TaxTMI 
TaxTMI 
2026 (5) TMI 408
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.... 2. The Ld. CIT(A) has erred in law and on facts of the case in confirming the action of the Ld. AO in treating amount of Rs 27,22,72,905 as Unaccounted/Suppressed Cash Sales of which the CIT(A) has restricted the addition to Gross Profit Element @ 10.68% to Rs 2,94,68,562. 2.1 The Ld. CIT(A) has erred in law and on facts of the case in enhancement of Estimated Unexplained Expenditure for manufacturing of Stock u/s 69C at Rs 18,51,456 relating to Unaccounted Suppressed Sales of Rs 27,22,72,905. 2.2 Both the lower authorities have erred in law and on facts of the case in not relying upon any corroborative evidences and without affording opportunity for cross-examination, in gross violation of principles of natural justice. 2.3 Without Prejudice to the above, the Gross Profit Rate @10.68% Estimated by the CIT(A) is excessive in nature and the addition of Rs 18,51,456 is unwarranted. 3. The Ld. CIT(A) has erred in law and on facts of the case in confirming the action of the Ld. AO in treating amount of Rs 8,07,47,260 as Gross Profit Earned from Unaccounted/Suppressed Cash Sales Enhanced at Rs 75,60,60,489 arising out of dumb documents and thus con....
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....de by the learned Assessing Officer on the basis of material / documents found during the course of search in the case of another person are without jurisdiction and liable to be deleted, inasmuch as the mandatory satisfaction as required under the provisions of the Income-tax Act, 1961 has not been recorded. The learned Assessing Officer has failed to record satisfaction, with the prior approval of the Principal Commissioner of Income-tax, that the seized books of account or documents pertain to or relate to the Appellant or contain information relating to the Appellant, which is a sine qua non for invoking jurisdiction based on third-party material. In absence of such mandatory satisfaction, the reliance placed on such material is invalid in law and the consequential additions made are liable to be deleted" 3. "That on the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in sustaining / enhancing the addition by changing its very nature from an addition made under section 69A of the Income-tax Act, 1961 to a trading addition after rejecting the books of account, which is beyond the scope of powers ....
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....CIT(A) for remand report and thus, it is established that there are no expenditures which are not recorded in regular books of accounts? 3. Whether on facts and in circumstances of the case, the CIT(A) is justified in deleting addition of Rs. 27,22,72,905/- made on account of unexplained & unaccounted sales and directing to consider GP addition of Rs. 2,94,68,562/- @10.82% of unaccounted sales of Rs. 27,22,72,905/-, by accepting reply of the assessee without appreciating the facts that unaccounted sales of Rs. 27,22,72,905/- was worked out on the basis of the excess stock of the packing material which is established by the CIT(A) also, and this sales was not recorded in the books of accounts but cost of packaging material has been taken in accounts by over-priced invoicing and all other expenses have also duly been claimed in regular books of accounts as assessee failed to produce details of expenses which were related to unaccounted sales and were not recorded in regular books of accounts and therefore, when all direct and indirect expenses related to unaccounted sales are claimed in regular books of account and the excess stock of finished goods is sold out of books then....
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....1,456/- u/s 69C of the Act for unexplained expenditure for first unaccounted sales by applying stock-in-trade to turnover ratio of 0.68% as on 31.03.2022 as per audit report in place of addition of Rs. 27,22,72,905/-u/s 69A of the Act without appreciating the facts that stock-in-trade to turnover ratio as on 31.03.2022 only was considered which is not correct factor and suitable factor i.e. average of monthly stock-intrade to turnover ratio to determine initial unexplained expenditure for first unexplained sale should be considered? 8. Whether on facts and in circumstances of the case, the CIT(A) is justified in deleting addition of Rs. 2,00,640/-/s 69A of the Act on account of unaccounted and unexplained stock of tobacco by accepting reply of the assessee without appreciating the facts that addition was made on the finding and incriminating documents found during the search that excess stock of 2090 Kg of tobacco confiscated by CGST Department in a vehicle in assessee's premise with the consignment of the assessee and during statement recorded u/s 132(4) of the Act. Shri Ashirwad Sukhwal admitted the excess stock of 2090 Kg of tobacco and further, the CIT(A) did not m....
