AI Drafter 
TaxTMI 
TaxTMI 
2026 (5) TMI 1760
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....Y. 2020-21. 2. The assessee has raised the following grounds of appeal: "1. The Ld. CIT(A) erred in law as well as on fact in upholding an addition of Rs. 22,50,000/- made by Ld. AO u/s 69C of the Act based on incrementing material related to unaccounted purchases of fire crackers found in the course of search u/s 132 on M/s. Ambika Ashish Tradeling LLP. 2. The Ld. CIT(A) erred in law as well as on fact in upholding action of Ld. AO by making an addition without giving copies of incrementing material relied upon, statements of deponents relied upon for making addition and also not providing opportunity of cross examination, though specifically requested." 3. The brief facts of the case are that the assessee is an ind....
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.... of the assessee appeared, and that such entries represented actual transactions not recorded in the regular books of account maintained by the assessee. The Assessing Officer further relied on the statement recorded under section 132(4) of the Act of Shri Ashishkumar Jayantilal Khajanchi, who explained the modus operandi of unaccounted transactions carried out by the group. 5. The Assessing Officer rejected the assessee's explanation that no such transactions were undertaken and also declined the request for cross-examination of the searched persons on the ground that the addition was based on documentary evidence and not merely on statements. The Assessing Officer by invoking the provisions of section 69C read with section 115BBE of th....
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....aterial in the form of seized Rojmel entries and ledger records which specifically contained the name of the assessee and, therefore, the formation of belief under section 147 was valid. Reliance was placed on the decision of the Hon'ble Supreme Court in Raymond Woollen Mills Ltd. v. ITO to hold that at the stage of reopening, only prima facie material is required and sufficiency thereof cannot be examined. 8. With regard to the contention of denial of cross-examination, the CIT(Appeals) upheld the action of the Assessing Officer by observing that the addition was primarily based on documentary evidence in the form of seized material and that statements were only corroborative in nature. It was held that in such circumstances, non-grant ....
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....ave heard the rival contentions and perused the material available on record. The limited issue requiring adjudication is whether the entire alleged purchases of Rs. 22,50,000/- can be brought to tax under section 69C of the Act or whether only the profit element embedded therein is liable to be taxed. Even assuming, for the sake of argument, that the purchases in question are not fully verifiable or are made from unaccounted sources, the approach of the Assessing Officer in taxing the entire purchase amount cannot be sustained in law. 14. It is now a well-settled principle that where sales are accepted and only purchases are doubted, the entire purchases cannot be added and only the profit element embedded in such purchases is liable to....
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....ch is impermissible under the scheme of the Act. 16. We further find that the alternative contention of the assessee is legally sustainable that only the profit element embedded in such purchases can be subjected to tax. The consistent judicial view, as noted above, mandates that an estimation approach be adopted in such cases rather than wholesale addition. 17. As regards the contention of the assessee that no opportunity of cross-examination of the persons whose statements were relied upon was granted, we are unable to accept the same in the facts of the present case. It is observed that the addition is primarily based on seized documentary evidence in the form of Rojmel entries and ledger data recovered during the course of search,....