TaxTMI 
TaxTMI 
2026 (9) TMI 2030
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....foresaid appeals are tabulated hereunder: S. No A.Y Appeal No Date of assessment order Assessment order passed u/s. Date of CIT(A) order Appeal by 1 2020-21 ITA 2285/CHNY/2026 12.02.2025 147 15.04.2026 Assessee 2 2021-22 ITA 2286/CHNY/2026 30.12.2022 143(3) 15.04.2026 Assessee 3 2021-22 ITSSA 19/CHNY/2026 Revenue 4 2022-23 ITSSA 20/CHNY/2026 29.03.2024 143(3) 15.04.2026 Revenue 3. Since the issues involved in all these appeals are identical and arise out of the same search proceedings, these appeals were heard together. Therefore, for the sake of convenience and brevity, they are being disposed of by this consolidated order. 4. The brief facts of the case as emanating from the records are that the assessee is a partnership firm engaged in the business of mining and operation of a blue metal quarry. The firm consists of two partners, namely, Shri K.Narendar and Shri P. Subramani. A search and seizure action u/s. 132 of the Income-tax Act, 1961 (hereinafter referred to as "the Act") was carried out in the business premises of the assessee on 02.03.2022. ....
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....he assessee disclosed total sales/turnover of Rs. 8,23,38,060/-. The case of the assessee in respect of this assessment year was materially different from the preceding two assessment years. According to the assessee, the cash sales of Rs. 5,91,57,963/- reflected in the seized Tally data already formed part of the total turnover of Rs. 8,23,38,060/- disclosed in the Profit and Loss Account. It was, therefore, contended that the said amount could not once again be brought to tax separately as undisclosed sales. 10. In the course of assessment proceedings, the AO called upon the assessee to explain as to why the entire amount of sales identified from the seized Tally data as per the above extract should not be treated as undisclosed business income for the respective assessment years. In response, the assessee submitted that the entire sales/turnover could not, in law or on facts, constitute income of the business. It was explained that extraction, production and sale of blue metal necessarily involved substantial expenditure and that the sales in question could have been effected only after incurring corresponding expenditure. 11. The assessee explained that various expenses w....
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....med to have been incurred in earning the alleged unaccounted sales by producing supporting documentary evidence such as invoices, vouchers and other contemporaneous records. The AO further observed that the gross profit rates adopted by the assessee for estimating the income attributable to the alleged unaccounted sales were not supported by verifiable material. On this premise, the AO rejected the assessee's contention that only the profit element embedded in the alleged unaccounted turnover was liable to be brought to tax. 15. Insofar as A.Y. 2022-23 was concerned, the AO further held that the assessee had failed to conclusively establish, by producing supporting evidence, that the cash sales of Rs. 5,91,57,963/- reflected in the seized Tally data were already embedded in the total turnover of Rs. 8,23,38,060/- disclosed in the Profit and Loss Account. 16. The AO accordingly proceeded to treat the entire amount of the unaccounted sales as business income of the assessee. However, for AY(s) 2020-21 and 2021-22, credit was allowed for the additional income already offered by the assessee. The resultant additions made by the AO may be summarized as under: Particulars AY ....
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....remaining after meeting the expenditure incurred for earning the receipts, and not upon gross turnover. In support of this proposition, assessee relied upon various judicial pronouncements before the Ld.CIT(A) notably CIT v. President Industries [2002] 258 ITR 654 (Guj), Man Mohan Sadani v. CIT [2008] 304 ITR 52 (MP), CIT v. Balchand Ajit Kumar [2003] 263 ITR 610 (MP), CIT v. Sharda Real Estate (P.) Ltd. [2013] 8 TMI 1089 (MP) and CIT v. Bokaro Steel Ltd. [1988] 170 ITR 522 (Pat.) and accordingly submitted before the Ld.CIT(A) that the entire suppressed/unaccounted sales cannot be assessed as income and that only the profit component embedded therein is liable to tax. 23. The assessee also relied upon on the decision of the Coordinate Bench of this Tribunal in in DCIT v. Radiance Realty Developers India Ltd., ITA Nos. 2978 to 2984/Chny/2024, wherein, according to the assessee, this Tribunal held that the mere existence of unaccounted sales/receipts would not justify treating the entire receipts as undisclosed income, particularly when there was no admission that the entire receipts constituted profit and no corresponding unexplained assets or investments of such magnitude were f....
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....as income was stated to be contrary to the principle laid down in President Industries (supra). The assessee accordingly submitted that the Revenue could, at the highest, assess the real income or profit embedded in the suppressed turnover and not the gross sale proceeds themselves. 28. The assessee also demonstrated before the Ld.CIT(A) that the assessment of the entire unaccounted sales resulted in commercially unrealistic profit ratios. The total turnover, after taking into account both disclosed and unaccounted sales, worked out to Rs. 7,01,87,020/- for A.Y.2020-21 and Rs. 9,45,47,777/- for A.Y.2021-22. After including the additions made by the AO, the business income stood determined at Rs. 4,28,92,395/- and Rs. 7,65,16,168/-, respectively, resulting in net profit ratios of 61.11% and 80.92%. It was submitted that such profit margins were commercially improbable having regard to the nature of the assessee's mining business. In contrast, for the immediately preceding A.Y.2019-20, the assessee had disclosed turnover of Rs. 2,38,22,754/- and net profit of Rs. 20,40,448/-, giving a net profit rate of 8.57%, and the said results had been accepted. According to the assessee, ....
