Recorded purchases and improved trading results defeat unverifiable purchase additions and unexplained source additions on the facts.

A trading addition cannot be sustained where purchases are recorded in the regular contemporary commercial record, no specific defect is found in that record, and the declared results show improved gross profit and higher turnover with no comparable instance produced by the revenue. On those facts, the addition for alleged unverifiable purchases was deleted. A separate addition for income from undisclosed sources was also deleted because the accepted quantity of goods and the sales already recorded meant that any further purchase-price adjustment would only create a notional inflation of profits and an offsetting unexplained investment, producing no real net addition.

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Issues: (i) Whether the addition of Rs. 1,760 as income from undisclosed sources was sustainable; (ii) whether the trading addition of Rs. 3,500 on account of alleged unverifiable purchases and rejection of accounts was justified.

Issue (i): Whether the addition of Rs. 1,760 as income from undisclosed sources was sustainable.

Analysis: The quantity of sarees was accepted on reconsideration at 66, and the assessee had already accounted for the sale price of 44 sarees. In these circumstances, making a separate addition for the purchase price of those sarees would merely result in a notional inflation of profits and an equivalent addition as unexplained investment, leaving no net addition warranted on the facts.

Conclusion: The addition of Rs. 1,760 was deleted.

Issue (ii): Whether the trading addition of Rs. 3,500 on account of alleged unverifiable purchases and rejection of accounts was justified.

Analysis: Purchases were entered in the regular contemporary chukoti record in accordance with the prevailing commercial practice in Gujri transactions. No defect was pointed out in the chukoti book, and the declared results showed improved gross profit and a much higher turnover than the earlier year. No comparable instance was shown by the revenue to justify an addition.

Conclusion: The trading addition of Rs. 3,500 was deleted.

Final Conclusion: The assessee succeeded on both additions, and the entire appeal was allowed.

Ratio Decidendi: Where the accounts are maintained in accordance with established commercial practice and the declared trading results are than the earlier year without any specific defect being found, a trading addition cannot be sustained; likewise, a separate addition for undisclosed sources is unwarranted where it produces no real net addition on the facts.

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