2011 (4) TMI 197 - HC - Income Tax

Addition - Block assessment - Unaccounted production - Search and seizure - Tribunal had applied mutatis mutandis the decision in the case of Mohan Lal (IT/SS No. 8/CHANDI/2003) - The logic advanced is that if it is not so done it would mean that income on purely estimated basis is assessed under Chapter XIV-B of the Act, which is impermissible as per law - The Assessing Officer has estimated 50% of the sales recorded in the seized material as being unrecorded sales. Pertinently this aspect has not been disputed by the assessee - Tribunal had adopted a rational basis for determining the unaccounted production for the block period - Decided against the assessee

Summary

Issues:
1. Whether the Tribunal acted illegally and perversely in sustaining the addition made by the Assessing Officer based on mathematical and multiplication formula?
2. Whether the Tribunal was legally correct in sustaining the addition on account of unaccounted production contrary to the stand of the assessee accepted by the department in subsequent assessment years?

Analysis:
1. The judgment dealt with ITA Nos. 389 and 390 of 2009 concerning the legality of additions made by the Assessing Officer. The Tribunal had sustained the addition based on a mathematical formula despite the seized material relating to only 112 days, whereas the addition was made for the entire block period. The Tribunal applied a similar decision in another case and justified the extrapolation of sales for the entire financial year based on the available seized material. The Tribunal's approach was deemed rational, and it was held that some estimation is permissible as long as it is not unreasonable or arbitrary. The Tribunal's decision was considered reasonable and not perverse.

2. The judgment further discussed the aspect of unaccounted production and the Tribunal's justification for sustaining the addition despite the absence of complete seized material for the entire period. The Tribunal's reasoning was found to be logical and in line with the requirements of assessing undisclosed income under Chapter XIV-B of the Income Tax Act. The Tribunal's decision was upheld, emphasizing the establishment of unrecorded sales outside the books of account based on the material found during the search. The Tribunal's view was considered plausible and not arbitrary, leading to the dismissal of the appeals in favor of the revenue and against the assessee.

In conclusion, the judgment provided a detailed analysis of the issues raised regarding the additions made by the Assessing Officer and the Tribunal's decision to sustain them. The legal correctness and rationality of the Tribunal's approach were upheld, emphasizing the permissible estimation in such cases as long as it is based on a rational connection with the addition being made.