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....3/- stood fully subsumed in the total turnover of Rs. 8,23,38,060/- already disclosed by the assessee and, consequently, the separate addition of Rs. 5,91,57,963/- made by the AO amounted to taxing the very same sales twice. 34. The assessee further pointed out that the AO's approach effectively resulted in determination of total sales at Rs. 14,14,96,023/- [Rs.8,23,38,060/- + Rs. 5,91,57,963/-], although neither the search proceedings nor the assessment proceedings yielded any material demonstrating sales of such magnitude. 35. It was also contended that, when the seized Tally data itself showed aggregate sales of only Rs. 7,94,06,416/- for the first eleven months ending 28.02.2022, acceptance of the AO's computation would necessarily imply sales of approximately Rs. 6.21 crore in March 2022 alone, whereas the actual sales for March 2022 were only Rs. 29,31,643/-. According to the assessee, there was no seized material or other evidence to support such an inference and the same was contrary to the seized Tally data as well as normal commercial probabilities. The assessee, therefore, submitted that there was no material to establish that the cash sales of Rs. 5,91,57,....
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....e, the resultant profit ratio exceeded 60% for A.Y. 2020-21 and 80% for A.Y.2021-22. According to the Ld.CIT(A), such extraordinarily high margins were wholly disproportionate to the nature of the assessee's business, which necessarily involved substantial operational and other business expenditure. 40. The Ld.CIT(A) further took note of the fact that the accounted segment of the very same business yielded a profit of approximately 17%. In the light of the profitability disclosed in the regular business, the Ld.CIT(A) held that the action of the AO in assessing the entire unaccounted turnover as income gave rise to an artificial and commercially unrealistic result having no reasonable nexus with the normal profitability of the assessee's business. 41. The Ld.CIT(A), therefore, held that merely because the assessee was not in a position to furnish complete and independently verifiable evidence in respect of every item of expenditure relatable to the unaccounted transactions, it would not follow that no expenditure whatsoever had been incurred for effecting such sales. According to the Ld.CIT(A), the income liable to tax had to be determined having regard to the nature ....
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....57,963/- did not represent turnover over and above the aggregate turnover of Rs. 7,94,06,416/- reflected in the seized material. 46. The Ld.CIT(A) further found that the assessee had reconciled the aforesaid sales with the GST returns for the quarter ending March 2022 and had also discharged the applicable GST thereon. The turnover was reflected partly as B2B sales and partly as B2C sales. The reconciliation so furnished by the assessee was not disproved by the AO by bringing any adverse or contrary material on record. More importantly, the Ld.CIT(A) noticed a direct numerical reconciliation between the turnover appearing in the seized material and the turnover ultimately disclosed in the regular books of account. Whereas the seized Tally data reflected aggregate sales of Rs. 7,94,06,416/- up to February 2022, the assessee had disclosed further sales of Rs. 29,31,643/- for the month of March 2022. The aggregate thereof worked out to approximately Rs. 8,23,38,060/-, which corresponded with the turnover of Rs. 8,23,38,060/- disclosed by the assessee in its Profit & Loss Account. The turnover declared by the assessee was, therefore, found by the Ld.CIT(A) to be in consonance with b....
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....on the respective issues decided against them. 50. For AY(s) 2020-21 and 2021-22, the assessee is aggrieved by the action of the Ld.CIT(A) in estimating the profit at 45% of the unaccounted turnover. The case of the assessee is that the Ld.CIT(A), having accepted the principle that only the profit element embedded in the unaccounted turnover could be brought to tax, ought to have accepted the profit rates of 25% for A.Y. 2020-21 and 19.7% for A.Y. 2021-22, respectively, as voluntarily offered by the assessee, which, according to the assessee, represented a fair and reasonable estimate having regard to the nature of its business and the surrounding facts and circumstances. 51. The assessee has also raised an alternative contention that, in any event, the Ld.CIT(A) ought to have issued a specific direction to the AO to give due credit for and reduce the income already voluntarily offered by the assessee from the income ultimately determined by applying the estimated profit rate, so as to ensure that the same income is not subjected to tax twice. 52. The Revenue, on the other hand, is in appeal for AY(s) 2021-22 and 2022-23. For A.Y. 2021-22, the Revenue has challenged the ac....
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.... search and seizure operation u/s. 132 of the Act was conducted in the group cases on 02.03.2022, during which incriminating material, including electronic records and Tally data, was found. On verification of the seized electronic records, the Investigation Wing noticed that the sales recorded in the Tally database did not reconcile with the sales disclosed in the regular books of account and returns of income. The seized data contained separate ledgers styled as "Cash Sales" and "Local Credit Sales", recording transactions with various parties. The AO, after examining the seized material, quantified the unaccounted sales pertaining to the respective assessment years. Since the assessee had already offered additional income in the return of income, the AO brought the balance amount of unaccounted sales to tax. The Ld.DR submitted that the addition was thus founded upon specific electronic records found during search and was not merely based upon conjectures, assumptions or an arbitrary estimation of turnover. 56. The Ld.DR further submitted that the assessee had not disputed the existence of the unaccounted sales found in the seized electronic records. The assessee acknowledged....
