Presumption-based undisclosed income addition fails where recorded purchases and supporting books disprove ownership of intercepted material.

An addition as undisclosed income cannot stand where the Department relies only on presumption that intercepted material belonged to the assessee, without cogent supporting evidence. The assessee's MMTC purchases were found duly recorded in the books and backed by cash book, ledger, stock records, excise documents, freight receipt and octroi payment; the audited books also supported the transactions. On these facts, the material intercepted at the sales-tax barrier was not proved to belong to the assessee, and the deletion of the addition was upheld.

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Issues: Whether the addition of Rs. 1,50,000 as undisclosed income on the footing that the intercepted material belonged to the assessee was justified.

Analysis: The assessee's purchases from MMTC were found to be duly recorded in the books of account, supported by cash book, ledger, stock records, excise-related documents, freight receipt and octroi payment. The books were audited, and the material intercepted at the sales-tax barrier was not shown by any supporting evidence to belong to the assessee. The Department failed to bring cogent material on record to support the addition, which rested only on presumption.

Conclusion: The deletion of the addition was upheld and the Department's challenge failed.

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