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....ich can prove that nature and source of unexplained cash of Rs. 32,75,90,180/- was explained by the assessee as assessee failed to explain nature and source of unexplained cash of Rs. 32,75,90.180/- and therefore, same is unexplained income of the assessee and should be taxed u/s 69A of the Act and tax should be charged u/s 115BB of the Act? 12. Whether on facts and in circumstances of the case, the CIT(A) is justified in deleting the addition of Rs. 32,75,90,180/- u/s 69A of the Act made for unexplained money in form of cash which was used for unaccounted purchase of packaging material from MEPI, and only allowing the addition of 51,41,211/- u/s 69C of the Act applying the stock-in-trade to turnover ratio of 0.68% for initial unexplained expenditure for first unaccounted out of total unaccounted sales of Rs. 75,60,60,489/- without appreciating the facts that the assessee has failed to explain source of unexplained and unaccounted cash of Rs. 32,75,90,180/- used for unaccounted purchase of packaging material and further, it is evident from seized documentary evidences that assessee has paid unaccounted cash of Rs. 32,75,90,180/-το ΜΕΡΙ and s....
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....nal Thermal Power Co. Ltd. vs Commissioner of Income Tax (229 ITR 383), where it was observed that the Tribunal has jurisdiction to entertain additional grounds of law, even if not raised earlier. In the present case, all necessary facts are already on record. The Ld. DR has no objection to the admission of legal issues which are bona fide and go to the root of the matter. Accordingly, the three additional grounds on legal issues are admitted for adjudication. 6. The original ground no. 1st and 1st additional ground, of the appellant are interrelated to each other where the appellant has challenged that the assessment order passed for Assessment Year 2022-23 under section 143(3) of the Income-tax Act, 1961 and notice issued u/s 143(2) is without jurisdiction and liable to be quashed, inasmuch as the said year falls within the block of three assessment years immediately preceding the year of search, for which assessment/reassessment ought to have been mandatorily made in accordance with the provisions of section 147 read with section 148 of the Act. 6.1 The ld. AR submitted that the validity of a notice is a foundational jurisdictional matter; if the notice is invalid, the ent....
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....or the jurisdiction of the AO to initiate assessment proceeding which goes to the root of the matter to decide the jurisdiction of the Assessing Officer. 6.1.2 The legislative intent in this regard is explicit and unambiguous from the Memorandum explaining the provisions of the Finance Act, 2021, which clearly provides that assessments in search cases initiated after 31.03.2021 shall be governed by the new reassessment regime. The deeming fiction introduced therein categorically provides that in search cases, the Assessing Officer shall be deemed to have information suggesting escapement of income for the three assessment years immediately preceding the year of search, thereby mandating recourse to section 147/148. Memorandum explaining the provisions of Finance Act 2021, explained the new scheme of search assessments. The salient features of new procedure are as under:- (i) The provisions of section 153A and section 153C, of the Act are proposed to be made applicable to only search initiated under section 132 of the Act or books of accounts, other documents or any assets requisitioned under section 132A of the Act, on or before 31st March 2021. (ii) A....
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....f service of notice u/s 143(2)/142(1). The notice u/s 143(2) (PB Page 616-618) on record is silent on mandated prior approval. The alleged approval is not part of contemporaneous assessment record or paper‑book produced by the assessee; it surfaces only via an AO assertion at remand stage (approval letter dated 23.06.2023 with ref. "Compulsory Scrutiny/mn;/2022‑23/1629"), which the Ld. CIT(A) accepts without calling the primary approval record. 6.3.1 Admittedly, the transfer order u/s 127 (Enclosed herewith as Annexure-1) itself contains an internal factual anomaly ("search on 23.11.2023") that is chronologically impossible vis‑à‑vis a 27.06.2023 notice, undermining confidence in the "application of mind" in the centralisation chain and accentuating the need for the Tribunal to insist on production of the contemporaneous approval workflow/record. 6.3.2 The notice u/s 143(2) dated 27.06.2023 states that the return has been selected for scrutiny and calls for evidence by 13.07.2023; it does not record, refer to, or annex any prior administrative approval. The notice also identifies the issuing authority as ACIT, C‑2, Udaipur ("JAO" at that t....
