Extrapolation Not Permitted in Income Tax Search Assessment Proceedings: ITAT rules Order Unsubstantiated, allows Appeal [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Chandigarh Bench, has recently held an order which had extrapolated reasonings unsubstantiated. The tribunal is of the opinion that extrapolation is not permitted in income tax search assessment proceedings.

The assessee, a proprietor of HB Foods, filed return of income for INR 23.88 lakhs which was subjected to scrutiny proceedings under Section 143(2). The Assessing Officer (AO) relied on analogies to compute unaccounted sales to be 44.5%, a percentage of the total reported sales. AO also computed understated profit of INR 60.42 lakhs despite no findings of an incriminating document. AO then added INR 60.42 lakhs as business income under Section 28 and finalized the assessment.

The counsel for the appellant relied on several decisions such as V.M. Spinning Mills v. CIT and Saksham Commodities. They presented the argument that while incriminating material was found for the assessment year (AY) 2023-24, for AY 2022-23 no incriminating document could indicate unrecorded sales.

The tribunal noted that an assumption had been made that a similar process had been followed in the earlier year but the AO could not provide any evidence to support this theory of extrapolation.

Therefore, considering such contentions, the two-member bench of ITAT allowed the appeal filed by Anup Kumar Aggarwal. The bench included Rajpal Yadav (Vice-President) and Manoj Kumar Aggwarwal (Accountant Member).

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