Facts of the Case

The assessee, engaged in the business of stone crushing, was subjected to scrutiny assessment wherein the Assessing Officer made additions to income by estimating the value of closing stock of stone dust/scrap. The additions were made on an ad-hoc basis on the ground that proper quantitative records or stock details were not maintained. The Commissioner of Income Tax (Appeals) confirmed the action of the Assessing Officer, leading the assessee to file an appeal before the Income Tax Appellate Tribunal.

Issues Involved

  1. Whether the Assessing Officer was justified in making ad-hoc additions to income on account of alleged undervaluation or non-recording of closing stock.
  2. Whether absence of detailed stock records alone permitted arbitrary estimation.
  3. Whether the addition was supported by tangible evidence or material.

Petitioner’s Arguments (Assessee)

  • The addition was purely ad-hoc and not based on any concrete material.
  • The nature of the stone crushing business made it difficult to maintain precise quantitative details of dust or scrap.
  • The valuation adopted by the Assessing Officer was arbitrary and excessive.
  • Proper explanation had been provided regarding stock handling and accounting practices.
  • Therefore, the addition deserved to be deleted.

Respondent’s Arguments (Revenue)

  • The Assessing Officer was justified in estimating income due to lack of proper records.
  • Failure to maintain quantitative details raised doubts regarding correctness of the accounts.
  • The addition represented a reasonable estimate to account for possible suppression of income.
  • The order of the Commissioner (Appeals) confirming the addition should be upheld.

Court Order / Findings

  • Additions to income must be based on evidence and reasonable estimation.
  • Mere absence of detailed quantitative records does not automatically justify arbitrary additions.
  • The assessee had provided plausible explanations regarding stock of dust/scrap.
  • No concrete material was produced by the department to substantiate the alleged understatement.
  • Accordingly, the ad-hoc addition made by the Assessing Officer was held unjustified and was deleted.

Important Clarification / Legal Principle

  • Ad-hoc additions without supporting evidence are unsustainable in law.
  • Estimation under Section 145 must be reasonable and based on relevant material.
  • Business realities, especially in industries where precise stock measurement is difficult, must be considered.
  • The burden lies on the Revenue to justify additions with cogent evidence.

Link to download the order –

https://itat.gov.in/public/files/upload/1624515894-ITA%20No.%20322%20Alld%202017%20Universal%20Stone%20crushing.pdf

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