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....ing the actual incurrence of the expenditure, the Ld.DR submitted that the Ld.CIT(A) ought not to have granted relief merely on the presumption that a mining concern must necessarily incur substantial expenditure to generate sales. According to the Ld.DR the Ld.CIT(A) had, therefore, erred in accepting the assessee's claim for deduction towards expenditure without first examining whether the corresponding expenditure had been duly substantiated. 60. It was further submitted that the assessee's claim of incurring expenditure equivalent to a substantial percentage of undisclosed sales required independent verification and could not be accepted merely on the basis of an estimated profit margin. The Ld.DR contended that, in the absence of reliable material establishing the corresponding expenditure, the ld.CIT(A) ought not to have substituted the addition made by the AO with an estimated addition of 45%. The Ld.DR, therefore, submitted that the relief granted by the Ld.CIT(A) was not sustainable and that the addition made by the AO deserved to be restored and accordingly prayed for dismissal of the assessee's appeal for the assessment years under consideration and prayed for....
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.... income arising from business transactions and not the gross receipts in their entirety, except where a specific statutory provision warrants a different treatment. In the absence of any material demonstrating that the entire sale consideration represents unexplained money or that the corresponding costs have been separately funded out of undisclosed sources, the AO cannot mechanically equate the unaccounted sales with taxable income. 65. The Ld. AR submitted that the principle of taxation of real income requires the computation to reflect the actual commercial substance of the transactions. The AO is therefore obliged to distinguish between the gross receipts arising from the business and the profit component embedded therein. The adoption of the entire turnover as income, without considering the costs necessarily associated with the generation of such turnover, would result in an artificial and excessive determination of taxable income. 66. The Ld. AR further submitted that, where the Revenue has accepted the existence of sales arising from the assessee's regular business activity, the expenditure ordinarily and necessarily associated with such sales cannot be ignored m....
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....ng such sales merely because separate vouchers or supporting documents for every unaccounted transaction are unavailable. 70. The Ld.AR further submitted that the insistence of the AO upon documentary proof of each item of expenditure, as a precondition for recognising any expenditure whatsoever, would render the principle of reasonable estimation wholly nugatory. Such an approach would effectively result in treating gross receipts as profits in every case involving unaccounted sales, irrespective of the commercial realities of the business. 71. The Ld. AR submitted that the AO was required to undertake a reasonable estimation of the income element embedded in the sales, rather than proceed on the presumption that the assessee had earned the entire sale consideration without incurring any corresponding expenditure. The Ld. AR further placed reliance upon the decision of the Coordinate Chennai Bench of this Tribunal in DCIT v. Radiance Realty Developers India Ltd., ITA Nos. 2978 to 2984/Chny/2024, order dated 02.05.2025. It was submitted that the Tribunal, while considering the addition made in respect of unaccounted cash collections arising from the sale of flats, examined th....
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....he Ld. AR submitted that, although the Ld.CIT(A) correctly appreciated the principle that only the profit element embedded in the unaccounted sales could be brought to tax, the adoption of a profit rate of 45% is wholly excessive, arbitrary and unsupported by the facts and circumstances of the assessee's case. 75. The Ld. AR submitted that the Ld.CIT(A), while determining the profit rate, had placed reliance upon the case of one M/s. S Traders without appreciating the material differences between the business activities carried on by the said concern and those carried on by the assessee. The Ld. AR pointed out that M/s.S Traders is stated to be engaged in diversified business activities, including M-sand, P-sand and other related products, whereas the assessee is engaged exclusively in mining and operating a blue metal quarry. The Ld.AR submitted that the profitability of a business engaged in manufacturing or processing multiple products cannot be mechanically adopted as the benchmark for estimating the income of a concern engaged in mining and quarrying operations. 76. It was contended that the profitability of a particular business depends upon several factors, includi....
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....ccount for the assessment year 2019-20, the Ld. AR submitted that the assessee had disclosed a net profit ratio of only 8.57% from its regular business operations. The said ratio, according to the Ld. AR, provides a relevant internal benchmark for evaluating the reasonableness of the profit offered in respect of the unaccounted sales for the subsequent assessment years. The Ld.AR submitted that, as against the disclosed net profit ratio of 8.57% for the assessment year 2019-20, the assessee had voluntarily offered income by applying profit rates of 25% and 19.7% on the unaccounted sales for the assessment years 2020-21 and 2021-22, respectively. The Ld.AR contended that the profit rates voluntarily adopted by the assessee are substantially higher than the net profit ratio disclosed in its regular books of account. This, according to the Ld.AR, demonstrates that the assessee has already adopted a reasonable and conservative approach while determining the income attributable to the unaccounted sales. The Ld. AR further submitted that the profit rates of 25% and 19.7% were not adopted mechanically by applying the regular net profit ratio of 8.57%. On the contrary, the assessee had off....
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....um of profit determined thereunder are separate matters requiring independent examination. The Ld. AR submitted that, while the Revenue's contention seeking taxation of the entire unaccounted turnover deserves to be rejected, the assessee's grievance against the excessive estimation at 45% requires to be adjudicated on the basis of the actual business activities, the disclosed results and the surrounding facts and circumstances. The Ld. AR further submitted that the adoption of 45% would result in assessing a substantially higher income without any corresponding material demonstrating that the assessee had earned such an extraordinary profit margin from its mining and quarrying operations. The Ld. AR contended that an estimate of income must be fair, reasonable and founded upon relevant material. It cannot be sustained merely because the exact amount of income attributable to the unaccounted sales is incapable of precise determination. Accordingly, the Ld.AR submitted that the Ld.CIT(A) was justified in principle in adopting the method of profit estimation but was not justified in determining the profit element at 45%. The Ld. AR thus prayed that the appeals preferred by th....
