful corroborative evidence was produced beyond banking payments, the onus remained undischarged.

Conclusion: The addition relating to un-reconciled balances and excess enhancement was deleted, the matter relating to non-responsive suppliers was sent back for verification, and the addition relating to suppliers on whom notices could not be served was sustained. The issue was partly decided in favour of the assessee.

Issue (ii): Whether the assessee was entitled to the differential deduction on capital expenditure under section 35(2AB) despite having claimed only 100% in the return.

Analysis: The claim was not a fresh claim but an inadvertent short claim of the eligible deduction supported by the DSIR certification and the assessee's entitlement to the enhanced deduction for capital expenditure incurred for scientific research. The rejection based solely on the absence of a revised return was not justified where the claim arose from a patent mistake and the eligibility was otherwise established, subject to verification of supporting documents.

Conclusion: The assessee was held entitled to the differential deduction, and the matter was restored to the Assessing Officer for verification and allowance. The issue was decided in favour of the assessee.

Issue (iii): Whether the profit on sale of subsidiary shares could be excluded while computing book profit under section 115JB where the transfer transaction had not fructified.

Analysis: The material on record, including the subsidiary financial statements and notes, indicated that the alleged share transfer did not actually take place and the profit credited in the accounts had not materialised. At the same time, the record before the lower authorities was incomplete on the accounting reversal, subsequent treatment, and related MAT consequences, making further factual examination necessary.

Conclusion: The issue was remitted to the Assessing Officer for fresh examination and consequential relief in accordance with law. The issue was decided in favour of the assessee by way of remand.

Final Conclusion: The appeal succeeded only in part, with partial deletion of additions, allowance of the section 35(2AB) claim subject to verification, and remand of the book-profit issue for fresh adjudication.

Ratio Decidendi: A purchase addition cannot rest merely on third-party mismatch or non-response without examining the assessee's reconciliation and surrounding evidence; an inadvertent short claim of an otherwise admissible deduction may be corrected on the basis of record evidence; and book profit under section 115JB requires examination of the actual fructification of the underlying transaction before taxing a notional gain.

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