Arbitrary notional additions without factual basis cannot stand when the record already contains evidence and explanations.

Arbitrary notional additions based on ad hoc percentages were held unsustainable where they lacked a reasonable factual foundation. An estimated 1% addition on investments in the balance sheet was deleted because it rested only on non-compliance with notices and not on supporting material. An estimated 12% addition on loans and advances, together with restoration of the matter to the Assessing Officer, was also set aside because the record already contained evidence and explanations, yet the authorities proceeded on surmises and presumptions. The governing principle is that additions cannot be sustained on mere notional estimation or arbitrary percentages without objective basis in the material on record.

---

---

Issues: (i) Whether the addition made on a notional basis by estimating 1% of the investment shown in the balance sheet could be sustained. (ii) Whether the addition made on a notional basis by estimating 12% of the loans and advances shown in the balance sheet, and the restoration of the issue to the Assessing Officer, could be sustained.

Issue (i): Whether the addition made on a notional basis by estimating 1% of the investment shown in the balance sheet could be sustained.

Analysis: The addition was made merely because the assessee did not comply with notices and the investment figures appeared in the balance sheet. The estimated disallowance was made on a notional basis without any reasonable basis or justification, and the appellate order had affirmed it without curing that defect.

Conclusion: The addition was unsustainable and was directed to be deleted, in favour of the assessee.

Issue (ii): Whether the addition made on a notional basis by estimating 12% of the loans and advances shown in the balance sheet, and the restoration of the issue to the Assessing Officer, could be sustained.

Analysis: The authorities proceeded on surmises and presumptions by estimating notional interest on short-term loans and advances at 12% even though evidences and explanations had been furnished before the lower authorities. The restoration order did not consider the material already on record and the estimated addition lacked a proper factual foundation.

Conclusion: The addition and the restoration order were unsustainable, and deletion of the addition was directed, in favour of the assessee.

Final Conclusion: Both disputed additions based on arbitrary notional estimations were set aside, and the assessee succeeded in the appeal.

Ratio Decidendi: An addition based only on notional estimation or ad hoc percentages, without a reasonable factual basis and despite material already on record, cannot be sustained.

---