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....ch, involve substantially identical facts, and raise interconnected questions concerning the taxability of unaccounted sales, we consider it appropriate to adjudicate these appeals together by this consolidated order. 84. The controversy before us lies in a narrow compass. The first question which arises for our consideration is whether the AO was justified in treating the entire amount of unaccounted sales detected during the course of search as the business income of the assessee, after reducing the additional income already offered in the respective returns of income. The second question is whether, in the absence of complete documentary evidence substantiating the expenditure attributable to such unaccounted sales, the assessee is disentitled to the benefit of reasonable expenditure necessarily incurred in generating the turnover. The third question concerns the correctness of the profit rate of 45% adopted by the Ld.CIT(A), as against the rates of 25% and approximately 19.70% voluntarily adopted by the assessee for AY(s) 2020-21 and 2021-22, respectively. The further issue is whether the Ld.CIT(A) ought to have issued a specific direction to the AO to grant credit for the i....
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.... in the case of CIT v. President Industries [2002] 258 ITR 654 (Guj), wherein the Hon'ble High Court has explained the distinction between undisclosed sales and undisclosed income and held that the entire amount of suppressed sales cannot be treated as income merely because such sales were not recorded in the books. The Hon'ble High Court has further held that, unless there is a finding supported by material establishing that the investment made in acquiring the goods sold was also undisclosed, the entire sale proceeds cannot be assessed as income. The ratio of the aforesaid judgment is that the consideration realised on sale includes the recovery of the cost incurred in acquiring the goods and that it is only the excess over such cost which represents the profit embedded in the sale consideration. The relevant observations of the Hon'ble High Court are reproduced hereunder for ready reference: "3. Having perused the assessment order made by the Assessing Officer, the order made by the Commissioner (Appeals) and the Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under section 256(1). It cannot be a matter of an argument that....
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.... unaccounted receipts could not be treated as income merely because the assessee had failed to maintain complete documentary evidence of the corresponding expenditure. The Tribunal further considered the absence of unexplained cash, assets or investments commensurate with the gross receipts and the commercially unrealistic profit results arising from the AO's approach. The principle emerging from the aforesaid decision is that the income embedded in unaccounted business receipts must be reasonably determined and that the entire receipts cannot be mechanically assessed as profits. The relevant observations of this Tribunal in DCIT v. Radiance Realty Developers India Ltd (supra) are as under: "4.12 Having held so above, now the next issue for our consideration is whether the entire value of these cash sales / receipts have to be brought to tax or only the profit element embedded therein has to be taxed. From the facts placed before us, it is noted that the assessee is engaged in the business of development of real estate. In the course of search, electronic data was found, more particularly excel sheets which inter alia contained details of cash proceeds received on sale....
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.... not reveal incurrence of any expenses qua such cash collections and therefore, he argued that the AO had rightly brought the entire on-monies to tax. On the other hand, the Ld. AR brought to our notice that, the assessee had demonstrated before the lower authorities that, they were required to incur expenses viz., (i) miscellaneous & incidental Expenses during registration process, (ii) provide additional amenities provided as per the customer's requirements, (iii) additional expenses for furnishing the flats like Welcome kits to the customers, Apartment activities etc. & (iv) make pooja arrangements during House-warming ceremonies. The Ld. AR further contended that, had the assessee collected such huge on-monies and not incurred any expenses, then such cash collections ought to have been found in the form of some unexplained investment or asset, in the course of search. We observe that, apart from these excel notings, the Investigating Officer didn't find any unaccounted cash or assets of such magnitude which would justify the addition of entire on-monies as income of the assessee. And as rightly pointed out by the Ld.AR that if the entire on-monies is treated as the income of th....
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....unaccounted expenditure in the cases of this kind. The underlined logic is that the unaccounted expenditure is always unevidenced and never maintained. Therefore, transferring onus on to the assessee in matters of this kind is not approved. Ex consequenti, it is for the AO allow necessarily reasonable deduction towards such unaccounted expenditure without demanding evidences, considering the nature of industry and also evidences relating to extents of net profits earned by the assessee. Considering the above legal position on the matter, we are of the clear-cut opinion, the AO's conclusions on this issue are certainly erroneous. In principle, we uphold the views of the CIT(A) in this regard. Therefore, relevant grounds raised in the revenue's appeals are dismissed." 4.15 It was brought to our notice that the above findings of this Tribunal have been affirmed by the Hon'ble Bombay High Court in their decision rendered in ITA No.2452 of 2013. Following the ratio decidendi, this particular argument of the Revenue is hereby rejected." 91. Applying the aforesaid principles to the facts of the present case, we find that the assessee is engaged in the business of minin....
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....ver. These resultant ratios are wholly disproportionate to the profit margins disclosed by the assessee in its regular business and are not supported by any material demonstrating that the assessee's mining operations yielded such exceptionally high profitability. The AO has not brought on record any comparable instance or other evidence establishing that the assessee could have earned the entire sale consideration, or substantially the whole thereof, as its net income. 95. We are, therefore, of the considered view that the AO was not justified in equating the entire unaccounted sales with the income of the assessee. The unaccounted sales identified from the seized material are liable to be taken into consideration for determining the taxable business income; however, the addition must be confined to the profit element reasonably attributable thereto, subject to the consideration of any separately established unexplained investment or other taxable item, if any. No such separate item has been established in the present proceedings. 96. In the light of the foregoing discussion, we concur with the finding of the Ld. CIT(A) that the entire unaccounted turnover cannot be asse....
