Unrecorded cash sales taxed only at profit element when earlier years and consistency rule support restricted addition.

Unrecorded cash sales detected from seized loose papers were held not to justify sustaining the full addition under section 69A, because where sales outside the books are accepted, the related purchases and business outgoings cannot be ignored and only the profit element embedded in those sales is taxable. The Tribunal applied the rule of consistency and judicial discipline, noting that on substantially identical facts in earlier years the coordinate bench had already restricted the addition to profit. As no distinguishing material was shown for the year under appeal, the CIT(A)'s restriction of the addition to the average gross profit rate on the unrecorded sales was upheld in favour of the assessee.

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Issues: Whether the addition made under section 69A on account of alleged unrecorded cash sales was to be sustained in full or restricted to the profit element embedded in such sales.

Analysis: The addition arose from seized loose papers and note-pads indicating cash sales outside the books. The Tribunal noted that in the assessee's own earlier years, on substantially identical facts, the coordinate bench had already held that where unrecorded sales are accepted, the corresponding purchases and business outgoings cannot be ignored and only the profit element embedded in such sales is taxable. No distinguishing material for the year under appeal was brought by the Revenue. The Tribunal also relied on the rule of consistency and judicial discipline, and found the CIT(A)'s approach of restricting the addition to the average gross profit rate on the unrecorded sales to be in line with the earlier orders.

Conclusion: The entire addition under section 69A was not sustainable; the restriction of the addition to the profit element embedded in the unrecorded cash sales was upheld, in favour of the assessee.

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