Comparative Ratio Estimation cannot replace creditor identification or age wise verification, so unexplained payables addition was deleted.

Addition of Rs. 5,60,00,000 treated as unexplained trade payables was deleted because the assessing officer relied solely on a comparative ratio method without identifying specific creditors, conducting age wise verification, or producing independent evidence that recorded liabilities were fictitious; confirmations and particulars on record were not rebutted and abnormal COVID 19 business conditions explained payment delays, and the piece concludes that estimation by ratio alone cannot replace examination of individual entries or proof that liabilities have ceased to exist, so the addition was rejected.

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Issues: Whether the addition of Rs. 5,60,00,000 made by the Assessing Officer on account of alleged unexplained increase in trade payables - based on comparative ratio analysis without identifying specific creditors or undertaking age-wise verification - was sustainable.

Analysis: The addition was founded on a mathematical/comparative ratio method that assumed trade payables could not exceed a prescribed percentage of turnover and treated the excess as income. The approach did not identify any particular creditor as non-existent or fictitious, did not apply section 41(1) findings, and lacked age-wise analysis or other verification to establish that recorded liabilities were not genuine. Confirmations and particulars of recipients were on record and were not rebutted by independent material demonstrating falsity of the liabilities. The period under consideration coincided with abnormal business conditions due to the COVID-19 lockdown, which affected cash flows and payment timelines. Absent concrete evidence disproving the recorded liabilities, estimation by ratio alone cannot supplant examination of individual entries or replace the requirement to prove that liabilities have ceased to exist or are bogus.

Conclusion: The addition of Rs. 5,60,00,000 is not sustainable and is deleted; the Assessing Officer's action based solely on comparative ratio analysis without specific verification is rejected.

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