Unexplained transactions supported by seized evidence cannot be reduced to an unsupported 8% estimate.

Following a search under Section 132 of the Income-tax Act, 1961, the Revenue seized documents and electronic Tally data from the Purushottam Lal Soni Group’s premises.

The Assessing Officer relied on that material to add amounts for unexplained cash payments, cash receipts, unsecured loans and commission, and assessed the respondent’s income at approximately Rs.206.95 crore.

The CIT(A) confirmed the additions.

The ITAT accepted that the additions were based on seized electronic data but directed that the relevant amounts be assessed at a lump-sum rate of 8%, with telescopic benefit to avoid double addition.

The Revenue appealed under Section 260A, challenging the 8% estimate and the grant of telescopic benefit.

Whether the ITAT was justified in restricting the additions for unexplained cash payments, receipts and credits to a lump-sum rate of 8%, despite upholding that they were based on specific seized material.

Whether the ITAT could treat the amounts as turnover from an accommodation-entry business and tax only an estimated commission component, notwithstanding the provisions governing unexplained income and credits.

Whether the ITAT’s 8% estimate was justified in the absence of supporting evidence, comparable instances or other material on record.

Section 260A of the Income-tax Act provides for appeals to the High Court on substantial questions of law; Section 132 concerns search and seizure; and Section 68 governs unexplained credits.

The Court’s reasoning was that an ad hoc estimate limiting additions established from seized material requires a legal or evidentiary basis. The judgment cited no precedent or statutory provision authorising the 8% restriction.

The ITAT had accepted that the unexplained transactions were supported by electronic data seized during the search and that the assessee had not satisfactorily rebutted that material.

Its conclusion that the assessee appeared to conduct an accommodation-entry business, and that no specific commission rate or comparable instances were available, did not justify substituting an 8% estimate for the unexplained amounts. Because the Tribunal identified no legal, evidentiary or market-practice basis for that rate, the High Court held the restriction to be perverse.

It clarified that the assessee’s separate appeals would be heard independently: if those appeals are allowed, the ITAT’s order is to be remanded in its entirety; if dismissed, the computation is to be made by the authorities in accordance with law.

Pending applications were disposed of.