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....ecause it did not recite the approval; rather, the argument is that the notice is void because no valid approval was obtained prior to issuing it. It is clarified here that the lack of any mention was only a factual indicator supporting that contention. We agree that there may not be a statutory requirement to print the approval number on the notice. However, the absence of any reference to an approval - in a case where such approval was mandatory - certainly calls for closer scrutiny whether the approval was taken at all. The CIT(A)'s reasoning essentially conflates form with substance. He defended the form saying the notice format need not show approval but did not adequately verify the substance whether the approval process met the legal mandate. 6.3.4 The ld. CIT(A) mentioned that the assessee's rejoinder only stated that approval fact was not mentioned in the notice and dismisses the argument as invalid because "there is no requirement to mention the details of approval in the notice issued under section 143(2)". In our view, this reasoning is misdirected because the assessee's jurisdictional challenge is not merely about mentioning approval in the notice; it is about exist....
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...., where on or before the date of search, no notice u/s 143(2) was issued or pending as in the present case. 6.4.1 In the present case, pursuant to the search action conducted on assessee, any of the 3 preceding years, the assessment can be made u/s 143(3) or is mandatorily required to be made u/s 147 of the Income Tax Act is no more res integra. In our view, the assessment made u/s 143(3) is illegal and without jurisdiction. Our view gets support from decisions delivered by various Benches of the Tribunal. 6.4.2 On parity of facts, vide the Judgment dated 29.12.2025 passed by the Hon'ble Delhi Bench of the ITAT in ITA No. 5458/Del/2025 in Montage Enterprises Pvt Ltd Vs DCIT (2026) 182 Taxmann.com11(Del) it was held the assessment made u/s 143(3) is illegal and without jurisdiction. In another case, relying upon the said decision, Hon'ble Delhi ITAT "F Bench" in its decision dated 27.03.2026 in ITA No 4143/Del/2025 DCIT Vs Vijay Kumar Agarwal has quashed the assessments made u/s 143(3) of the Income Tax Act. 6.4.3 In the light of the factual matrix and the precedents cited, we hold that the notice u/s 143(2) dated 27.06.2023 is void ab initio as being issued without prior a....
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....f 40 notepads were found and sized from the premise, which were annexurised and marked as D1 to D39 (including D24A). ................. Reply of the appellant to the Notice of the Ld. AO has been discussed by the Ld AO at Paras 8.2-8.2.1 pg 64 in the assessment order, which reads as under; "8.2 The assessee has furnished its reply on the said issued on 13.02.2024. The reply of the assessee is made part of the assessment order as per Annexure-2. 8.2.1 Vide the reply dated 20.02.2024, the assessee has submitted as under:- "It is most respectfully submitted that it is not permitted by law to initiate proceedings against the assessee company on the basis of information /documents uncovered during the course of, search on a party other than the assessee company. It is imperative to note here that the assessee company was not served any notice u/s 153C after the search that was conducted on MDPL, despite that fact that certain documents implicating our company were discovered. This denial of notice deprived us of the opportunity to submit our own clarifications and submissions pertaining to the seized material. Furthermore, the AO has....
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....under sub-section (2A)of that section, on or after the 1st day of April, 2021, in the case of the assessee; or (iii) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or (iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee, the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee [where] the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable articl....
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....axpayers by reducing the time limit and specifying a higher threshold by which a notice for assessment or reassessment or re-computation can be issued. Simultaneously, assessments/reassessments/re-computation in search & seizure cases initiated after 31st March 2021 have been brought under the ambit of Section 148 in place of the erstwhile sections 153A/153C of the Act. 2. The salient features of the new scheme under Section 148 for search & seizure cases, inter-alia, include: o In search cases, the time limit to issue notice for re-assessment was reduced to 3 years from the end of the relevant assessment year as against erstwhile 6 years period. o Notices can now be issued beyond 3 years and upto 6 years from the end of the relevant assessment year only for cases wherein income chargeable to tax which has escaped assessment is likely to exceed rupees fifty lakh in the form of: (a) an asset; or (b) expenditure in respect of a transaction or in relation to an event or occasion; or (c) an entry or entries in the books of account as against no such threshold in the earlier regime. o For the purpose of issuance of notice beyond 6 years and upto 10 ye....
