Jurisdictional objections, fresh evidence, and estimated disallowance: ad hoc expenditure additions fail without rejection of books of account.

Jurisdictional objections to a notice under section 143(2), transfer under section 127, and the assessment order failed because the same Assessing Officer had issued the notice and passed the assessment, making the challenge unsustainable. Additional evidence was admitted in the interest of substantive justice, and the unsecured loan issue was restored to the first appellate authority for fresh adjudication after Rule 46A(3) compliance and opportunity to both sides. An ad hoc expenditure disallowance could not stand because the books of account were not rejected under section 145(3); estimated additions based on surmise were deleted. The appeal thus succeeded only partly.

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Issues: (i) Whether the challenge to the validity of notice under section 143(2), the jurisdictional transfer under section 127, and the assessment order was maintainable. (ii) Whether additional evidence could be admitted and the unsecured loan issue restored for fresh adjudication. (iii) Whether ad hoc disallowance of expenditure could be sustained without rejection of books of account under section 145(3).

Issue (i): Whether the challenge to the validity of notice under section 143(2), the jurisdictional transfer under section 127, and the assessment order was maintainable.

Analysis: The record showed that the Assessing Officer who passed the assessment order had issued the notice under section 143(2). On that basis, the asserted jurisdictional objection did not survive. The connected challenge to the assessment proceedings and order was also found unsustainable.

Conclusion: The issue was decided against the assessee and the related grounds were dismissed.

Issue (ii): Whether additional evidence could be admitted and the unsecured loan issue restored for fresh adjudication.

Analysis: The application for additional evidence was allowed in the interest of substantive justice. The matter was restored to the first appellate authority for compliance with Rule 46A(3), calling for a remand report and deciding the issue afresh after giving proper opportunity to the parties.

Conclusion: The additional evidence was admitted and the unsecured loan issue was restored for de novo consideration, with the ground allowed for statistical purposes.

Issue (iii): Whether ad hoc disallowance of expenditure could be sustained without rejection of books of account under section 145(3).

Analysis: The addition was made on an estimated basis even though the books of account were not rejected under section 145(3). The decision relied on the settled principle that estimation of income or disallowance on guesswork cannot be sustained unless the books are first rejected on legally valid grounds. The disallowance was also found to rest on surmises rather than reasoned findings.

Conclusion: The estimated disallowance was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded only in part: the jurisdictional objections failed, the unsecured loan issue was remitted for fresh decision, and the estimated disallowance was deleted.

Ratio Decidendi: Estimated additions or disallowances cannot be sustained unless the books of account are first rejected on legally valid grounds under section 145(3), and any remand or fresh adjudication must comply with the principles of natural justice.

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