Rejection of books of account failed where adverse inference rested on conjecture, undisclosed comparables, and irrelevant purchase records.

Books of account cannot be rejected on conjecture, undisclosed comparables, or an erroneous assumption that an internal requisition slip is the primary record of purchases. Where the assessee produces statutory and audited records, the relevant cane purchase evidence remains the weighment and excise registers, and adverse inference on sugar recovery must rest on disclosed material with evidentiary basis. On these principles, the rejection of the books under section 13 of the Indian Income-tax Act, 1922, was not justified, and the addition of the disputed amount was not sustainable.

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Issues: Whether the books of account were rightly rejected under section 13 of the Indian Income-tax Act, 1922, and whether the addition of Rs. 2,25,000 was rightly sustained.

Analysis: The material relied on to support diversion of sugarcane for jaggery manufacture had no evidentiary basis and was founded on conjecture. Reliance on unnamed comparable sugar mills without disclosure to the assessee offended natural justice and could not sustain an adverse inference on sugar recovery. The requisition slips called purjas were not shown to be the primary or decisive record of actual purchases, whereas the weighment and excise records were the relevant records for verifying cane purchases. The assessee had produced extensive statutory and audited records, and the rejection of those books and registers rested on an erroneous view that non-production of purjas was decisive.

Conclusion: The books of account were not rightly rejected under section 13 of the Indian Income-tax Act, 1922, and the addition of Rs. 2,25,000 was not rightly sustained. The answer was in the negative and in favour of the assessee.

Ratio Decidendi: A finding of suppression or inflated purchases cannot be sustained when it rests on no evidence, undisclosed comparables, or conjectural inferences, and statutory account books cannot be rejected by treating an irrelevant document as primary evidence.

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