Extended search assessments require qualifying undisclosed assets, while diary-recorded business transactions permit taxation only of embedded profit.

Extended assessments for the seventh to tenth preceding years under Section 153A require material showing escaped income represented by a qualifying undisclosed asset; disclosed share-sale transactions and additions for expenses or credits do not meet that condition. Unsecured loans supported by lender confirmations, tax records and bank evidence cannot be treated as unexplained without evidence of accommodation entries. Diary-recorded unaccounted business receipts and related payments require taxation of embedded profit on net receipts, not gross receipts, peak balances or separate expenditure; a 20% gross-profit rate was adopted. Section 115BBE does not apply to such business profit, and it sufficiently explains cash found.

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Issues: (i) Whether assessments for assessment years beyond the ordinary six-year search period could be made under the extended period in Section 153A; (ii) Whether unsecured loans were assessable as unexplained cash credits; (iii) Whether labour expenses through identified piece-rate workers and other contractors were wholly disallowable; (iv) Whether additions for purchases from two steel suppliers could be extrapolated to years for which no seized material existed; (v) What addition could be made from seized diaries recording unaccounted cash receipts and payments; (vi) Whether such diary-based income was taxable under Section 115BBE and whether cash found in search required a separate addition.

Issue (i): Whether assessments for assessment years beyond the ordinary six-year search period could be made under the extended period in Section 153A.

Analysis: The fourth proviso to Section 153A requires material revealing escaped income represented by an undisclosed asset of at least the prescribed threshold before assessments for the seventh to tenth preceding years can be initiated. The share-sale transaction relied on had been disclosed, recorded in the books, and assessed earlier. The additions actually made were for disallowance of expenses and unexplained credits, not for a qualifying undisclosed asset.

Conclusion: The extended-period assessments for assessment years 2012-13 to 2014-15 lacked jurisdiction and were annulled in favour of the assessee.

Issue (ii): Whether unsecured loans were assessable as unexplained cash credits.

Analysis: The lenders were identified through confirmations, PAN details, income-tax returns and bank statements. The loans were received through banking channels, recorded in the books, and substantially repaid. Mere recovery of signed cheque books from the employee's premises, without evidence of accommodation entries, cash circulation or returned funds, did not displace the evidence of identity, creditworthiness and genuineness.

Conclusion: The unsecured-loan additions under Section 68 were unsustainable, in favour of the assessee.

Issue (iii): Whether labour expenses through identified piece-rate workers and other contractors were wholly disallowable.

Analysis: Seized material showed that accounts of five identified concerns were used for cash management and that the claimed labour expenditure was not wholly above board; however, it also established actual wage, salary and project-related outflows. For other labour contractors, no incriminating material beyond the presence of cheque books established bogus expenditure, and supporting records were not discredited.

Conclusion: Disallowance concerning the five identified concerns was restricted to 10% of their labour expenditure, while relief for other labour contractors was sustained, partly in favour of the assessee.

Issue (iv): Whether additions for purchases from two steel suppliers could be extrapolated to years for which no seized material existed.

Analysis: The diary contained a cash-transaction notation only for assessment year 2020-21. No corroborative material showed that similar cash dealings occurred in assessment years 2018-19 or 2019-20. Additions cannot be mechanically based on extrapolation from an isolated entry.

Conclusion: The restriction of the addition to the diary-supported year was upheld, in favour of the assessee.

Issue (v): What addition could be made from seized diaries recording unaccounted cash receipts and payments.

Analysis: The diaries, read with corroborative search material and statements, constituted evidence of unaccounted group business transactions; the challenge based on third-party possession, retraction and absence of a Section 65B certificate did not justify their wholesale rejection in income-tax proceedings. Yet, receipts and related business payments had to be considered together. The peak-credit computation was rejected because it rested on an undated receipt treated arbitrarily as received on a particular date. Amounts already taxed substantively in a group entity were directed to be excluded to prevent double taxation. Only the profit embedded in net unaccounted receipts could be taxed, and a 20% gross-profit rate was adopted, including reconstructed deemed receipts for the year containing only unexplained cash outflows.

Conclusion: Diary-based additions were to be recomputed as 20% profit on net unaccounted receipts rather than as gross receipts, peak balances, or separate unexplained expenditure additions, partly in favour of the assessee.

Issue (vi): Whether such diary-based income was taxable under Section 115BBE and whether cash found in search required a separate addition.

Analysis: The diary transactions represented unaccounted business receipts and related business expenditure, so the taxable amount was business profit rather than deemed income under Sections 68, 69A or 69C. The income computed by the gross-profit method was sufficient to explain the cash found during search.

Conclusion: Section 115BBE was inapplicable and no separate addition for cash found was warranted, in favour of the assessee.

Final Conclusion: The extended-period assessments were invalidated, while the remaining search assessments were substantially recalibrated by deleting unsupported additions, restricting labour disallowance, and taxing only the estimated business-profit component of net unaccounted receipts.

Ratio Decidendi: Extended search assessments require a qualifying undisclosed asset as a jurisdictional fact; where seized material records unaccounted business receipts and corresponding expenditure, only the profit embedded in the net receipts is taxable.

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