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....No 193/Chandi/2025 on identical facts held that the assessment order passed u/s 143(3) without obtaining the mandatory approval of the PCIT and without recording satisfaction, as void and without jurisdiction by making the following observations: "9. After due consideration of material facts on record as well as arguments of Ld. AR, we find substantial merit in legal arguments as urged by Ld. AR. The arguments of Ld. AR are duly backed up by various judicial decisions taking the same view. The pertinent legal ground as raised by Ld. AR is that the assessment has been framed u/s 143(3) without fulfilling the mandatory conditions prescribed u/s 148 read with Explanation 2(iv) thereof. Another pertinent legal issue is that mandatory approval as required u/s 148B has not been obtained from the competent authority even though the impugned AY was immediately preceding the search assessment year. Another line of argument is that approval as obtained by Ld. AO from Addl. CIT before passing the assessment order was invalid one since the approval ought to have been obtained u/s 148B of the Act which was not done in the present case. Further, whatever approval was taken, the same was....
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..... 8.1 The AR argued that the additions sustained by the Ld CIT(A) suffer from fundamental jurisdictional infirmities arising from impermissible substitution of the nature and source of income by the learned Commissioner of Income-tax (Appeals). The AR submitted that the learned AO had made an addition under section 69A of the Income-tax Act, 1961 by treating alleged out-of-books sales as unexplained money. The learned CIT(A), however, having held that section 69A was not applicable, proceeded to reject the books of account and convert the addition into a trading addition by estimating income. This action clearly amounts to substituting the very basis and character of the addition. The addition made by the Assessing Officer was under a deeming provision attracting section 115BBE, whereas the addition sustained by the CIT(A) is under the head "business income". This is not a case of mere enhancement or modification but a complete transformation of the source and head of income. It is a settled legal position that while the powers of the CIT(A) under section 251 are wide, they do not extend to introducing a new source of income or making out an altogether new case which was not the....
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....C) has categorically held that the appellate authority cannot travel beyond the subject matter of assessment and introduce a new source of income not considered by the Assessing Officer. Similarly, in CIT v. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC), it has been held that the power of enhancement does not include the power to discover new sources of income. 8.3.3 In the case of CIT v. Sardari Lal & Co. [2001] 251 ITR 864 (Delhi) (FB), the matter again came up for consideration before the Full Bench of the Hon'ble Delhi High Court regarding the first appellate authority's power to take into account a new source of income and to consider the correctness of the view expressed earlier in case of CIT v. Union Tyres [1999] 240 ITR 556 and the Full Bench of the Hon'ble Delhi High Court has held that the view expressed in Shapoorji Pallonji Mistry's case (supra) still holds the field and it was further held as under: "8. Looking from the aforesaid angles, the inevitable conclusion is that whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the Assessing Officer, the jurisdiction to deal with the....
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....tion of the Ld. AO in treating amount 27,22,72,905 as Unaccounted/Suppressed Cash Sales and restricting the addition to Gross Profit Element @ 10.82% to Rs 2,94,68,562/- thereof and that enhancement of Estimated Unexplained Expenditure for manufacturing of Stock u/s 69C at Rs 18,51,456 relating to Unaccounted Suppressed Sales of Rs 27,22,72,905/-. 9.1 The Ld. AR submitted that the Ld. CIT(A)'s was not justified in endorsing the finding of the AO that the Appellant had suppressed unaccounted cash sales of Rs. 27,22,72,905 for assessment year under consideration and the consequent confirmation of an addition of Rs. 2,94,68,562/- by applying a gross profit rate of about 10.82%. The AR argued that addition confirmed by the CIT (A) is wholly unsustainable on facts, accounting principles, logistic, and under the provisions of the Act. Further, the appellant challenged that the CIT(A) erred in enhancing the income by making a separate addition of Rs. 18,51,456/- under Section 69C (unexplained expenditure) on the reasoning that unaccounted sales would involve some unrecorded expenditure for manufacturing those goods. 9.1.1 The AR submitted that the assessment treats an inferred "unac....