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....at the reasonable expenditure attributable to such receipts should be determined with reference to the facts of the case, the nature of the industry and the profit margins earned by the assessee. 100. The aforesaid principle was subsequently considered and followed by the Coordinate Chennai Bench of this Tribunal in Radiance Realty Developers India Ltd. (supra). In paragraphs 4.13 to 4.15 of the said order, this Tribunal specifically examined the Revenue's contention that, since the assessee had not furnished exact details and supporting evidence of expenditure incurred out of the unaccounted cash collections, the entire receipts ought to be assessed as income. This Tribunal rejected the said contention and upheld the principle of reasonable estimation of the profit element embedded in unaccounted receipts. 101. In our view, the ratio of the aforesaid decisions squarely supports the assessee's contention that the absence of complete documentary evidence of every item of expenditure cannot be made the sole basis for treating the entire unaccounted turnover as income. If the Revenue's proposition were accepted without qualification, every case involving unaccounted ....
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....n of the Revenue is rejected. 105. Having upheld the decision of the Ld.CIT(A) insofar as he held that only the profit element embedded in the unaccounted sales is liable to be assessed as income, we now proceed to examine the correctness of the profit rate of 45% adopted by him for both assessment years. The assessee has vehemently challenged the aforesaid estimation on the ground that the rate is excessive and unsupported by the facts and circumstances of its business. According to the assessee, the profit rates of 25% and approximately 19.70% voluntarily adopted for AY(s) 2020-21 and 2021-22, respectively, constitute a fair and reasonable estimation of the income attributable to the unaccounted sales. 106. We find that the Ld.CIT(A), while rejecting the AO's method of assessing the entire unaccounted turnover as income, has proceeded to estimate the profit at 45% principally having regard to the magnitude of the unaccounted transactions and the gross profit rate of approximately 43% stated to have been adopted in the case of another concern, namely, M/s.S Traders. The Ld.CIT(A) has, however, not demonstrated how the said rate could reasonably be applied to the assessee....
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.... for A.Y. 2019-20 and are also higher than the profit margin of approximately 17% noticed by the Ld.CIT(A) in the accounted segment of the business. 109. We are conscious of the fact that the profitability of accounted and unaccounted transactions need not necessarily be identical. Unaccounted transactions may involve differences in pricing, expenditure and other commercial considerations. Nevertheless, any upward departure from the assessee's own trading results must be founded upon relevant material. In the present case, the assessee has already adopted enhanced profit rates in respect of the unaccounted sales. Neither the AO nor the Ld.CIT(A) has identified any specific circumstance demonstrating that the profit embedded in such sales was substantially higher than the rates voluntarily offered by the assessee. 110. We further find that the adoption of a uniform profit rate of 45% for both assessment years does not adequately take into consideration the assessee's own financial results or the differences in the quantum and circumstances of the transactions pertaining to the respective years. The estimation appears to have been made principally on the basis of an ext....
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.... furnished any cogent justification for adopting the rate of 45%, particularly when the assessee's own disclosed results provide a more relevant basis for estimation. The reliance placed upon M/s.S Traders, without establishing functional and economic comparability, does not constitute sufficient material for disregarding the profit rates voluntarily adopted by the assessee. We also find it relevant to examine the financial consequences of the estimation adopted by the Ld.CIT(A). If the profit rate of 45% is applied to the unaccounted sales of Rs. 4,06,55,539/- for A.Y. 2020-21, the estimated income would work out to approximately Rs. 1.83 crores. Similarly, for A.Y.2021-22, application of the said rate to the unaccounted sales of Rs. 7,50,49,959/- would result in estimated income of approximately Rs. 3.38 crores. These figures are substantially higher than the income of Rs. 1,01,63,890/- and Rs. 1,47,89,491/- already voluntarily offered by the assessee for the respective assessment years. The aforesaid estimation would thus result in a substantial enhancement of the income attributable to the unaccounted sales without any corresponding material establishing that the assessee h....
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.... a higher profit element in the unaccounted transactions. We do not find any material brought on record by the Revenue which would warrant further enhancement of the said rates. 118. We accordingly hold that, in the peculiar facts and circumstances of the present case, the profit rates of 25% and approximately 19.70% voluntarily adopted by the assessee for AY(s) 2020-21 and 2021-22, respectively, constitute a fair and reasonable estimation of the income embedded in the unaccounted sales. The estimation of income at 45% by the Ld.CIT(A) is, therefore, unsustainable and is hereby set aside. We direct the AO to accept the profit voluntarily offered by the assessee attributable to the unaccounted sales in the respective returns of income filed. Therefore, the AO is directed to accept the income declared in the return of income filed for the A.Y.2020-21 and 2021-22. Consequently, no further addition on account of the very same unaccounted sales is warranted. 119. We shall now deal with the alternative contention of the assessee that the Ld.CIT(A), having restricted the addition to the estimated profit element embedded in the unaccounted sales, ought to have issued a specific direc....
