In applying the ‘extrapolation’ principle of Eusafali 90 ITR 271 (SC), the AO is entitled to make an estimation based on guesswork. However, the estimate must not be arbitrary and should be based on material
The ratio of the Hon’ble Supreme Court judgment in the case of Commissioner of Income Tax vs. HM Eusafali HM Abdulala (1973) 90 ITR 271 (SC) has been explained in the later judgment of this Court in Commissioner of Income Tax vs. Dr. M.K.E. Memon 248 ITR 310 (Bom.). There also a professional has been dealt with and the Supreme Court’s judgment in HM Eusafali HM Abdulala was followed. However, this Court cautioned as to how for a period of one year the estimation could not be made and it could be, therefore, arbitrary. An arbitrary method cannot be adopted. On facts, there is no arbitrariness. The Tribunal found that the additions have been made in the assessment years 2000 – 2001 and 2001 – 2002, the benefit of set off may be given. So far as assessment year 2000-2001 is concerned, the addition is sustained to the extent of Rs.20,00,000/- which was the payment made by the assessee to Shri Doke. So far the addition on account of suppressed profession receipts of Rs.14,30,225/- the Tribunal relied on the admissions and which can be gathered from the maintenance of a parallel record. The modus operandi was admitted. The addition as made by the AO were not confirmed in the absence of direct evidence. In the circumstances, when the Tribunal relied on the decision of the Supreme Court to not uphold the entire addition as made by the Assessing Officer, but sustained it to the extent of 10%, then no substantial question of law arises for determination and consideration. In the matter before this Court in Commissioner of Income Tax vs. Dr. M.K.E. Memon 248 ITR 310 (Bom.), the arbitrariness was writ large because there was a block assessment of ten years. The Supreme Court judgment must be read in the backdrop of the facts and that is clear. The finding of fact by this Court is that it is improbable that the rate of fees charged by a professional in 1983 would remain static for the entire block period of ten years. It is in these circumstances the proportionate amount of refund could not have been considered as static for ten years. With the other admitted facts and pertaining to the reduction of migration to Gulf countries on account of Gulf war that this Court found complete arbitrariness in the estimation by the assessee. At the same time, this Court held that it is open for the Assessing Officer to make an estimation and in that process there could be a certain guess work as well. That element cannot be discarded totally.