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....rported "excess packing material value" of Rs. 23,09,057, if it is to be neutralised, cannot rationally result in only Rs. 3.90 lakh of incremental GP (which is what the CIT(A)'s formula actually does). This exposes the estimation as non-scientific. 9.1.4 The assessment's core narrative is: price variance in packaging material → presumed excess quantity received → presumed extra production → presumed cash sales → hence "unaccounted income". The AO records that, based on DGGI material, the per kg price of packaging material was allegedly higher by Rs. 50-Rs. 60, so the AO assumes per kg price by Rs. 50 and back-calculates "actual production" and "unaccounted sales". The AO specifically noted that per kg price of packaging material for the period 01.04.2016 to Feb 2022 was between Rs. 356/kg and Rs. 402/kg, and after Feb 2022 the same was purchased at Rs. 200/kg to Rs. 254/kg, treating such variation as incriminating. On that basis, the AO concludes that during Financial Year 2021-22, the Appellant earned income of Rs. 27,22,72,905 by "unaccounted sales", and treated the same as unexplained money u/s 69A. The Ld. AR argued that this was not legally adequate to ....
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....GP element on "business sales" as a matter of statutory interpretation. The Revenue is required to defend: (i) whether the alleged suppressed sales exist at all; and (ii) whether GP element can be estimated after satisfying 145(3). But in the present case, the sales are not proved and, therefore, the profit element necessarily collapses. 9.1.7 Section 145(3) is not a carte blanche to estimate profit because an allegation exists. It requires recorded dissatisfaction about correctness/completeness, or irregular method/ICDS non-compliance. The Ld. CIT(A) records that books were rejected after show cause and that reply was "general". However, for Ground 2, the key question is whether the record discloses year-specific defects showing that correct income cannot be deduced from the books, especially when the allegation is based on third-party GST material and price assumptions. In the present case, the business is subject to audit and the material cycle can be reconciled (opening- purchase-consumption-closing), a section 145 rejection and GP application must be anchored in concrete defects, not a presumed "leakage of revenue". 9.1.8 The AR explained that Section 145(2) authorises I....
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....xpenditures corresponding to unaccounted sales have already been claimed in regular books of accounts and therefore, total unaccounted sales should be treated as unaccounted and undisclosed income of the assessee and thus, AO has rightly made addition of Rs. 27,22,72,905/-. She contended that the CIT (A) has not given any finding whether the evidences in respects of the expenses specifically incurred corresponding to the unaccounted sales have been verifiable with supporting bill/vouchers of the expenses as these bill/vouchers have not been produced before AO during the assessment proceedings and have not been received by the AO as additional evidences furnished by the assessee before CIT(A) for remand report and thus, she argued that it is established that there are no expenditures which are not recorded in regular books of accounts. 9.2.1 The CIT (DR) further submitted that CIT (A) was not justified on accepting reply of the assessee without appreciating the facts that unaccounted sales of Rs. 27,22,72,905/- was worked out on the basis of the excess stock of the packing material which is established by the CIT(A) also, and this sales was not recorded in the books of accounts b....
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....ounted sales by applying stock-in-trade to turnover ratio of 0.68% as on 31.03.2022 as per audit report in place of addition of Rs. 27,22,72,905/-u/s 69A of the Act without appreciating the facts that stock-in-trade to turnover ratio as on 31.03.2022 only was considered which is not correct factor and suitable factor i.e. average of monthly stock-in-trade to turnover ratio to determine initial unexplained expenditure for first unexplained sale should be considered? She pleaded that the assessment order may be restored. However, she failed to rebut the contention of the Ld. AR made in even challenging the addition restricted by the Ld. CIT (A) by way of GP estimation on alleged estimated unaccounted sales and that non applicability of provisions of section 69A of the Act to the given set of peculiar facts of the present case. 9.3. Admittedly, the department allegation is of "cash sales", yet the assessment order does not anchor upon cash discovery, cash deposit, cash utilization patterns, unexplained assets, or a consistent cash-flow that could support the alleged unaccounted cash sales Rs. 27.22 crore cash-realization business stream. Even the defence of the department of packag....
