AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 1559
X X X X Extracts X X X X
X X X X Extracts X X X X
.... order dated 26/08/2025, partly allowed the appeal of the Assessee. As against the order of the Ld. CIT(A) dated 26/08/2025, both the Assessee and the Revenue have filed the captioned Appeals on following grounds. ITA No. 5757/Del/2025 (Assessee) "1. On the facts and circumstances of the case and in law, the order passed by the Ld. A.O and the addition made there in is bad in law and Ld. CIT(A) erred in not holding so. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition made by the Ld. Assessing Officer to the extent of Rs. 2,35,60,719/- on account of on the enhancement of gross profit u/s 28 of the Act. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition made by the Ld. Assessing Officer to the extent of Rs. 13,00,000/- on account of alleged unexplained money u/s 69A r.ws. 115BBE of the Act. 4. On the facts and circumstances of the case and in law, the approval taken by the assessing officer from Addl. CIT before passing the assessment order is contrary to the provisions of the Act." ITA No. 7587/Del (Revenue) "1. Whether on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acts and in the circumstances of the case, Ld. CIT(A) has erred in restricting addition made by the Assessing Officer under Section 28 of the Income-tax Act, 1961, on acco of out-of-books sales, from Rs. 12,02,11,656/- to Rs. 2,35,60,719/-, without appreciating that ti Assessing Officer had computed such sales after conducting a detailed and scientific analysis of multiple production and operational factors? 7. Whether on the facts and in the circumstances of the case, Ld. CIT(A) has erred in reducing the multiplier used for determining out-of-books sales from 3.39 times (adopted by the Assessing Officer) to 2.274 times of declared sales, without assigning any technical or evidential basis for such reduction. The action of the Ld. CIT(A) in altering the AO's well-reasoned and evidence based estimation is arbitrary and devoid of factual justification, ignoring the corroborative evidences gathered during search proceedings, which clearly established substantial unaccounted sales carried out by the assessee firm? 8. Whether on the facts and in the circumstances of the case, Ld. CIT(A) has further erred in applying a net profit rate of 10% instead of the gross pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ld. CIT(A) should have applied only NP rate, because, as per the seized material itself, there were evidence found of not only direct expenses by way of purchase, but also the indirect expenses such as salary and other expenses were in exist. The Ld. Counsel has also relied on several judicial precedents in support of his contention and sought for allowing Ground No. 2 of the Assessee and also sought for dismissal of Grounds No. 3,6 to 8 of Revenue's Appeal. 8. Per contra, the Ld. Departmental Representative vehemently submitted that the Ld. A.O. has rightly applied GP rate of 27.25% as it was clearly established that the Assessee was making unaccounted sales purchases and also unaccounted salary expenses. Therefore, submitted that the Ld. CIT(A) committed error in deleting the partial addition by applying estimated profit rate of 10%. Thus, sought for dismissal of Ground No. 2 of the Assessee and allowing Ground No. 3, 6 to 8 the Revenue's Appeal. 9. We have heard both the parties and perused the material available on record. The Ld. A.O. made the addition on alleged unaccounted sales by applying GP rate at 27.25%. However, the Ld. CIT(A) was of the opinion that estimation ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested." As to the nature of the presumption, the Kerala High Court, in Income Tax Officer, B-Ward, Ernakulam v. T. Abdul Majeed, [1988] 169 ITR 440, held as follows: - "It is true that section 132(4A) of the Act enables the court to presume the truth of the contents of such books. However, it is a presumption which can be rebutted. Moreover, the presumption envisaged therein is only a factual presumption. It is in the discretion of the court, depending upon other factors, to decide whether the presumption must be drawn. The expression used in the sub-section is "may be presumed" as is used in section 114 of the Evidence Act, 1872. It is not a mandate that whenever the books of account are seized, the court shall necessarily draw the presumption, irrespective of any other factors which may dissuade the court from doing so." 16. In P.R. Metrani v. Commissioner of Income Tax, Bangalore (2007) 1 SCC 789 the Supreme Court elaborated upon the nature of presumption under Section 132 (4A) and the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 132. A presumption is an inference of fact drawn from other known or proved facts. It is a rule of law under which courts are authorized to draw a particular inference from a particular fact. It is of three types, (i) "may