2015 (6) TMI 1039 - HC - Income Tax

Estimation of unaccounted turnover - determination of undisclosed income of the Assessee - Held that - In case of estimation there is an element of guess work involved and as long as the same is made following the settled principles the determination of undisclosed income of the assessee on a reasonable basis is purely a question of fact. Direction to AO to estimate the unaccounted turnover at 35% of the accounted turnover for the assessment years 1996-97 to 2001-02 and at 54.62% for the broken terminal period forming part of the block period falling under assessment year 2002-03 and then estimate undisclosed income in relation to such unaccounted turnover adopting net profit rate of 3.91% for all the assessment years and terminal broken period falling in the block period. In the present case in the absence of any material to take a contra view the question of fact as determined by the Tribunal is required to be accepted. Hence we see no reason to interfere with the orders of the Tribunal with regard to the determination of undisclosed income.

Summary

Issues:
1. Determination of undisclosed income based on estimation principles.
2. Discrepancy in estimation of unaccounted turnover.
3. Applicability of gross profit rate in determining undisclosed income.
4. Challenge to Tribunal's order on the determination of undisclosed income.

Analysis:
1. The case involved search operations leading to assessment orders for the block period 1996-97 to 2001-02 and 01.04.2001 to 13.02.2002. Both the Revenue and Assessee appealed before the Tribunal, which disposed of the appeals together due to common issues.

2. The Tribunal determined undisclosed income based on an estimate following principles from relevant case laws. The Tribunal decided to estimate unaccounted turnover at 35% of accounted turnover for assessment years 1996-97 to 2001-02, and at 54.62% for the broken terminal period under assessment year 2002-03. The Tribunal emphasized the importance of net profit rate over gross profit rate in determining undisclosed income related to unaccounted turnover.

3. The Tribunal's decision was based on various factors, including the nature of seized material, gross loss in a specific year, and installed capacity limitations. The Tribunal concluded that using a net profit rate of 3.91% for all years forming part of the block period would be just. The Tribunal directed the assessing officer to estimate unaccounted turnover and undisclosed income accordingly.

4. The High Court upheld the Tribunal's decision, stating that estimation of undisclosed income involves some guesswork but must adhere to established principles. As long as the determination is based on reasonable grounds and supported by facts, it is considered a question of fact. In this case, as there was no evidence to suggest an incorrect estimation, the Court found no reason to interfere with the Tribunal's orders regarding undisclosed income determination.

5. Consequently, the appeal was dismissed, and no costs were awarded. Any pending miscellaneous petitions related to the appeal were also closed.