Unexplained stock and clandestine sales additions fail when the excise demand forming their sole basis is set aside.

Additions for undisclosed stock investment and profit on alleged clandestine sales cannot be sustained when they rest entirely on excise findings that no longer survive. The income-tax assessments were based on the excise department's allegation of clandestine manufacture and clearance of finished goods, but the excise demand underpinning that basis was set aside by CESTAT. Once that foundation was removed, the Assessing Officer's estimations lost support and could not stand. The same reasoning applied to the second assessment year, which involved identical facts. The additions were therefore deleted on the common issue for both years.

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Issues: Whether the additions made towards undisclosed investment in stock and profit on alleged clandestine sales, for both assessment years, survived when the entire excise demand forming the sole basis of those additions had been set aside.

Analysis: The additions in the income-tax assessments were founded entirely on the excise department's findings regarding clandestine manufacture and clearance of finished goods. The appellate record showed that the excise demand, which had supplied the factual basis for the impugned additions, was set aside by the CESTAT. Once that foundation ceased to exist, the Assessing Officer's estimations of undisclosed stock investment and profit on alleged undisclosed sales could not be sustained. The second year involved identical facts and was governed by the same reasoning.

Conclusion: The additions were deleted and the assessee succeeded on the common issue for both years.

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