S. Ananda Reddy, J

1. This appeal is by the assessee-firm directed against the order of the Income-tax Appellate Tribunal in IT (SS) A.No.282/Hyd/97 dated 22-1-2001 relating to the block assessment for the assessment years 1986-87 to 1997-98.

2. The brief facts of the case are as under:

The assessee firm is one of the leading cycle spare parts dealers in Hyderabad, Secunderabad and in Telangana Region of Andhra Pradesh. A search was conducted on 13-11-1996 in the business premises of the group concerns and also the residential premises of the partners of the assessee and residential premises of certain employees of the assessee. The search had resulted in the seizure of certain incriminating material leading to the case of suppression of sales practiced by the assessee-firm in the form of loose slips, which were not brought to the accounts of the assessee-firm. The search has also resulted in the seizure of unaccounted cash as well as unaccounted transactions in respect of various investments. During the course of investigation the assessee-firm also admitted an undisclosed income of Rs.7.38 lakhs. As the search was conducted after 30-6-1995, proceedings were initiated under Chapter XIV-B for framing of the assessment for the block period from 1-4-1985 to 13-11-1996 till the date of search. Accordingly, the assessee was asked to file a return for the block period as a result of the search conducted by the Department and the assessee firm filed its return declaring an undisclosed income of only Rs.7 lakhs. The Assessing Officer thereafter conducted the enquiry in the matter and framed the assessment determining the undisclosed income at Rs.63,08,120. The said amount was arrived at by the Assessing Officer basing on the loose slips recovered from the assessee during the course of search, representing the unaccounted sales and by estimating such suppressions for the assessment years 1996-97 and 1997-98 till the date of the search. The Assessing Officer also found that certain evidence was recovered representing the unaccounted investments to a tune of Rs.20,12,204. In view of the largeness of the estimated undisclosed income, no separate addition was made on account of the unexplained investments. The assessee aggrieved by the said addition carried the matter in appeal to the Income Tax Appellate Tribunal (for short 'the Tribunal'). Before the Tribunal various contentions were advanced on behalf of the assessee. The Tribunal after considering the rival contentions though did not find any defects in the assessment based on material seized from the assessee-firm but, however, while making the estimate felt that the method adopted by the Assessing Officer is not proper and just in estimating a uniform rate of suppressed sales from day to day for the entire period of 1996-97 and 1997-98 assessment year. According to the Tribunal, there may be fluctuations in the business thereby variation in the quantum of suppressed sales and therefore the Tribunal instead of estimating at an average rate of Rs. 1,43,175 per day for the whole period of 279 days in the year, as was adopted by the Assessing Officer restricted the addition to the actual suppression found, only six times to the turnover for the assessment year 1996-97. Similarly for the assessment year 1997-98, the Tribunal made an addition of only three times as the period of business was only less than six months by the date of the search. The Tribunal also reduced the rate of gross profit from 7.35% adopted by the Assessing Officer to 6% and accordingly determined the undisclosed income for the assessment years 1996-97 and 1997-98 (till the date of search) at Rs.21,40,349. Insofar as the estimated suppression for the assessment years upto 1995-96, the Tribunal agreed with the estimated addition made by the Assessing Officer to the extent of Rs.8,38,579 which was estimated at 20% of the admitted turnover and worked out at the same rate of profit as was declared by the assessee. The Tribunal also having found that this estimated undisclosed income was more than the undisclosed investments found to have been made by the assessee and its partners, no separate additions were made.

Therefore, the Tribunal determined the undisclosed income of the assessee for the block period at Rs.29,78,920 the break up of which was given by the Tribunal in paragraph 14 of its order. Aggrieved by the said order of the Tribunal, the assessee is before this Court.

3. In the appeal the following substantial questions of law, are said to arise out of the order of the Tribunal for consideration of this Court: -

1. Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in law in ignoring the seized material entirely and in determining the alleged income of the Appellate for the block period on the basis of conjunctures and hypothesis?

2. Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in upholding in part an assessment, which is based on assumption, and without any factual support?

3. Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in law in sustaining an addition of Rs.8,39,579 representing the alleged income of the Appellant, during the financial years 1987-88 to 1995-96, without an iota of evidence having been gathered at the time of search with respect to the said period?

4. Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal had material to determine the alleged undisclosed income of the appellant at Rs.29,78,920 for the block period 1987-88 to 1997-98?

4. The learned Counsel for the assessee contended that the Assessing Officer as welt as the Tribunal have no material before them for estimating the undisclosed income for the block period in question. According to the learned Counsel even if estimation is warranted such estimation must be based on some material and not on mere surmises and conjunctures. Therefore, according to the learned Counsel the additions made towards the undisclosed income is based only on conjunctures and hypothesis and therefore such addition is unsustainable. The learned Counsel also contended that there is absolutely no reason for the Tribunal in adopting an estimated addition of six times for the assessment year 1996-97 and at three times for the assessment year 1997-98. According to the learned Counsel, this itself shows the arbitrary method adopted by the Tribunal in estimating the undisclosed income. Hence the determination of undisclosed income at such an arbitrary method is liable to be set aside. The learned Counsel also contended that for the assessment years 1987-88 to 1995-96 there is absolutely no material either before the Assessing Officer or the Tribunal for estimating the suppression at 20% of the declared turnover. Hence, the addition made even for those years is illegal and unsustainable.

5. We have heard the learned Counsel and considered the material on record.

6. This appeal relates to the block assessment for the period 1987-88 to 1997-98. A search was conducted on 13-11-1996 leading to the recovery of some incriminating material showing the suppression of sales by the assessee-firm as well as unexplained investments in various firms, which are specified by the Assessing Officer in the assessment order. Specific material was recovered in the form of loose slips regarding the suppressed sales for a period of 24 days from 28-12-1995 to 27-01-1996. The said period relates to the financial year 1995-96, relevant for the assessment year 1996-97 and the loose slips recovered shows that the suppressed sales were to a tune of Rs.34,36,213. Similarly the loose slips recovered shows the suppressed sales of Rs.29,04,751 for the financial year 1996-97 relevant to the assessment year 1997-98 (till the date of search). This suppression was for a period of 15 days from 23-10-1996 to 8-11-1996. Apart from the said material recovered at the time of search, sworn statements of the partners were recorded by the Department, wherein one of the partners has admitted in his statement before the officers that the assessee-firm was practising suppression of sales from day-to-day basis throughout the assessment years not only during the assessment year 1996-97 and 1997-98 but also during the earlier assessment years from 1986-87 to 1995-96. Basing on the seized material and the admissions of the partner in the sworn statement, the Assessing Officer worked out the average daily suppression at Rs.1,43,175 during the assessment year 1996-97 and by multiplying for the entire year by 279 days (number of working days), the Assessing Officer estimated the suppressed turnover at Rs.3,99,45,825 and thereafter adopted a gross profit at the rate of 7.35% and determined the undisclosed income for that year at Rs.29,36,018. Similarly, for the assessment year 1997-98, the Assessing Officer worked out the average daily suppression at Rs. 1,96,615 and multiplied the same by 178 (number of working days till the date of search) and thus worked out the suppressed turnover at Rs.3,44,69,700 and by applying the same gross profit rate of 7.35% determined the undisclosed income at Rs.25,33,522 and further as far as the earlier years are concerned the Assessing Officer estimated the suppressed turnover at 20% of the sales turnover declared by the assessee and by adopting the returned rate of gross profit, determined the undisclosed income for the assessment years 1986-87 to 1995-96 at Rs.8,38,579 and thus determined the undisclosed incomeatRs.63,08,120. Though the Assessing Officer found based on the seized material that the assessee-firm had made investment to a tune of Rs.20,12,204 as the estimated undisclosed income was higher than the investment, the addition was confined to the undisclosed income of Rs.63,08,120. The Tribunal, however, found that the adoption by the Assessing Officer at the same rate of suppression for the entire full year for 1996-97 and at the same rate for the assessment year 1997-98 till the date of search was not reasonable. According to the Tribunal there may be fluctuations in the business and there may be seasonal changes also and therefore the Tribunal felt that instead of adopting the same rate, as was found based on the seized material, adopted a lower rate and that the said rate was addition of six times the suppressed sales that were found, based on the seized material for the assessment year 1996-97 and at three times for 1997-98 and even with reference to the gross profit also the Tribunal felt that 6% is reasonable instead of 7.35% adopted by the Assessing Officer and therefore determined the undisclosed income at Rs.29,78,920 including the estimated income for the assessment years 1986-87 to 1995-96 where the Tribunal did not affect any change.

