After holding that the cash receipts and cash payments are unexplained, ad-hoc estimation of income can not be adopted – High Court
In a recent judgment, Hon’ble High Court has held that ITAT after holding that the cash receipts and cash payments are unexplained, can not, adopt an ad-hoc estimation of income without any basis.
ABCAUS Case Law Citation:
5249 (2026) (10) abacus.in HC
In the instant case, the Revenue had challenged the order passed by the ITAT in upholding the findings of the Assessing Officer (AO) and the CIT(A) to the extent that the unexplained cash payments, cash receipts, unsecured loans and commission were based on the corresponding electronic data seized from the assessee’s premises during the search, however directing that the relevant additions be assessed at a lump-sum at rate of 8% and assessed be given telescopic benefit to avoid double addition.
The Assessing Officer, on the basis of seized electronic/Tally data, had made additions towards unexplained cash payments, unexplained cash receipts, unexplained unsecured loans and commission. The CIT(A) confirmed these additions. The ITAT also accepted that the impugned transactions were based on the electronic data seized during the search and rejected the assessee‟s objections regarding the seized material, Section 65B, natural justice and limitation.
However, while dealing with the quantification, the ITAT held that the assessee appeared to be engaged in accommodation-entry business and directed that the relevant additions be assessed at a lump-sum rate of 8%, besides granting telescopic benefit to avoid double addition.
The Hon’ble High Court observed that the Tribunal had upheld the findings of the Assessing Officer and the CIT(A) that the additions relating to unexplained cash payments, unexplained cash receipts, unsecured loans and commission were based upon corresponding electronic data found and seized during the search conducted under Section 132, and that the assessee had failed to furnish any satisfactory explanation or material rebutting the same.
The Hon’ble High Court opined that after holding that the cash receipts and cash payments are unexplained the Tribunal could not, without any basis, adopt an ad-hoc estimation of income. The Tribunal’s conclusion that the assessee appeared to be carrying on an accommodation entry business and that no specified commission rate or comparable instances were available does not, by itself, furnish a legal basis for disregarding the unexplained amounts established from the seized material and limiting the taxable income to an estimated percentage thereof. There was no justification for adopting an ad-hoc estimation of 8% without there being any basis in law. I
The Hon’ble High Court held that in the absence of any law or provision in the Income Tax Act to support the restriction to 8%, the Order of the ITAT thereby restraining the Revenue to levy lump-sum at rate of 8% was completely perverse. The Tribunal had also not referred to any market practice which would have enabled the Tribunal to arrive at an ad-hoc estimation of 8%.
Accordingly, the Appeal of the Revenue was allowed to that extent.
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