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.... at best a suspicion, not a proved fact capable of sustaining a profit-element addition. In the present case, the alleged addition is entirely based on mere presumptions and conjectures. It is a settled law that the charges of clandestine procurement of packaging material and clandestine supply of finished goods resulting unaccounted turnover and that accounting for all the purchases and expenses but not accounting of part of sales or sales out of accounted production of stock are required to be proved on the basis of independent concrete evidence and cannot be based merely on presumptions and private records. Such charges cannot be based on preponderance of probability but required positive and cogent evidence to establish the same. 9.3.3 From the record, it is evident that the AO has been guided by the prima facie view of the officials conducted search is figment of their imagination based on surmises & conjectures without bringing any incriminating material either during the search or post search enquires and that the department has not been able to provide any independent evidence to prove the serious charges of clandestine manufacturing and supply of chewing tobacco resulti....
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....ur view, the 115BBE regime cannot be applied to the GP element on "business sales" as a matter of statutory interpretation. In the present case, the department failed to prove or establish existence of alleged suppressed sales, by way of satisfying conditions for applicability of section 145 (3) and estimation of GP rate. The department failed to prove any unaccounted or suppressed sales, and therefore, the addition made by the AO of Rs. 27,22,72,905/-u/s 69A of the Act without appreciating the facts would be liable to be deleted. Accordingly, the addition of Rs. 27,22,72,905/- made u/s 69A of the Act is deleted. Once the addition is deleted, consequently the applicability of Section 115BBE of the Act did not survive. 9.3.7 In the above view, we find no merit and substance in the contention of the department and therefore, the ground no. 1 to 6 of the revenue are rejected. 10. In ground no. 2.1, the appellant objected to the Ld. CIT(A) decision in enhancement of Estimated Unexplained Expenditure for manufacturing of Stock u/s 69C at Rs. 18,51,456/- relating to Unaccounted Suppressed Sales of Rs. 27,22,72,905/-. 10.1 In facts, an enhancement made by the Ld. CIT(A) of Rs. 18....
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..... DR has also submitted that CIT(A) is not justified in making addition of Rs. 18,51,456/- u/s 69C of the Act for unexplained expenditure for first unaccounted sales by applying stock-in-trade to turnover ratio of 0.68% as on 31.03.2022 as per audit report in place of addition of Rs. 27,22,72,905/- u/s 69A of the Act. 10.1.2 It is pertinent to mention here that the appellant gets relief in ground no. 1, where we had deleted the hypothesis of the department that the assessee, by alleged over-invoicing/excess receipt of packing material, manufactured alleged unaccounted finished goods effected alleged unaccounted/suppressed sales of Rs. 27,22,72,905 for Assessment Year 2022-23 and also deleted the addition made by AO u/s 69A and that also the amount estimated and confirmed by the CIT (A) by applying GP rate @ 10.68% on estimate basis. Consequently, the corresponding entire enhancement of Rs. 18,51,456 made/confirmed u/s 69C would be liable to be deleted and consequential direction to tax u/s 115BBE would not survive. 11. In ground No. 3 to 3.2, of the appellant and ground no. 8 to 12 of the revenue common issues raised on identical facts where the appellant challenged confirmat....
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....ely used by the appellant. In a parallel proceeding, during cross-examination by GST authorities, the director of the packaging supplier (Montage Packaging) testified that Miraj-brand packing material was also being supplied to other firms on their request. This admission (recorded in answer to Question No.12 of the supplier's director on 18-05-2023, CIT(A) Order page 39 PB page 48, PB Page 1101) is reproduced in the record. The AR argued that this very fact directly undermines the Department's theory - if other parties obtained packing with "Miraj" branding, those parties could be manufacturing duplicate Miraj products in the market without the appellant's involvement. In fact, the appellant had lodged multiple FIRs (police complaints) regarding counterfeit Miraj products being sold by unscrupulous elements. Copies of such FIRs were furnished in the proceedings (CIT(A) order page 39, PB page 48, index PB 335, s. no. 18b page 1229-1439 i.e. 211 pages and AO PB page 1045 para 35). This shows that excess packaging could have been diverted to or procured by those counterfeiters, explaining any discrepancy in packaging purchase figures without attributing it to unaccounted production b....
