2026 (1) TMI 886 - AT - Income Tax

Survey-recorded unexplained payments: extrapolation to other months impermissible; addition limited to Rs. 2,54,115 u/s69C/115BBE

Dominant issue - validity of extrapolation from survey material: The Tribunal held that additions must be confined to incriminating material discovered ... Extrapolation of income - extrapolation of figures as found recorded in document found during survey action - Assessee was subjected to survey action u/s 133A wherein list of 35 employees was found from the cabin of cashier of the assessee-company - These employees were shown to have been paid salary of Rs. 2,54,115/- for the month of July, 2017 but HR Manager admitted that the list was list of bogus employees HELD THAT:- Survey addition has to be made strictly in accordance with the incriminating material only. The document found during the survey is the very foundation of the impugned addition. Unless corroboration was done by AO to support the extrapolation, no presumption could be made that similar payment was made by the assessee during the rest of the months also. The extrapolation is in contradiction to the decision of this Tribunal in Gurdip Cycle Industries [2024 (7) TMI 1279 - ITAT CHANDIGARH] which has been rendered, inter-alia, after considering the decision of VM Spinning Mills [2011 (9) TMI 82 - PUNJAB & HARYANA HIGH COURT] as well as various other decisions holding the field. In these decisions, addition on the basis of extrapolation has been held to be unsustainable. Respectfully following the same, we direct Ld. AO to restrict the impugned addition to the extent of Rs. 2,54,115/- only. The same would be taxable u/s 69C r.w.s. 115BBE of the Act. Appeal stand partly allowed. Issues: Whether the addition made by extrapolating a one-month salary list found during survey to the entire year is sustainable.Analysis: An incriminating excel sheet was found during survey showing payment to certain employees for a single month. There is no admission or evidence that identical payments continued for other months. Extrapolation of a one-month figure to the whole year requires corroboration or supporting material to justify assuming recurrence across the year. Prior decisions have held that additions based on extrapolation without corroboration are unsustainable. On the facts, the document found during survey is the basis for any addition, and absent independent proof that similar payments were made in other months, the impugned extrapolation cannot be sustained.Conclusion: The extrapolated addition for the entire year is not sustainable; the addition is restricted to the amount shown in the incriminating document (Rs. 2,54,115), in favour of the assessee.