Unaccounted cash receipts from sale of spent solvents and scrap: allow 60% expenditure, 40% addition.

Estimation of reasonable expenditure was applied to unaccounted cash receipts from sale of spent solvents and scrap, with reliance on the assessee's prior decision for the relevant assessment year directing a proportional allowance; the Assessing Officer is to treat 60% of such receipts as deductible expenditure and 40% as taxable addition, thereby reducing the addition previously made against unaccounted sale of spent solvents and scrap.

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Issues: Whether deduction of expenditure against unaccounted cash receipts from sale of spent solvents/scrap can be allowed and, if so, to what extent for assessment years 2016-17 to 2018-19.

Analysis: The seized Excel workbook and sworn statements recorded during search admitted unaccounted cash receipts from sale of spent solvents/scrap and also contained entries of cash outflows in the names of employees. The appellate authority accepted that both inflow and outflow entries exist in the same seized material and that the material must be read as a whole rather than by cherry-picking. The assessee produced notarized affidavits of head-office employees corroborating disbursal of cash for handling and disposal of hazardous waste. The Tribunal noted that income ordinarily requires expenditure to be earned and that handling hazardous waste likely involves multiple cost elements (salaries, transportation, packing, handling). In absence of direct documentary evidence quantifying all components, a reasonable estimation is justified. The Tribunal applied precedential reasoning from the assessee's own case for a later year and concluded that, on the facts and entries in the seized material coupled with affidavits, 60% of the unaccounted receipts should be allowed as expenditure while 40% should be sustained as income.

Conclusion: Deduction of expenditure against unaccounted cash receipts from sale of spent solvents/scrap is allowed to the extent of 60% of the receipts and the addition sustained to the extent of 40%; decision is partly in favour of the assessee.

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