SURINDER KUMAR vs. CIT, PATIALA

This order shall dispose of ITA Nos. 389 and 390 of 2009 as according to the learned counsel for the parties, identical questions are involved therein. For brevity, the facts are being extracted from ITA No. 389 of 2009. 2. ITA No. 389 of 2009 was admitted by this Court vide order dated February 17, 2010 for determination of the following substantial questions of law:- “1. Whether on the facts and in the circumstances of the case, the Tribunal acted illegally and perversely in sustaining the addition made by the Assessing Officer on the basis of -2- mathematical and multiplication formula?

Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in sustaining the addition on account of unaccounted production contrary to the stand of the assessee which stand having been accepted by the department/revenue in the assessment years subsequent to the block period?”

Briefly stated, the facts necessary for adjudication as pleaded in the appeal are that a search was conducted at the premises of the assessee on 24.3.2000 in pursuance of which under Section 158BC of the Income Tax Act, 1961 (in short “the Act”) was issued on 24.4.2001 directing the assessee to file returns for the period from 01.04.1989 to 24.03.2000 relevant to the block period from 1990-91 to 2000-01. The assessee filed his return of income on 24.5.2001 declaring nil income. The assessment was completed at an income of Rs.2,61,149/- vide order dated 28.3.2002. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [hereinafter referred to as “the CIT(A)]” who vide order dated 15.11.2002 while partly allowing the appeal deleted the additions. Against the order of the CIT(A), the revenue approached the Income Tax Appellate Tribunal, Chandigarh Bench “A”, Chandigarh (in short “the Tribunal”) who vide order dated 25.4.2008 partly allowed the appeal. Hence, the present appeal by the assessee.

We have heard learned counsel for the parties.

The point that arises for consideration in these appeals is whether the Tribunal was right in sustaining the addition which had been made by the Assessing Officer by adopting mathematical and multiplication formula inasmuch as the material which was seized from the assessee relating to 112 days whereas the addition on account of unaccounted production has been made for the entire period during the block period.

In the case of the assessee, the Tribunal had applied mutatis mutandis the decision in the case of Mohan Lal (IT/SS No. 8/CHANDI/2003) being identical on facts. It would be advantageous to refer to the finding of the Tribunal recorded in para 38 of its order (Annexure P-3) which reads thus:- “The manner in which the addition has been determined by the Assessing Officer has already been noted by us elsewhere in this order and we do not repeat the same for the sake of brevity. The first issue made out by the assessee is that the period for which there is no seized material showing unrecorded sales, no addition should be made for such period. As noted earlier, the search has resulted in unearthing of certain loose papers which contained a record of sales. A portion of the sales admittedly was recorded in regular books of account. The Assessing Officer has estimated 50% of the sales recorded in the seized material as being unrecorded sales. Pertinently this aspect has not -4- been disputed by the assessee. The seized material was a set of loose papers running into 162 pages. However, the papers did not contain certain record of transactions of complete 365 days of the year. For instance, for the financial year 1996-97 the loose papers contained the detail of sales of 112 days. The Assessing Officer observed that the record was of different dates and, therefore, for the intervening period the assessee would have made the sales on a similar basis. Hence his action of extrapolating sales for the entire financial year on the basis of the sales found recorded in the seized material. The Assessing Officer has thus computed the sales for all the financial years comprised in the assessment years relevant to the block period in question. This is disputed by the assessee on the ground that the unrecorded sales be computed only with respect to the available seized material and not on a hypothetical basis. 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. In our view this logic is not applicable to the facts of the present case. In para 13 of our order we have referred to two elements which are to be satisfied before an income can be assessed as 'undisclosed -5- income' within Chapter XIV-B of the Act. Firstly income should be such which is undisclosed and secondly that such non-disclosure should spring from the search carried out u/s 132(1) of the Act. In the present case the factum of the assessee making sales outside the books of account stands established on the basis of the material found during the search. Therefore, the income so emerging is liable to be assessed under Chapter XIV-B of the Act. The only issue is that for certain period the material found does not record the sales made outside books of account. This would not defeat the addition because it is not open to logic that intermittently the assessee was not making sales outsides the books of account. Therefore the resort to the estimation of unrecorded sale for the intervening period is justified. It is noteworthy that the Assessing Officer has not made addition on this ground for the assessment years comprised in the block period for which there is no seized material at all. Therefore, the objection of the assessee on this count is misplaced.”

In such cases, some amount of estimate has to be made, however, it should not be unreasonable or arbitrary. The estimate has to have some rational connection with the addition being made. The finding noticed above shows that the Tribunal had adopted a rational basis for determining the unaccounted production for the block period.

Accordingly, the substantial questions of law are answered in favour of the revenue and against the assessee. The appeals stand dismissed. (AJAY KUMAR MITTAL) JUDGE April 6, 2011 (ADARSH KUMAR GOEL) gbs JUDGE -7- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 390 of 2009 Date of Decision: 6.4.2011 Mohan Lal ....Appellant. Versus Commissioner of Income Tax, Patiala ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. D.K. Goyal, Advocate for the appellant. Mr. Tajendar K. Joshi, Standing counsel for the respondent.