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....cording to the AO, had not been accounted for in the regular books of account of the assessee. The Ld.DR contended that the Ld.CIT(A), without properly appreciating the evidentiary value of the seized material and the findings recorded by the AO, had accepted the explanation of the assessee and directed deletion of the addition, which was wholly unjustified. 123. The Ld.DR drew the attention of the Bench to the detailed tabulation reproduced in the assessment order, wherein the AO had quantified the unaccounted sales of the assessee at Rs. 4,06,55,539/- Rs. 7,50,49,959/- and Rs. 5,91,57,963/- for the financial years 2019-20, 2020-21 and 2021-22, respectively, aggregating to Rs. 17,48,63,461/-. The Ld.DR submitted that the quantification was made on the basis of the entries appearing in the Tally database, including the ledgers maintained under the heads "Cash Sales" and "Local Credit Sales", and was not merely an estimate arrived at by the Investigation Wing. The seized records contained particulars of sales effected to various parties, and the AO had specifically identified the unaccounted sales pertaining to the assessment year under consideration at Rs. 5,91,57,963/-. The Ld.....
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.... one-to-one correlation between the individual cash sale transactions aggregating to Rs. 5,91,57,963/- and the sales of Rs. 8,23,38,060/- declared in the return of income. According to the Ld.DR, the assessee ought to have furnished a transaction-wise reconciliation identifying the corresponding entries in the regular sales ledger, the relevant dates, amounts, particulars of purchasers, and the manner in which the cash sales detected during search were incorporated in the disclosed turnover. In the absence of such reconciliation, the assessee's explanation remained an unsubstantiated assertion. The Ld.DR submitted that the AO had specifically recorded that, apart from the assessee's statement and Form 26AS, no documentary evidence had been produced to conclusively establish that the cash sales detected during search formed part of the turnover offered in the return of income. The Ld.DR, therefore, contended that the Ld. CIT(A) had erred in accepting the explanation of the assessee without establishing a direct nexus between the seized entries and the disclosed sales. 127. The Ld.DR further invited the attention of the Bench to the Profit and Loss Account extracted from t....
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....ear under consideration, when viewed in conjunction with the unaccounted cash sales detected during search, constituted a relevant circumstance indicating possible suppression of sales and consequent understatement of business income. The Ld.DR submitted that the Ld. CIT(A) ought not to have ignored the comparative profitability of the assessee's business while examining the correctness of the returned income. 130. The Ld. DR contended that the assessee was engaged in the same line of mining business during the relevant assessment years and that the substantial reduction in the net profit ratio called for a satisfactory explanation supported by the books of account and other relevant material. It was submitted that the assessee had not demonstrated, to the satisfaction of the Assessing Officer, the existence of any exceptional commercial circumstances warranting such a steep decline in profitability. The Ld. DR submitted that, when the low net profit ratio was considered together with the seized Tally records and the failure of the assessee to establish a one-to-one correlation between the unaccounted sales and the disclosed turnover, the inference drawn by the Assessing Off....
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....gs, constituted relevant comparative material for determining an appropriate rate of profit, subject to consideration of the facts of the relevant assessment years. 134. The Ld.DR accordingly made an alternative prayer that, in the event of the Hon'ble Tribunal confirming the order of the Ld.CIT(A) insofar as it deleted the addition of the entire sales consideration, appropriate directions may be issued for estimation of the profit element attributable to the unaccounted sales of Rs. 5,91,57,963/- as the assessee had shown a net profit of Rs. 4.99 crores based on the turnover of both declared and undeclared of Rs. 7.94 crores in the seized tally as on 28.02.2022. The Ld.DR submitted that such estimation ought to be made at a reasonable rate having regard to the material available on record and the profit rates adopted in the earlier assessment years, after giving due consideration to the income, if any, already offered by the assessee in respect of the very same transactions. The Ld. DR thus prayed that the appeal filed by the Revenue be allowed, either by restoring the addition made by the AO or, in the alternative, by directing appropriate estimation of the profit element ....
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.... 7,01,87,020/- for AY 2020-21 and Rs. 9,45,47,777/- for AY 2021-22. The average turnover for these two years was approximately Rs. 8.24 crores, which was substantially in line with the turnover of Rs. 8,23,38,060/- disclosed by the assessee for the year under consideration. The Ld. AR submitted that these comparative figures further supported the turnover declared by the assessee. 140. The Ld. AR further submitted that the disputed sales of Rs. 5,91,57,963/- were subsequently reported in the GST returns filed for the quarter ending March 2022. The assessee had reported total sales of Rs. 6,16,10,811/- for the said quarter, comprising the disputed sales of Rs. 5,91,57,963/- and sales of Rs. 24,52,848/- effected during March 2022. Thus, the very same sales identified during the search were subsequently subjected to GST. 141. The Ld.AR submitted that, out of the disputed sales, an amount of Rs. 4,26,99,223/- pertaining to M/s.P S Blue Metals was duly reported as B2B sales in GSTR-1. The remaining sales were reported as B2C sales. The assessee had not effected any fresh sales to M/s.P S Blue Metals during the quarter ending March 2022. The GST returns therefore corroborated the a....
