2026 (2) TMI 153 - AT - Income Tax

Unaccounted sales in seized diaries taxed via profit estimation; payments, jewellery and other alleged additions deleted

Seized diaries recording unaccounted sales (code '802') were treated as business receipts and a net profit addition of 2.5% on gross diary receipts was ... Unexplained income of the assessee u/s 69A r.w.s. 115BBE - Unaccounted sales as mentioned under the head “802” in the seized diaries - Admissibility of seized diaries (dumb documents) HELD THAT:- Major dispute is with regard to sales mentioned under code “802” which are unaccounted sales transactions by the assessee. These sales have not been considered in assessee’s return of income. It is admitted fact that the assessee does not have any other source of income and therefore, the receipts and payments, as noted in the seized diaries, would exclusively pertain to assessee’s business activity of manufacturing and sale of liquor only. It is also trite law that same income could not be taxed twice since the same is against basic principle of taxation. Once accounted as well as unaccounted sales are considered for addition, the payments / investments made out of the same could not be added in the hands of the assessee again. The jewellery acquired out of said payments could also not be added since the same would amount to same income being taxed thrice. In our considered opinion, once the profit is estimated on unaccounted sales, the same would take care of leakage of revenue in the hands of the assessee. It is quite evident that Ld. AO has taxed entire business receipts as recorded on left hand of these diaries and also taxed the payment / investments made out of said receipts which are recorded on right hand side. Further, all the receipt transactions have been presumed to be the sales receipts of the assessee which is not the case as sufficiently demonstrated by Ld. AR. The action of Ld. AO violate well accepted judicial principle that once the receipt has been taxed then payment / investment made out of such receipts could not be added again since there is clear nexus between the receipts and payments as both are found recorded in the same material. Once entire receipts are considered as business receipts and profit has been estimated on the same, there is no further scope of taxing the payment made out of said business receipts and which have been found recorded in the same material. In principle, we concur with these submissions of the assessee and find substantial merit in the same. Quantum of unaccounted sales as mentioned under the head “802” in the seized diaries - Considering the factual matrix as well as profitability trend of the assessee, we hold that Net Profit (NP) addition of 2.5% on entire gross business receipts as found recorded in the seized diaries would adequately take care of the revenue leakage on unaccounted sales transactions / other transactions. The addition would be over and above the returned income of the assessee. The estimation so made by us translates into profit margin of more than Rs. 27/- per box for the assessee. This estimation is way higher than the regular average net profit as reflected by the assessee in its return of income. Addition for respective AYs as per above tabulation stands sustained by us as assessee’s business income u/s 28. The addition thus sustained by us for all the years aggregate to Rs. 303.66 Lacs (as tabulated above). The same would be over and above the returned income of the assessee. The corresponding grounds of assessee’s appeals, in all the years, stand partly allowed accordingly. Payment to M/s Jai Diamond for Rs. 265 Lacs has been found duly recorded in Annexures A-1 to A-3 and these payments have clearly made out of business receipts only which have already been taxed by applying net profit rate. This party, evidently, has supplied gold jewellery and gold bars to the assessee. In other words, the payment has been made towards acquisition of gold jewellery, the ultimately source of which is nothing but business receipts of the assessee. We have already sustained business income addition in the hands of the assessee which far exceeds the value of jewellery as found during search on the assessee. Therefore, separate addition of payment to M/s Jia Diamond as well as addition of gold jewellery and bar, in all the years, stands deleted. The corresponding grounds of assessee’s appeal stand allowed in all the years accordingly. Payment to Shri Sunil Bansal - There is no admission of any cash payment or cash receipt by the assessee in the recorded statement. Neither there is any such admission by Shri Sunil Bansal. No tangible investment has been identified against alleged payments. In the absence of such critical evidences, the impugned addition could not be sustained in law. Pertinently, the name of this party does not figure in the seized diaries. Even otherwise, the cash payment / cash receipt against this entry stand subsumed in total cash receipts while estimating business income of the assessee. It is trite law that no addition could be made on mere presumptions, assumptions and surmises. Therefore, separate addition against this entity is devoid of any merits. The addition made by Ld. AO, in all the years, in this regard, for alleged cash payments as well as for cash receipts, stands deleted. Addition of alleged cash payment - addition is merely on the basis of statement of Shri Anup Kumar Aggarwal - No such payment has been found noted in the seized diaries and no material evidence is available on record to sustain this addition. The addition is merely on loose notings. Post-search proceeding, the seller of the land was summoned by Ld. AO wherein he denied having any cash transaction in the deal. Therefore, this