Unverifiable expenditure addition fails where records were seized by a public authority and no proper basis for ad hoc estimation existed

An addition for transport creditors based on unverifiable expenditure could not be sustained on an ad hoc estimate where the assessee was unable to produce records because they were in the custody of the CBI, and the Assessing Officer had not sought those records from the public authority. In the absence of rejection of books under Section 145 and without a proper factual basis for estimation, the dispute was treated as a mixed question of fact and law rather than a substantial question of law under Section 260A. The Tribunal's deletion of the addition was therefore upheld.

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Issues: Whether the Revenue's appeal under Section 260A of the Income-tax Act, 1961 was maintainable on the framed question and whether the deletion of the addition made towards transport creditors was justified.

Analysis: The question raised by the Revenue turned primarily on appreciation of the assessment record and the factual foundation for the claim of transport expenditure. The dispute did not present a pure question of law but a mixed question of fact and law. The assessee's inability to produce books and supporting material was explained by the seizure of records by the CBI, and the Assessing Officer had not invoked the available powers to call for the seized records from the custody of the public authority. In the absence of rejection of books under Section 145 and without a proper basis for an ad hoc estimate, the addition could not be sustained merely by reference to a prior year's assessment.

Conclusion: The Revenue failed to establish a substantial question of law, and the Tribunal's order deleting the addition was upheld.

Ratio Decidendi: An addition based on unverifiable expenditure cannot be sustained on an ad hoc estimate where the assessee is disabled from producing records because they are in the custody of a public authority, and the issue is essentially one of fact and evidence rather than a substantial question of law.

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