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....offered to tax. 146. The Ld. AR submitted that any further estimation of profit on the same sales would result in taxing the income attributable to those sales twice. Moreover, the AO had neither rejected the books of account nor resorted to estimation of income. The alternative plea of the Ld.DR was therefore not the case made out in the assessment order and was devoid of merit. 147. In conclusion, the Ld. AR submitted that the AO had failed to establish that the disputed sales of Rs. 5,91,57,963/- were over and above the turnover declared by the assessee. The seized Tally data, GST returns and Profit and Loss Account clearly supported the assessee's explanation that the disputed sales had already been accounted for. The Ld.CIT(A) was therefore fully justified in deleting the addition. Accordingly, the Ld.AR prayed that the order of the Ld.CIT(A) on this issue be upheld and the grounds raised by the Revenue be dismissed. 148. We have heard the rival submissions, perused the orders of the authorities below, and carefully considered the material placed before us including the written submission placed by both the sides. The solitary issue arising for our consideration i....
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....963/- to the turnover of Rs. 8,23,38,060/- disclosed by the assessee in its Profit and Loss Account. The consequence of such an approach was that the assessee's total turnover stood enhanced to Rs. 14,14,96,023/-. However, the assessment order does not identify any independent sales transactions which, when added to the turnover already disclosed, would justify such an enhanced figure. The AO has not demonstrated that the sales of Rs. 5,91,57,963/- were outside the total sales of Rs. 7,94,06,417/- appearing in the seized Tally data. Nor has he established that the said sales were excluded from the turnover of Rs. 8,23,38,060/- ultimately disclosed by the assessee. The addition has, therefore, proceeded on an assumption that the sales identified as not having been subjected to GST on the date of search necessarily represented additional turnover for income-tax purposes. In our considered view, such an assumption cannot substitute the factual enquiry necessary to establish that the impugned sales were over and above the turnover already disclosed. 151. We find that the Ld.CIT(A) has examined the seized Tally data in conjunction with the turnover disclosed in the Profit and Los....
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....ively. The AO has relied upon the entries under the heads "Local Credit Sales" and "Local Sales" to quantify the impugned amount of Rs. 5,91,57,963/-. However, the same seized database also contains the aggregate sales figure of Rs. 7,94,06,417/-, of which the impugned amount forms a part. Once the AO relies upon the seized electronic records as the foundation of the addition, the entries contained therein must be appreciated in their entirety and in their proper accounting context. The individual ledger balances cannot be detached from the aggregate sales figure and treated as independent turnover merely because those ledger balances had not been subjected to GST on the date of search. Such an approach would amount to considering one portion of the seized material while disregarding another portion which is directly relevant to the quantification of the alleged undisclosed turnover. 154. We further find that the assessment order does not disclose any exercise undertaken by the AO to establish that the sales identified under the aforesaid ledger heads were excluded from the turnover disclosed by the assessee. No separate sales register, parallel account, independent statement of....
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....;s objection, insofar as it proceeds on the latter understanding, fails to address the actual reconciliation accepted by the Ld.CIT(A). 157. We are conscious that an aggregate reconciliation, standing alone, may not conclusively establish the inclusion of every individual transaction where the underlying records disclose material inconsistencies. However, in the present case, the Revenue has not identified any particular transaction which is shown to have remained outside the declared turnover notwithstanding the reconciliation furnished by the assessee. No specific duplication, omission, inconsistency in purchaser particulars, or discrepancy in the GST disclosures has been brought to our notice which would dislodge the findings recorded by the Ld.CIT(A). The Revenue's contention remains that a more elaborate transaction-wise reconciliation ought to have been furnished. Such a general objection, without demonstrating any material error in the reconciliation actually accepted by the first appellate authority, is insufficient to warrant reversal of the impugned finding. 158. We now advert to the GST records relied upon by the assessee. It is the specific case of the assesse....
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....come-tax purposes. However, the Ld.CIT(A) has not deleted the addition merely because the assessee subsequently discharged GST. The GST returns have been considered as corroborative evidence in conjunction with the seized Tally data and the Profit and Loss Account. The question is whether the cumulative effect of these records supports the assessee's explanation. Having regard to the facts discussed hereinabove, we find that the Ld.CIT(A) has correctly appreciated the GST disclosures as part of the overall reconciliation rather than treating them as conclusive evidence in isolation. 161. The assessee has also furnished a comparison of the annual turnover reported in GSTR-3B with the turnover disclosed in the Profit and Loss Account. The turnover reported in GSTR-3B was Rs. 8,22,49,874/-, whereas the turnover disclosed in the Profit and Loss Account was Rs. 8,23,38,060/-. The difference between the two figures is Rs. 88,186/-, with the turnover disclosed for income-tax purposes being marginally higher. We are mindful that the mere fact that the income-tax turnover exceeds the GST turnover does not, by itself, establish the correctness of every individual sales entry. Neverthe....
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....8,060/- in its Profit and Loss Account. By adding Rs. 5,91,57,963/- thereto, the AO has effectively determined the turnover at Rs. 14,14,96,023/-. This figure is not supported by any independent computation of sales, any separate seized sales register, or any other material demonstrating that the assessee actually effected sales of such magnitude during the relevant previous year. The AO has merely aggregated the declared turnover and one component of the seized turnover without first establishing that the two amounts represent distinct sets of transactions. 165. The infirmity in the aforesaid approach becomes apparent when the enhanced turnover is compared with the sales reflected in the seized Tally data. The seized records disclose aggregate sales of Rs. 7,94,06,417/- up to 28.02.2022. If the turnover of Rs. 14,14,96,023/- determined by the AO were to be accepted, it would necessarily imply additional turnover of Rs. 6,20,89,606/- over the sales reflected in the seized records for the period ending 28.02.2022. In the absence of any other identified sales outside the seized records, such an approach would require the Revenue to establish substantial additional turnover during ....