presume", (ii) "shall presume" and (iii) "conclusive proof". "May presume" leaves it to the discretion of the Court to make the presumption according to the circumstances of the case. "Shall presume" leaves no option with the Court not to make the presumption. The Court is bound to take the fact as proved until evidence is given to disprove it. In this sense such presumption is also rebuttable. "Conclusive proof" gives an artificial probative effect by the law to certain facts. No evidence is allowed to be produced with a view to combating that effect. In this sense, this is irrebuttable presumption. The words in sub-section (4) are "may be presumed". The presumption under sub-section (4A) therefore, is a rebuttable presumption. The finding recorded by the High Court in the impugned judgment that the presumption under sub-section (4A) is a irrebuttable presumption in so far as it relates to the passing of an order under sub-section (5) of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nnot be regarded as the profit of the assessee. The net profit rate has to be adopted and once a net profit rate is adopted, it cannot be said that there is perversity of approach. Whether the rate is low or high, it would depend upon the facts of each case. In the present case net profit rate of five per cent. has been applied. We do not think it appropriate that the same requires to be enhanced. We are also inclined to think that it is high. In any case, it cannot be said that there has been perversity of approach". 12. In the case of Commissioner of Income Tax Vs. President Industries 1999 (4)TMI 8-Gujarat High Court wherein it was held as under: - "3. Having perused the assessment order made by the AO, the order made by the CIT(A) and the Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under s. 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Ground No. 2 of the Assessee and sustained the addition by applying NP rate of 2%, the Appeal of the Ground No. 3, 6 to 8 of the Revenue's Appeal are dismissed for having become in-fructuous. 16. Ground No. 3 of the Assessee is regarding against action of the Ld. CIT(A) in confirming the addition of Rs. 13,00,000/- on account of unexplained money u/s 69A r.w. Section 115BBE of the Act. 17. Heard the parties perused the material. It is the claim of the Assessee that certain additions were made and confirmed in the year under appeal as well as in preceding assessment years on account of estimation of income and such income has not been applied elsewhere. The Revenue has also not disputed this fact and therefore, the claim of the assessee was that the benefit of telescoping should be given against the cash found during the course of search. 18. On careful consideration of the facts and arguments, it is observed that certain income has been upheld in the hands of the Assessee and application of the same elsewhere has not been established by the revenue, therefore, it could be safely presumed that such cash found were available with the assessee. Though no explanation was te....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he revenue seeks to draw a presumption, by relying on Section 132 (4A) of the Act that presumption has to be given full effect. In other words, if the correctness of the contents of books and other materials is to be presumed, such a deemed state of affairs would have to be assumed in respect of all entries in the books, and not merely the entries of income (or receipts). 15. Section 132 (4A) reads as follows: "(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed- (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting ITA-1620 & 1622/2010 Page 12 of, any particular person,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bject of introduction of Section 132 is to prevent the evasion of tax, i.e., to unearth the hidden or undisclosed income or property and bring it to assessment. It is not merely an information of undisclosed income but also to seize money, bullion etc. representing the undisclosed income and to retain them for the purposes of realization of taxes, penalties etc. Search and seizure is a serious invasion in the privacy of the person. Section 132 which is a complete code by itself provides that the money, bullion or the books of account etc. should not be retained unnecessarily and that the provisional assessment made under Section 132 for the purpose of retention of the books is passed within a specified time in accordance with law. It provides that the books of account, money and bullion which are not required are not retained unnecessarily thereby causing harassment to the person concerned. In order to see that the assessment order is framed within the time frame provided under Section 132, legislature provided for a rebuttable presumption to be raised against the person from whose possession and control the books of account, money, bullions etc. are seized so that the order can be....