addition as made by Ld. AO is devoid of any merits and therefore, could not be sustained in law. Addition of purchase of Mercedes Car - The car was purchased way back during FY 2019-20 and the payment of Rs. 15 Lacs was made through banking channels. Even as per the allegation of Ld. AO, the payment of Rs. 10.50 Lacs could not be made in cash considering the fact that the amount of Rs. 15 Lacs was already paid through cheque. No independent enquiry is shown to have been carried out by Ld. AO with the other party. The conclusion drawn stood controverted by the documentary evidences as furnished by the assessee. Therefore, no such addition of alleged cash payment could be made by Ld. AO. Addition of cash found - AR has pleaded for benefit of telescoping of the addition - On the given facts, the benefit of telescoping could be granted since the assessee is shown to have no other sources of income. In such an eventuality, the cash could be deemed to be generated out of unaccounted business profits. Therefore, this separate addition stand deleted. Issues: (i) Whether income from unaccounted sales reflected in seized diaries should be estimated and in what manner/quantum; (ii) Whether additions made for purchase/payments to M/s Jia/Jai Diamonds and corresponding jewellery/gold bars are sustainable; (iii) Whether additions for alleged cash transactions with Shri Sunil Bansal are sustainable; (iv) Whether addition for alleged cash payment for purchase of land is sustainable; (v) Whether cash found/seized and alleged cash payment for purchase of Mercedes car are sustainable or liable to telescoping.Issue (i): Whether income from unaccounted sales reflected in the seized diaries should be estimated and the appropriate basis and quantum of such estimation.Analysis: The seized diaries contained credited and debited entries corroborated by statements and other evidence; the assessee had not maintained regular books. The tribunal found that taxing entire receipts and then again taxing payments/investments would amount to multiple taxation; gross profit application by AO was inappropriate given absence of books; assessee's disclosed net profit rates in ITRs were relevant. Considering seized quantities and profitability trend, a net profit estimation at 2.5% of total cash receipts recorded in seized diaries was deemed appropriate to plug revenue leakage.Conclusion: Income from unaccounted sales is to be estimated as business income under section 28 at 2.5% of total cash receipts recorded in the seized diaries, resulting in additions aggregating to Rs.3,03,66,095/- across the years (over and above returned income).Issue (ii): Whether additions for payments to M/s Jia/Jai Diamonds and corresponding jewellery and gold bars can be sustained separately.Analysis: Payments to Jia/Jai Diamonds were recorded in the seized material and shown to have been made out of business receipts which have been taxed by estimating profit on unaccounted sales. The jewellery/gold bars were therefore traceable to taxed business receipts; separate additions would duplicate taxation.Conclusion: Additions for payments to M/s Jia/Jai Diamonds and for jewellery/gold bars are deleted; corresponding grounds of appeal are allowed.Issue (iii): Whether additions for alleged cash transactions with Shri Sunil Bansal are supportable.Analysis: No concrete linkage or corroborative material established the identity and cash transactions alleged by AO; the other party produced bank records and ledger of unsecured loans showing banking channel transactions; entries were not recorded in seized diaries as cash transactions; no tangible investment was identified to support addition.Conclusion: Additions relating to alleged cash transactions with Shri Sunil Bansal are deleted; corresponding grounds of appeal are allowed.Issue (iv): Whether addition for alleged cash payment in purchase of land (Rs.126.95 Lacs) is sustainable.Analysis: The addition rested on a third party's statement without corroboration in seized diaries or independent material; seller denied cash transaction; AO's conclusion lacked supporting evidence.Conclusion: Addition for alleged cash payment towards land is deleted; corresponding ground of appeal is allowed.Issue (v): Whether cash found/seized (Rs.113 Lacs) and addition for alleged cash component in car purchase (Rs.10.50 Lacs) are sustainable or liable to be telescoped.Analysis: For the car purchase, assessee produced bank evidence showing purchase earlier through banking channels, rebutting AO's conclusion. For seized cash, after sustaining estimated business income additions and allowing deletion of jewellery additions, the assessed total income sufficed to account for seized cash; therefore telescoping applies and separate addition for seized cash is not required.Conclusion: Addition for alleged cash component in car purchase is deleted; addition for seized cash (Rs.113 Lacs) is deleted by way of telescoping; corresponding grounds of appeal are allowed or partly allowed as recorded.Final Conclusion: The appeals are partly allowed: estimation of income from seized diaries is sustained at 2.5% of total cash receipts (aggregate addition Rs.3,03,66,095/-), while specified additions for jewellery, payments to Jia/Jai Diamonds, alleged Sunil Bansal transactions, land payment, seized cash and car cash component are deleted as set out above.Ratio Decidendi: Where seized documents and corroborative material are used to estimate unaccounted business income, estimation should be on a fair commercial basis using an appropriate net profit rate (not gross profit) to avoid multiple taxation of the same receipts; once receipts are taxed, payments/investments from those receipts cannot be taxed again and telescoping may be applied.