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....nt year, they provide a relevant contextual comparison. The turnover disclosed by the assessee for the year under consideration is consistent with the general scale of business reflected in the preceding years. The AO has not identified any exceptional increase in business activity or other circumstance which would explain the substantially enhanced turnover of Rs. 14,14,96,023/- resulting from the impugned addition. 169. In our considered opinion, an addition cannot be sustained merely because the AO entertains a suspicion that the assessee may have effected additional sales. Such suspicion must be supported by material capable of establishing that the impugned transactions remained outside the turnover disclosed. The present addition suffers from a fundamental factual defect, namely, the failure to distinguish between sales identified during search and sales remaining undisclosed in the return of income. The seized material establishes the former. It does not, without further reconciliation or independent evidence, establish the latter. The Ld.CIT(A) has correctly appreciated this distinction and has rightly held that the enhanced turnover determined by the AO lacks the necess....
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.... search. Whether those transactions continued to remain undisclosed in the return of income is a separate factual enquiry. The Ld.CIT(A) has undertaken that enquiry by examining the seized Tally data, GST disclosures and the Profit and Loss Account. 173. We are, therefore, unable to accept the proposition that the statement recorded u/s. 132(4) of the Act, without more, justifies the addition of the entire amount of Rs. 5,91,57,963/- notwithstanding the reconciliation furnished by the assessee. A statement recorded during search is evidence, but its contents must be appreciated in conjunction with the documentary material and the subsequent disclosures relevant to the assessment year. The Revenue cannot rely upon the admission regarding the existence of transactions while ignoring the documentary evidence concerning their inclusion in the disclosed turnover. The Ld.CIT(A), in our considered view, has correctly appreciated the statement in the context of the entire material available on record. 174. We now deal with the contention of the Ld.DR that the assessee had declared a net profit ratio of merely 3.48% for the assessment year under consideration, as against approximately....
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....arison of profit ratios, without identifying a defect in the accounts or establishing additional sales, cannot justify the addition of the entire disputed turnover. 177. More importantly, even if the Revenue's contention regarding the decline in profitability were accepted as a circumstance requiring examination, it would not establish that the sales of Rs. 5,91,57,963/- were over and above the turnover of Rs. 8,23,38,060/- disclosed by the assessee. The two propositions are not interchangeable. The question whether the assessee has correctly computed its profit on the disclosed turnover is different from the question whether the assessee has failed to disclose additional turnover. A low profit ratio cannot be employed to overcome the absence of evidence establishing the existence of additional sales. The Revenue's contention, therefore, does not address the fundamental infirmity in the addition made by the Assessing Officer. 178. We further find that the profit rates of 19.7% and 25% referred to by the Ld.DR relate to earlier assessment proceedings as voluntarily admitted by the assessee on unaccounted sales unearthed during the course of search. No material has been....
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....e find that the contention now advanced regarding the fall in profitability does not merely constitute an additional legal argument in support of the existing addition. In substance, it seeks to introduce a different factual premise, namely, that the disclosed business income is unreliable and that a higher profit ought to be determined by reference to the rates adopted in earlier assessment years. Such a contention would require an independent examination of the accounts, identification of defects in the computation of business income, consideration of the comparability of the earlier years, and determination of an appropriate basis for estimation. These are matters which have not formed the foundation of the impugned addition. The Ld.DR cannot, through oral submissions before the Tribunal, undertake an assessment exercise which the AO himself has not undertaken. 182. It is a settled principle of appellate adjudication that an order must ordinarily be examined with reference to the reasons and factual findings upon which it has been made. The Revenue cannot be permitted to substitute an unrecorded factual premise for the premise actually adopted by the AO and thereby seek to su....
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....atters arising from the assessment and the introduction of a new source of income. These authorities, though rendered in the context of the powers of the first appellate authority, underscore the importance of the subject matter of assessment and the statutory limits governing appellate proceedings. 186. We also bear in mind that the Tribunal's power to entertain additional grounds is governed by Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963, and the principles explained by the Hon'ble Supreme Court in National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC). The said principles recognise the Tribunal's power to consider an additional question of law arising from facts already on record, subject to the requirements of a fair opportunity of hearing. They do not establish an unrestricted right to introduce fresh factual allegations or to sustain an addition upon an entirely new factual basis without the necessary examination of the underlying material. 187. Applying the aforesaid principles to the facts before us, we find that the Revenue's reliance upon the comparative net profit ratios cannot cure the fundamental defect in the addition. The ....
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....e disclosed turnover has been established. In such a situation, the nature of the business, the treatment of corresponding purchases and expenditure, and the material available on record may become relevant for determining the income attributable to those sales. However, the present case stands on a different factual footing. The Ld.CIT(A) has found that the disputed sales of Rs. 5,91,57,963/- were already included in the turnover of Rs. 8,23,38,060/- disclosed by the assessee. Once that finding is accepted, the foundation for a separate estimation of profit on the very same sales ceases to exist as the entire addition itself is deleted. 191. The profit attributable to sales included in the disclosed turnover forms part of the business results computed in the Profit and Loss Account. If the Revenue seeks to contend that the income computed on such turnover is incorrect, it must establish the relevant defects in the computation of business income and proceed in accordance with law. It cannot merely isolate a component of the disclosed turnover and subject that component to a further estimation of profit without demonstrating that the income attributable thereto has escaped assess....