Suppressed sales in block assessment must be supported by seized evidence; estimates cannot extend beyond the diary period.

In a block assessment, additions for suppressed sales must rest on seized material, and estimates cannot be extended beyond the period actually supported by search evidence unless the record shows incompleteness. The note states that food sales recorded in the seized diary were not attributable to the assessee's beer bar, because the dining business was separately run and maintained; the corresponding addition was therefore deleted. It also states that liquor-sales suppression was confined to the diary period, the 40% profit rate was reduced, the assessee's declared gross profit rates were accepted, and credit had to be given for undisclosed income already declared, with only any excess remaining taxable.

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Issues: (i) Whether the suppressed food sales and the gross profit thereon recorded in the seized diary could be brought to tax in the assessee's hands; (ii) Whether, in a block assessment, the suppressed sales could be estimated for the entire assessment years 1989-90 and 1990-91 on the basis of diary entries for a limited period, and at what rate of profit.

Issue (i): Whether the suppressed food sales and the gross profit thereon recorded in the seized diary could be brought to tax in the assessee's hands

Analysis: The seized material showed that the assessee ran only the beer bar business, while the adjoining dining business was separately run and maintained. The record did not support the inference that the food sales noted in the diary belonged to the beer bar. The nature of the business, the absence of cooking facilities, and the separate dining operation indicated that the food entries could not be attributed to the assessee's beer bar.

Conclusion: The addition for suppressed food sales and the corresponding gross profit was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether, in a block assessment, the suppressed sales could be estimated for the entire assessment years 1989-90 and 1990-91 on the basis of diary entries for a limited period, and at what rate of profit

Analysis: The only seized material concerning suppressed liquor sales covered a specific period in the diary. In the absence of material showing suppression for the whole block period, the estimate of sales could not be extended by a multiplication formula to the full years. The rate of 40% profit was found to be excessive, and the assessee's declared average gross profit rates were accepted as a reasonable basis. Credit was also to be given for the undisclosed income already declared by the assessee, and only any excess over that amount could be added.

Conclusion: The suppression of sales was confined to the period reflected in the diary, the profit rate was restricted to 23% for assessment year 1989-90 and 27% for assessment year 1990-91, and the issue was decided partly in favour of the assessee.

Final Conclusion: The assessment was reduced by excluding the food-sales addition and by curtailing the liquor-sales estimate to the diary period with a lower profit rate, leaving only such further addition as exceeded the assessee's declared undisclosed income.

Ratio Decidendi: In a block assessment, an addition for suppressed sales must rest on material found in search, and an estimate cannot be extended to periods not supported by seized evidence unless the record itself indicates that it is incomplete.

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