Trading account stock verification supports additions and penalty where deficient records and unexplained discrepancies establish wilful turnover suppression.

Trading account-based stock verification may support a best judgment assessment where other verification methods are impracticable, as comparison of purchases, sales, book stock and physical stock can reveal suppression. Equal addition for probable omission requires supporting material rather than guesswork; failure to maintain purchase accounts and the prescribed Form-H register, substantial unexplained stock variation, and the absence of a suppression pattern did not preclude an inference of deliberate suppression. Penalty requires recorded satisfaction of wilful non-disclosure, which may be established by deficient records, significant stock discrepancies, and lack of explanation. The notes state that these circumstances supported restoration of equal addition and penalty.

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Issues: (i) Whether stock-in-difference determined through the trading account method was legally sustainable; (ii) Whether equal addition for probable omission was sustainable in the absence of a pattern of suppression in earlier or subsequent periods; (iii) Whether penalty for estimated stock difference was sustainable.

Issue (i): Whether stock-in-difference determined through the trading account method was legally sustainable.

Analysis: The trading account method is a recognised mode of stock verification and may be adopted where other methods are not feasible. Although the method may not yield exact results, comparison of purchases, sales, book stock and physical stock can disclose stock suppression. The dealer had accepted the stock defect, did not satisfactorily explain the substantial variation, and had not challenged the tax levy on the suppressed turnover before the High Court.

Conclusion: The stock-in-difference determined through the trading account method was legally sustainable, against the assessee.

Issue (ii): Whether equal addition for probable omission was sustainable in the absence of a pattern of suppression in earlier or subsequent periods.

Analysis: Equal addition cannot rest on guesswork alone and requires supporting material and reasons. Here, the failure to maintain purchase accounts and the prescribed Form-H stock register, coupled with a physical stock value nearly five times the book-stock value and absence of a satisfactory explanation, provided material establishing deliberate suppression. The Tribunal was justified in reversing the first appellate authority's deletion of the equal addition.

Conclusion: The equal addition for probable omission was sustainable, against the assessee.

Issue (iii): Whether penalty for estimated stock difference was sustainable.

Analysis: Penalty requires recorded satisfaction that escaped turnover resulted from wilful non-disclosure. The omissions in maintaining purchase records and Form-H, the significant stock variation, and the lack of any supporting explanation established wilful suppression. The assessment order contained adequate reasons to impose penalty.

Conclusion: Penalty for wilful suppression of turnover was sustainable, against the assessee.

Final Conclusion: The restoration of the equal addition and penalty was sustained because the material established deliberate suppression beyond a mere notional or unsupported estimate.

Ratio Decidendi: A trading account method may support best judgment assessment where other verification methods are impracticable, and equal addition and penalty are sustainable when material establishes wilful suppression rather than mere estimated variation.

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