2026 (1) TMI 416 - HC - Income Tax

Unrecorded sales found in survey: s.69 addition limited to embedded profit, not full turnover; tax addition reduced, appeal dismissed.

Whether addition under s.69 for unexplained investment based on survey statement should equal the full unrecorded transaction value or only the embedded ... Addition of unexplained investment u/s 69 - addition was based on the statement recorded during the survey - application of net profit ratio to the unrecorded sales - HELD THAT:- Valuation in this appeal is only Rs. 9,44,138/- against the discloser of income by the appellant Rs. 3,20,837/-. We find that the learned CIT has duly examined the matter in detail. While hearing the appeal, the Assessment Officer was directed to conduct a re-assessment. As per the report submitted by the Assessment Officer, CIT has rightly found that there is an unexplained transaction of Rs. 20,53,984/- and there is an admission by the appellant, which has not been found wrong. Instead of approving the addition made by the Assessment Officer mechanically, the learned CIT has found that there should be an addition of Rs. 20,46,184/- and found it justified to apply the net profit ratio to the unrecorded sales in the year under consideration. The appellant himself has shown a net profit and gross profit rate at the rate of 26.40%. Applying the same profit ratio, the total unaccounted profit is worked out to Rs. 9,44,138/-. Hence, in place of the addition of Rs. 20,53,984/-, an addition of only Rs. 9,44,138/-was made, which is fully justified. Tribunal has also found it correct and approved, while dismissing the appeal of the assessee as well as the revenue; therefore, there are concurrent findings recorded by both the appellate authority as well as Tribunal. The substantial relief has been granted to the appellant by the CIT. Appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the addition of Rs. 9,44,138/-, computed by applying the assessee's disclosed net profit/gross profit rate of 26.40% to the determined unrecorded transactions, was justified on the facts as examined by the appellate authorities. (ii) Whether, in light of concurrent factual findings by the first appellate authority and the Tribunal, any substantial question of law arose warranting admission of the appeal. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Justification of addition of Rs. 9,44,138/- based on profit ratio applied to unrecorded transactions Legal framework: The Court proceeded on the basis that the appellate authority and the Tribunal had examined the material and sustained an addition arising from unrecorded transactions, with the quantum ultimately determined by applying an appropriate profit ratio (as found from the assessee's own disclosed rates). Interpretation and reasoning: The Court noted that the first appellate authority examined the matter in detail and, after calling for and considering a report from the Assessing Officer, found an unexplained/unrecorded transaction figure of Rs. 20,53,984/-. The Court accepted the finding that there was an admission by the assessee supporting the existence of such unrecorded activity and that it was not shown to be wrong by any cogent material. Instead of mechanically sustaining the entire unrecorded amount as an addition, the appellate authority treated the matter as requiring addition of profit element and applied the same net profit/gross profit rate of 26.40% which the assessee himself had disclosed, thereby computing the unaccounted profit at Rs. 9,44,138/-. Conclusions: The Court held that the approach of restricting the addition to Rs. 9,44,138/- by applying the assessee's own profit ratio to the unrecorded transactions was fully justified, and the Tribunal correctly affirmed it. Issue (ii): Existence of a substantial question of law in presence of concurrent findings Legal framework: The Court examined whether the appeal disclosed any substantial question of law in view of concurrent factual findings by the appellate authority and the Tribunal. Interpretation and reasoning: The Court emphasized that both appellate forums recorded concurrent findings upholding the restricted addition based on detailed examination of the material and computation methodology. It also noted that substantial relief had already been granted by restricting the earlier addition to the profit element. On these facts, the Court found no legal infirmity requiring further consideration. Conclusions: The Court found that no substantial question of law arose, declined admission, and dismissed the appeal.