Genuineness of agricultural purchases upheld where evidence supported cash purchases and no suppressed sales were shown.

Addition to declared trading income on the ground that agricultural purchases were bogus was not justified where the purchases were supported by village-official evidence identifying the agriculturists and their holdings, the Department relied mainly on a conflicting sarpanch statement and cash payment alone, and there was no evidence of suppressed or off-book sales. The comparable gross profit rate also supported the genuineness of the trading results. Cash purchase of agricultural produce was not barred by section 40A(3) of the Income-tax Act, 1961, so the addition could not rest on conjecture and was deleted.

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Issues: Whether the addition made to the declared trading income on the ground that purchases from agriculturists were not genuine and the books were unreliable was justified.

Analysis: The purchases were supported by evidence from village officials identifying the agriculturists and their agricultural holdings, while the Department relied mainly on a conflicting statement of the sarpanch and on the fact that payments were made in cash. There was no evidence that sales were suppressed or made outside the books, and the gross profit rate for the year compared favourably with the preceding year. In these circumstances, the addition could not rest on conjecture, particularly when cash purchase of agricultural produce was not excluded by section 40A(3) of the Income-tax Act, 1961.

Conclusion: The addition to the trading result was not warranted and was deleted.

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