Search-based reassessment, bogus purchases, and stock additions were largely rejected for lack of factual and statutory basis.

Bogus purchase additions were held unsustainable where purchases were recorded in books, supported by banking payments, invoices, transport and GST records, and the books were not rejected; the ad hoc rate applied from another case had no factual basis. Warranty expense disallowance was deleted because the provision was based on consistent past practice and business experience, with no change in facts. Post-search assessments for the specified years were treated as without jurisdiction because the search-linked reassessment route and mandatory approval requirement were not followed. Commission expenditure was allowed where payments, TDS and confirmations supported the claim. Stock-related additions were deleted or telescoped in part, while the cash addition survived.

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Issues: (i) whether the ad hoc addition made on alleged bogus purchases was sustainable, (ii) whether the disallowance of warranty expenses was justified, (iii) whether the assessments for the post-search years could validly be framed under section 143(3) without recourse to section 148 and approval under section 148B, (iv) whether the disallowance of commission expenditure was sustainable, and (v) whether the additions on account of alleged unexplained stock investment and cash were liable to be sustained.

Issue (i): whether the ad hoc addition made on alleged bogus purchases was sustainable.

Analysis: The purchases were found to be recorded in the books, paid through banking channels, and supported by confirmations, invoices, e-way bills, transport documents, inward registers, GST details and other corroborative material. The books were not rejected. The addition was made only on a presumptive rate derived from another entity's case and on the assumption that absence of separate freight charges rendered the purchases non-genuine. The factual foundation for borrowing that rate was not established against the assessee.

Conclusion: The addition on alleged bogus purchases was not sustainable and the assessee succeeded on this issue.

Issue (ii): whether the disallowance of warranty expenses was justified.

Analysis: Warranty was an integral part of the assessee's battery business and the expenditure was computed on the basis of past experience and consistently followed methodology. The assessee had treated the replacement cost net of recoverable value of defective batteries, and the same method had been accepted in earlier and subsequent years. No incriminating material was found to disturb that consistent treatment, and the revenue failed to show any change in facts.

Conclusion: The disallowance of warranty expenses was deleted and the assessee succeeded on this issue.

Issue (iii): whether the assessments for the post-search years could validly be framed under section 143(3) without recourse to section 148 and approval under section 148B.

Analysis: The assessments in the relevant years fell within the search-linked regime created by the amended reopening provisions. Once the search had triggered the deeming fiction of escapement, the proper statutory route was section 148, and the order could not be sustained under the general scrutiny provision. The record did not show compliance with the mandatory approval requirement under section 148B, and the approvals obtained were found to be mechanical and not in accordance with the special statutory scheme.

Conclusion: The assessments for the specified post-search years were held to be without jurisdiction and were quashed in favour of the assessee.

Issue (iv): whether the disallowance of commission expenditure was sustainable.

Analysis: The commission payments were made through banking channels, tax was deducted at source, notices issued to the payees elicited confirmations, and the same commission had been accepted in an earlier round of assessment on the same facts. In the absence of any distinguishing material, the subsequent disallowance was inconsistent with the record.

Conclusion: The disallowance of commission expenditure was deleted and the assessee succeeded on this issue.

Issue (v): whether the additions on account of alleged unexplained stock investment and cash were liable to be sustained.

Analysis: The excess in book stock over physical stock could not be treated as unexplained investment and was more appropriately viewed as a trading discrepancy or loss. For excess physical stock, the assessee had an internal source from undisclosed business receipts already found and added in the proceedings, permitting telescoping to that extent. However, cash found during search required an independent explanation and was not deleted on the basis of telescoping.

Conclusion: The stock-related additions were deleted or telescoped to the extent indicated, while the cash addition was sustained; the assessee obtained only partial relief on this issue.

Final Conclusion: The common effect of the decision is that the assessee succeeded on the principal jurisdictional and substantive issues in large part, the revenue's appeals failed, and only limited additions survived for the year in which cash was found.

Ratio Decidendi: Where a search-based case falls within the deeming framework of section 148, the Assessing Officer must proceed under the special reassessment route with prior approval under section 148B, and a regular assessment under section 143(3) cannot be sustained in breach of that statutory mandate.

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