7. The learned Counsel for the assessee contended that there is absolutely no material either for the Assessing Officer or for the Tribunal to resort to such estimation and therefore the estimations are purely based on conjunctures and hypothesis and therefore unsustainable. We are unable to accept the said contention of the learned Counsel. The learned Counsel was not able to dispute the findings of the Assessing Officer as well as the Tribunal, where seized material shows that there was suppression for a period of 24 days during the assessment year 1996-97 and 15 days for 1997-98 and also that the suppressions were day-to-day basis and the evidence recorded from the partners shows that the same method was adopted throughout the assessment years for the entire block period. In the light of such evidence recovered from the assessee at the time of search, together with the admission of the partner, there is absolutely no justification for the assessee to contend that there is no evidence on record. The learned Counsel also, at the time of hearing, contended that for the assessment year 1996-97, the Tribunal adopted six times addition; whereas for 1997-98 only three times, which goes to show that such adoption is without any basis. Here also we are unable to appreciate the contention of the learned Counsel. The said contention is without reference to the basic facts referred to by the Tribunal in its order. For the assessment year 1996-97, the assessee carried on the business for the entire year (279 working days), whereas for the assessment year 1997-98 the assessee carried the business till the date of search and the estimation is confined only for that period (178 days). Therefore, where the assessee had carried on the business for the entire period of full year, the addition was made at six times the suppression found during that year and for the assessment year 1997-98 the addition was restricted to only three times, as the assessee had carried on the business only for half of the period with reference to the earlier year, where six times addition was made. Therefore, there is every reason for the Tribunal to restrict the addition only three times for the assessment year 1997-98. The findings of the Tribunal with reference to these issues are as under:

"We heard both sides in detail. We have gone through the records of the case and detailed paper-books and written submissions filed by the assessee as well as the Revenue. It is clear from the materials in the form of loose-sheets seized at the time of search, relating to the previous years 1995-96 and 1996-97 that the assessee-firm has practiced suppression of sales. For the financial year 1995-96, the turnover suppressed as per the seized slips worked out to Rs.34,36,213 and for, the financial year 1996-97 the turnover suppressed stood at Rs.29,04,751. When these clear cases of suppression have been found out in the course of search and seizure operations, it has to be reasonably presumed that for both the years, the assessee-firm has done suppression of sales. The sale suppression found for both the years was on a daily basis. Over and above these documentary evidences, the partner of the assessee-firm has also confirmed in his statements before the authorities that the assessee-firm has been regularly practicing suppression of its sales turnover. In view of these facts and circumstances, there is clear pattern of sales suppression visible in this case. Therefore, the ratio laid down by the Hon'ble Supreme Court in H.M. Eusafali's case (90 ITR 241) clearly applies to the case on hand. Therefore, the Assessing Officer is justified in computing the undisclosed income for the financial years 1995-96 and 1996-97 on estimate basis. We have to confirm that part.