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....cts that: (i) price‑mix is identical, (ii) incremental costs (raw tobacco, power, labour, wastage, regulatory costs) are identical, or (iii) the alleged stream is even real. Estimation cannot be used as a license to tax an assumed turnover with book margins when neither books are rejected with cogent defects nor the alleged turnover is proved. Section 145(3) requires foundational satisfaction as to correctness/completeness of accounts or non‑compliance with notified standards before best‑judgment estimation is resorted to. 11.1.7 In our view, the department ought to have proved with reliable corroboration, that "MIRAJ" refers to the appellant (a legal person) and not merely a packaging brand/label used for multiple buyers; that the entries correspond to actual supplies made to the appellant in the relevant year; that the appellant if funded such payments in cash then source and movement of cash, and that such supplies led to incremental clandestine production and sales in that year. 11.1.8 In the present case, the department has failed to prove the aforesaid reliable collaborations with reference to alleged diaries alone. It is noted that neither the AO nor ....
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....oportional to production. 3. increased power/labour footprints (or at least inconsistencies). 4. Downstream market evidence (dealer stocks/purchases corresponding). 5. Cash trail (delivery, collection, utilisation). Thus, the Ld. AR contended that the record does not demonstrate these corroborations for this year. The appellant prays to delete the addition of Rs. 8,07,47,260 sustained by the CIT(A) as "estimated gross profit embedded in estimated unaccounted sales of Rs. 75,60,60,489" for Assessment Year 2022-23. 11.2 The Ld. CIT (DR) on the other hand reiterated the department's grounds of appeal and stands by the assessment order. 11.3 Admittedly, the CIT(A) while deleting addition of Rs. 2,00,640/- u/s 69A of the Act made on account of unaccounted and unexplained stock of tobacco has observed by appreciating the facts that the addition was not based on cogent material evidence and incriminating documents found during the search that the finding of the AO regarding the excess stock of 2090 Kg of tobacco confiscated by CGST Department in a vehicle in assessee's premise with the consignment of the assessee and statement recorded u/s 132(4) of....
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..... 32,75,90,180/- u/s 69A of the Act made for unexplained money in form of cash which was used for unaccounted purchase of packaging material from MEPL by allowing telescoping effect from the determined unaccounted sales of Rs. 75,60,60,489/- on the basis of use of unaccounted packaging material by appreciating the facts that assessee has submitted details and documentary evidences which can proves that unexplained cash payment for purchase of unaccounted packaging material was made from unaccounted sales and thus, the CIT(A) has accepted reply of the assessee with any verification in this regard and allowed telescoping effect which is as per law. 11.3.2 The department contention that CIT(A) is not justified in deleting the addition of Rs. 32,75,90,180/- u/s 69A of the Act made for unexplained money in form of cash which was used for unaccounted purchase of packaging material from MEPI by accepting reply of the assessee without appreciating the facts that the CIT(A) has not given any finding has no merits as the Ld. CIT (A) has made detail discussion and accepted the reply of the assessee proving the very nature and source of cash of Rs. 32,75,90,180/- on telescopic basis and the....
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....ome inconsistencies; that the downstream market evidence i.e. dealer stocks/purchases corresponding and that the corresponding Cash trail of delivery, collection, and utilisation thereof. Thus, mere allegation of the department based on suspicion and presumption formed based on dumped documents would not take the place of evidence until or unless supported with cogent material evidence. Since, the record does not demonstrate these corroborations for this year under consideration and accordingly, we hold that the impugned order of the CIT (A) on the issue of addition on account of "estimated gross profit embedded in estimated unaccounted sales of Rs. 75,60,60,489/- for Assessment Year 2022-23 is perverse to the facts on record. 11.3.6 In view of the above, we accept the grievance of the assessee as genuine and as such delete the addition of Rs. 8,07,47,260/- estimated and sustained by the CIT(A) as "estimated gross profit embedded in estimated unaccounted sales of Rs. 75,60,60,489" for Assessment Year 2022-23. Thus, the ground no. 3 of the assessee is allowed. 12 In the next ground 3.1 the appellant has challenged that the Ld. CIT(A) has erred in law and on facts of the case i....
