Unaccounted sales are taxable only to their embedded profit, while reconciled cash turnover cannot be added twice.
Unaccounted business sales are gross receipts, not taxable income in full, unless related costs or investment are independently shown to be unexplained. Taxation should therefore be confined to the reasonably estimated profit embedded in such turnover. Profit estimation should rely on functionally comparable evidence, with the taxpayer's accepted historical net-profit ratio and accounted-business profitability providing stronger internal benchmarks than an unsupported external gross-profit rate. Cash sales already included in seized accounting data, reconciled with declared annual turnover and supported by GST disclosures, cannot be treated as additional turnover or subjected to a separate profit addition.
Issues: (i) Whether the entire unaccounted sales for A.Ys. 2020-21 and 2021-22 could be assessed as income despite absence of documentary proof of related expenditure; (ii) Whether profit should be estimated at 45% or at the rates voluntarily offered by the assessee for those years; (iii) Whether cash sales of Rs. 5,91,57,963 for A.Y. 2022-23 were additional unaccounted turnover, warranting any further addition or profit estimation.
Issue (i): Whether the entire unaccounted sales for A.Ys. 2020-21 and 2021-22 could be assessed as income despite absence of documentary proof of related expenditure.
Analysis: Unaccounted sales represent gross business receipts and not, by themselves, taxable profit. In the absence of material establishing that the cost or investment relating to the sales was independently unexplained, taxation must be confined to the real income or profit embedded in the turnover. The mining and quarrying operations necessarily involved operational expenditure, and the absence of complete vouchers for unaccounted transactions affected the rate of estimation but did not justify treating the entire turnover as income.
Conclusion: Only the reasonably estimated profit embedded in the unaccounted sales was taxable; assessment of the entire unaccounted turnover as income was impermissible.
Issue (ii): Whether profit should be estimated at 45% or at the rates voluntarily offered by the assessee for those years.
Analysis: The 45% estimate principally relied on an external gross-profit rate without establishing functional or economic comparability with the assessee's quarrying business, and without distinguishing gross profit from net business income. The assessee's own accepted historical net-profit ratio and the profitability of its accounted business provided more reliable internal benchmarks. The voluntarily offered rates of 25% for A.Y. 2020-21 and approximately 19.70% for A.Y. 2021-22 were higher than those internal benchmarks, and no material established that the unaccounted transactions yielded a higher margin.
Conclusion: The profit rates of 25% for A.Y. 2020-21 and approximately 19.70% for A.Y. 2021-22 were accepted; the 45% estimation and the residual additions were set aside.
Issue (iii): Whether cash sales of Rs. 5,91,57,963 for A.Y. 2022-23 were additional unaccounted turnover, warranting any further addition or profit estimation.
Analysis: The disputed cash sales formed part of the aggregate sales recorded in the seized Tally data. That aggregate, together with the March 2022 sales, reconciled with the annual turnover disclosed in the profit and loss account and was corroborated by GST disclosures. No independent material established sales over and above the disclosed turnover. The contention concerning a lower net-profit ratio could not replace the factual basis of the assessment, particularly when the books had not been rejected and no separate determination of understated profit had been made.
Conclusion: The cash sales were already included in the declared turnover; their separate addition and the alternative estimation of profit on the same sales were impermissible.
Final Conclusion: Taxable business income for A.Ys. 2020-21 and 2021-22 remained confined to the profit already offered on the unaccounted sales, while the turnover for A.Y. 2022-23 could not be enlarged by a sales component already reconciled within the declared annual turnover.
Ratio Decidendi: Where seized business sales are not shown to involve separately unexplained investment, taxation is confined to their reasonably determined profit component, and a sales component reconciled within declared turnover cannot be taxed again.