Now turning to the estimation of the quantum of undisclosed income computed by the Assessing Officer, we have a view different from the Assessing Officer. Any estimate for that purpose will have an element of guess work. That is not altogether avoidable. But even that guess work should be reasonable and it should have nexus to the materials on hand. In the present case before us, the Assessing Officer has estimated the sales suppression for all the working days of the relevant years of the daily rate of sales suppression. We are of the view that this is an extreme case of estimation, following a mechanical approach. Business graph cannot be straight through out a period, and one cannot presume that the assessee-firm invariably followed suppression on every day at a given rate in the entire business year. The Assessing Officer's estimation is a rigid one without giving scope for fluctuations. So, we are of the view that the estimation done by the Assessing Officer has to be modified. At the same time, we are not in agreement with the learned Counsel for the assessee that the decision of the Tribunal on the point of estimation in the case of Shri Padamchand Jain (supra) applies to the facts of the present case. In that case, the Tribunal has estimated the probable sales suppression at 50% for financial year 1995-96 and at 25% for financial year 1996-97 of the actual sales suppression found out in the course of search, and the profit rate was adopted at 4% of the turnover. There are certain vital differences between the facts and circumstances of the present case and those considered by the Tribunal in the said case. In the case of Sri Padamchand Jain, the Tribunal has found out that the seized material did not show unaccounted sales on day-to-day basis, whereas in the present case, the seized slips show unaccounted sales on a daily basis. In the case of Shri Padamchand Jain there was no. admission on the part of the assessee, on any additional amount of suppression, whereas in the present case, there is admission by the partner of the firm that the assessee has been consistently practicing sales suppression in its business. In the present case before us, there is material on record to indicate various unaccounted transactions in the form of unexplained cash, chit contributions, etc., which according to the assessment order, work out to Rs.20,12,204 and even according to the learned Counsel for the assessee work out to Rs.12,85,976. The working of the learned Departmental Representative show that the total of such unaccounted transactions is over Rs.23.25 lakhs. If the undisclosed income is computed on the basis of estimate of suppression adopted in the case of Shri Padamchand Jain (supra) by this Tribunal, then such computed undisclosed income will not be sufficient to cover even a part of the various independent items of unaccounted transactions, which work out to atleast Rs.12,85,976 even according to the learned Counsel for the assessee. Therefore, adoption of such a rate considered in the case of Shri Padamchand Jain (supra) in the instant case will give rise to per verse results. Therefore, we are not inclined to apply the parameters adopted in the case of Padamchand Jain (supra) in the present case. This case therefore, has to be considered on its own merits.

Once we find that the estimation of unaccounted sales turnover, made by the assessing officer is exorbitant, we have to first arrive at a reasonable basis. For the reasons already stated, we do not approve estimation of suppressed turnover on a daily average. We find that it would be reasonable, if we estimate the unaccounted sales on the basis of the actual suppression found out during the course of seizure and increase it by a suitable multiplier. Suppression found out in this case is on a day-to-day basis and continuous nature. The partner of the assessee-firm also admitted that there was continuous pattern of suppression followed by the assessee, and corresponding independent unaccounted transactions have also been found exposed in the course of search. Considering all these matters, we proceed to make a reasonable estimate of the sales suppression and undisclosed income in relation thereto, for the financial years 1995-96 and 1996-97 as follows:-

Financial year 1995-96:

Actual suppression of turnover detected in the course of search worked out to Rs.34,36,213. For arriving at the estimated suppression for the full financial year, excluding the actual suppression noticed, in our view, a multiple of 6 would be reasonable. On the suppressed turnover thus arrived at, net profit, viz., undisclosed income, should be worked out applying a rate of 6%. Undisclosed income for this year would thus be worked out in the following manner-

Actual suppression detected Rs.34,36,213 Add: Suppression for the remaining Period (6x34,36,213) Rs.2,06,17,278 Total Suppressed Turnover Rs.2,40,53,491 Undisclosed income estimated at 6 % of total suppressed turnover Rs. 14,43,209 Financial year 1996-97:

For this year, undisclosed income has to be determined only till the date of search, viz., 13-11-1996. Considering the fact that the suppressed turnover has to be estimated only for a period of over seven months of the year, we feel that adoption of a multiple of three, for arriving at the suppression for the remaining period, on the basis of actual suppression of Rs.29,04,751 detected for this year, would be reasonable. On the suppressed turnover actually detected, and the suppression thus estimated for the remaining period, net profit viz., undisclosed income, has to be reasonably estimated for this year also at 6%. On the basis of these guidelines, undisclosed income in relation to the suppressed turnover for this year would be as follows:-

Actual suppression detected Rs.29,04,751 Add: Estimated suppression fat the Remaining period of the fractional financial year 1996-97 till the date of Search 13-11-1996 viz, over seven months, Applying a multiple of three (29,04,751 x 3) Rs. 87,14,253 Total suppression for final year 1996-97 till the date of search Rs.1,16,19,004 Net profit, viz., undisclosed income in Relation to total suppressed turnover of Rs.1,18,19,004 (Estimated at 6%) Rs.697,140 Thus, total undisclosed income or net profit in relation to the actual and estimated suppressed turnovers for the financial years 1995-96 and 1996-97 (till the date of search) would be Rs.21,40,349 (Rs.14,43,209+Rs.6,97,140). We direct the Assessing Officer to adopt this amount as undisclosed income for both these years".

8. From the above it is clear that the estimations of the undisclosed income made by the Tribunal are based on relevant material and there is absolutely no unreasonableness or arbitrariness while making such estimation.

9. With reference to the addition made for the assessment years 1986-87 to 1995-96, no doubt there is no material but it is admitted by the partner of the assessee firm that the assessee had practiced suppression of sales turnover. Taking the quantum of business that was carried on by the assessee-firm, the Assessing Officer estimated the suppression at 20% and adopted the gross-profit rate that was returned by the assessee. The Tribunal felt that there is no unreasonableness in adopting such estimation. In our view also there is absolutely no unreasonableness or arbitrariness in adopting such estimation. The evidence of the partner clearly shows that the firm has suppressed the turnover even in those years also. Therefore, the authorities below are justified. In the light of the above, there is no case for the assessee to contend that the estimation is not based on any material.

10. According to the various decisions including the decision of the Supreme Court, there must be some material before the Income Tax Officer on which to base his estimate, but no hard and fast rule can be laid down by the Court to define what sort of material is required on which his estimate can be founded. It was pointed by the House of Lords in Sun Insurance Office v. Clark, (1912) AC 443, where it becomes necessary to have recourse to some form of estimate by the Income Tax Department that method should be adopted which approximates most near to the truth. It was also emphasized the fact that the rule of thumb may be very desirable but could not be substituted for the only rule of law that he knew of, namely, that the true gains were to be ascertained as nearly as it could be done. The Supreme Court also held in the case of CIT v. K.Y. Pilliah & Sons, , that

"in this view of the matter, the power to estimate the turnover, etc., where the accounts are unreliable, must be exercised not arbitrarily but judicially in the light of relevant materials"

11. In the light of the above dicta of the Supreme Court if we look into the facts of the case it is clear that there is abundant material on record not only in the form of loose slips/sheets showing the suppressed turnover relating to the day-today suppressions but also by way of admission in the sworn statement of a partner of the firm, showing that the day-to-day suppressions were carried on throughout the assessment years for the entire block period. Therefore, there is absolutely no merit in the contention of the assessee that the estimations made by the Assessing Officer as well as by the Tribunal are not based on any material but merely based on conjunctures and hypotheses. The Tribunal has rightly found that the estimation of the suppressed turnover as well as undisclosed income by the Assessing Officer was on the higher side and the Tribunal on consideration of the material on record re-determined the suppressed turnover as well as the undisclosed income, which according to us is reasonable and proper which is based on the material on record. In that view of the matter, no question of law, muchless a substantial question of law, arise out of the order of the Tribunal for our consideration.