Books rejection and accommodation entry allegation failed where milk trade transactions were supported by business records and surrounding evidence.

ITAT Agra held that books could not be partially rejected or income estimated merely by treating transactions with Hardiyal Milk Products Pvt. Ltd. as accommodation entries, because no cogent defects in the accounts were shown and the milk-processing business model, together with evidence of the counterparty's plant, supported genuineness; the related addition was deleted. It also held that tanker running expenses, being incidental to the milk business, could not be fully disallowed where the record called for a fair overall profit estimation rather than a separate expense disallowance; no separate addition survived on this account. The returned income was directed to be accepted.

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Issues: (i) Whether the books of account could be rejected and the business income estimated by treating the transactions with Hardiyal Milk Products Pvt. Ltd. as accommodation entries; (ii) Whether the disallowance of tanker running expenses was justified.

Issue (i): Whether the books of account could be rejected and the business income estimated by treating the transactions with Hardiyal Milk Products Pvt. Ltd. as accommodation entries.

Analysis: The partial rejection of book results was not supported by cogent defects in the accounts. The ledger pattern showed purchases and sales arising from the assessee's milk processing business model, where milk was procured, pasteurised and sold back in the ordinary course of trade. The existence and operation of the counterparty's milk chilling plant was also supported by the departmental inspection report. In these facts, the impugned transactions could not be characterised as mere accommodation entries, and the basis for treating the ledger flow as non-genuine failed.

Conclusion: The rejection of books on this ground and the consequent estimation confined to the transactions with Hardiyal Milk Products Pvt. Ltd. were not sustainable, and the issue was decided in favour of the assessee.

Issue (ii): Whether the disallowance of tanker running expenses was justified.

Analysis: The tanker activity was found to be incidental and inextricably linked to the assessee's milk business. Although complete supporting details for the expenses were not fully furnished, the record as a whole called for a fair and reasonable estimation of overall profit rather than a separate disallowance of the entire expenditure. On the comparative results of earlier years, the business profit was worked out at a rate that was lower than the income already declared by the assessee.

Conclusion: The full disallowance of tanker running expenses was not justified, and no separate addition survived on this account, in favour of the assessee.

Final Conclusion: The additions made by the assessing authority did not survive on the facts found, and the returned income was directed to be accepted.

Ratio Decidendi: A partial rejection of books and a transaction-specific profit estimate cannot be sustained without cogent defects in the accounts, and where the business model and surrounding evidence support genuineness, the profit must be determined on a fair overall basis rather than by treating isolated ledger flows as accommodation entries.

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