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....6 crores, the hypothesis that the assessee "must have incurred" a separate unaccounted "initial stock expenditure" of Rs. 51.41 lakhs to commence any alleged suppressed sales is factually incoherent. A going concern's "first sale" in the financial year is ordinarily made out of opening inventories and continuous production funded by disclosed working capital and trade credit. Therefore, the CIT(A)'s "first unaccounted sale requires first unaccounted stock" narrative is internally inconsistent with audited accounts reality and ignores the existence of substantial opening stock and WIP. 12.1.3 The Income-tax Act taxes "income" Where transactions are treated as trading transactions, taxable additions must correspond to real income embedded in the stream (typically profit element). A method that first taxes profit and then taxes a notional stock value as deemed income-without being supported with separate evidence of unexplained funds-does not measure income as it measures a theoretical stock holding. In our view, Section 69C is not meant to transform ordinary business necessities into deemed incomes. It is meant to catch unexplained outflows where the source is not explained. Hence....
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....that the AO relied upon. Specifically, the assessment heavily based on certain documents and statements which are "dumb documents" seized from third parties, which were used to determine alleged unaccounted income. The appellant had expressly requested to cross-examine the persons from whom these documents were seized or who allegedly authored those entries, since the contents were unverified and adverse to the appellant. However, no such opportunity was afforded. The AO proceeded to draw conclusions from those documents without the test of cross-examination, thereby depriving the appellant of a chance to refute or clarify the contents. 13.1.2 The Ld. AR submitted that the department failure to allow cross-examination is a grave infraction of natural justice. When a document or statement is used against a taxpayer, the law mandates that the taxpayer be allowed to verify the veracity of that evidence in view of the principle of audi alteram partem (no one should be condemned unheard). The AR referred to numerous precedents reinforcing this principle, the relevant one reads as under: i) In Andaman Timber Industries (SC), the Supreme Court set aside the order because the a....
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....amining the author of the document or matching the entries with actual transactions), the document remains a meaningless piece of paper in the eyes of law. 14.1.1 In the instant case, the documents used by the AO fit this description of dumb documents. They were loose papers allegedly found elsewhere, containing rough figures that the AO interpreted as the appellant's unaccounted sales. Not only were these papers not proved through any witness (no cross-exam, as noted above), but critically, no other evidence was led to support what those figures imply. There were no purchase invoices, no trail of money, no stock discrepancy, no buyer statements - nothing to corroborate that the scribbled figures represented real, untaxed transactions of the appellant. The lower authorities simply assumed the notings to be true in isolation, which is a patent error of law. If these papers are set aside (as they should be, having no evidentiary weight on their own), the entire addition collapses for want of any supporting material. This aligns with the Supreme Court's observation in Andaman Timber that once the tainted evidence (untested witness statements in that case) is removed, "there was no ....
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....ier grounds of appeal). For instance, explanations regarding the so-called "unaccounted purchases" were given with reference to stock registers, and the unreliability of third-party statements was highlighted. Yet, the lower authorities "grossly ignored" these various submissions and explanations. The impugned orders simply reiterate the allegations without rebutting the appellant's points. This suggests that the orders were pre-decided or at least not impartially adjudicated, which is against settled law. 15.1.2 We find that in the present case, the issue challenged by the revenue is regarding deleting unaccounted purchases of Rs. 28,54,16,000/- as against Rs. 32,75,90,180/- discussed in the Assessment Order. However, the Department's own completed scrutiny assessments in the case of multiple distributors for Assessment Year 2022-23 materially corroborate the genuineness of the distribution chain and negate any sweeping inference of "non-genuine/sham" distributors. In these assessment orders, the very same Assessing Officer record that the submissions were perused/verified and the declared income is accepted, expressly recording that "no adverse inference" was found. Having acc....