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Judgment
PER SUDHIR KUMAR, JUDICIAL MEMBER:
This appeal by the Revenue is directed against the orders of the Commissioner of Income Tax (Appeals) -27 New Delhi [hereinafter referred to as “Ld. CIT(A)”] vide order dated 30-04-2025 arising out the Assessment Order passed dated 18-03-2024 under section 143(3)/ 147 of the Income Tax Act, 1961 (in short “the Act”.
The Revenue has raised the following ground in appeal as under:
1.Whether the Ld. CIT(A) has erred in deleting the addition in respect of unaccounted sales by holding that AO had not brought out any incriminating evidence warranting extrapolation for the relevant Assessment Year?
2.Whether the Ld. CIT(A) has erred in the facts and in law by not making cognizance of the notebook containing reference to Monu (Gaurav Agarwal) & M Hassen or whatsapp chats or cash sales of tobacco to Tej Ram Dharam Pal Or Transactions with Om Sai Traders & Shakti International trading P Ltd all of which proved that the assessee was involved in accounted transactions with multiple persons over multiple years?
3 Whether the Ld. CIT(A) has erred in not appreciating that evidence in respect of unaccounted sales in multiple years also come from the assessee’s own reply, reproduced by AO on page 40 of the Assessment order, where he had mentioned on the basis of his reply to question no 31 of his statement that unaccounted sales to Tej Ram Dharam Pal be 8 quintals per annum for AY 2019-20 to 2021-22. evidence in respect of unaccounted sales in multiple years also come from the assessee’s own reply, reproduced by AO on page 40 of the Assessment order, where he had mentioned on the basis of his reply to question no 31 of his statement that unaccounted sales to Tej Ram Dharam Pal be 8 quintals per annum for AY 2019-20 to 2021-22.
5.Whether the Ld. CIT(A) has erred in not appreciating that the Assessing Officer took a holistic view based on all evidences and statement recorded on oath and not relied merely on paper sheets seized in search operation for the period of 41 days.
6.That the appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal.
The brief facts of the case are that the assessee filed his return of income for A.Y. 2021-22 on 26-01-2022 declaring total income of Rs.9,73,060/-. A search & seizure action was initiated under section 132 of the Act in case of assessee on 03-08-2022. After obtaining the necessary approval from the specified authority proceedings under section 147 of the Act were under taken and notice under section 148 of the Act dated 29-03-2023 was issued to the assessee. In the compliance of the notice the assessee filed return on income on same. The statutory notices along with questionnaire were issued to the assessee. According to the Assessing Officer the assessee has not filed satisfactory explanation and had earned income through undisclosed sales. The Assessing Officer found that the assessee had made the unaccounted sales of Rs. 172,85,000/-during the period 30-12-2021 to 09-02-2022. The Assessing Officer completed the assessment proceedings after making the addition of 2,62,45,457/- after taking the gross profit @ 10.35% of the unaccounted sales of Rs. 25,35,79,296/-.
Aggrieved the order of the Assessing Officer the assessee preferred the appeal before the Ld.CIT(A), who vide his order dated 30-04-2025 allowed the appeal of the assessee. The Ld. CIT(A) has observed in his order as under:
4.4On careful perusal of the above judgements, the ratio of the said judgements are squarely applicable in this case. In the instant, the Ld. Assessing Officer has made the addition on the basis of extrapolation without brining any material evidence in support of addition. Therefore, no extrapolation can be made in respect of entire turnover since no such evidence had either been found during the search nor brought record during the assessment proceedings.
4.5Upon examination of the facts, I find merit in the Appellant’s contentions, while documentary evidence containing paper sheets totaling Rs.1,72,85,000/- indeed seized during the search operation for the period 30-12-2021 to 09-02-2022 (41) days, and transaction relate information was retrieved from WhatsAPP chats neither pertains to FY2020-21(AY2021-22).
4.6For the Assessing Officer (AO) to legitimately apply extrapolation methodology to the entire fiscal year and subsequent ant previous years, sufficient evidence must exist to establish that the Appellant has consistently engaged in unrecorded sales and consequently earned profits beyond those disclosed in tax returns. I determine that neither the search team nor the AO uncovered compelling evidence supporting this assertion. Had the Appellant been regularly involved in unaccounted transactions and earning undisclosed profits as calculated by the AO., such activities would likely manifest in some form, such as undisclosed assets or unaccounted expenditure. No such information was discovered during the search.
4.7In this case facts and circumstance of the case has been carefully perused and found neither the Ld. AO nor the search team has brought any incriminating evidence warranting the extrapolation of information to presume unaccounted sales for FY 2020-21 (AY2021-22). Therefore, I am of the considered opinion that the addition of Rs.2,62,45,457/- lacks justification.
4.8Therefore. After careful consideration of the above narrated facts, circumstances of the case and the submissions of the Appellant and assessment Order, respectfully following the ratio of the judgements of the Hon’ble High Courts including Delhi High Court and judgements of Hon’ble ITATs, addition of RS.2,62,45,457/-is deleted accordingly. Therefore, the grounds of appeal are allowed.
5.Rest of the Grounds of Appeal taken by appellant are general or consequential in nature and do not require separate adjudication.
6.In the result, the appeal is ALLOWED.
Being aggrieved the order of the Ld. NFAC the revenue is in appeal before the Tribunal.
The Ld. Departmental Representative submitted that the Assessing Officer has conducted the enquires during the search and assessment proceedings and found that the assessee was involved in out of books sales. The Assessing Officer has made the additions on the basis of the statement recorded on oath of the assessee in which he accepted that he was involved in uncounted sales with the Shakti International Pvt. Ltd and Tej Ram Dharam Pal. He further submitted that the addition was made on material found and seized during the search the findings of the Ld. CIT(A), are against the facts that the addition was made without any incriminating evidence.
The Ld. AR submitted that the entire case has been framed on the basis of three loose sheets of paper pertaining to only 41 days for AY2022-23 and interpreting Whatsapp chats with Mr. Gaurav Agarwal. The addition was made in the mechanical manner without considering that no incriminating material was found during the search except some loose sheets of paper pertaining to an earlier period and a few Whatsapp chats. The addition was made purely on surmise and conjecture basis. The Assessing Officer has made the addition for five years AYs on account of unaccounted sales, on the estimation basis, The Assessing Officer has the taken the 41 days sales supportive material data for all the five years AYs on which estimation the additions were made. The sales cannot be calculated for the five AYs on the basis of the 41 days sales. He further submitted that no assets were found during the search proceedings. Reliance is placed on the following judgements:
Saksham Commodaties Ltd. V ITO [2024]161 taxmann.com 485
Commissioner of Income Tax vs Sinhad Technical Education Society (2018) 11 SCC 190
VM Spining Mills v CIT(Appeals) Ludhiana [2011]16 taxmann.com 199
PCIT vs. Shri Pushkar Construction Co. (2023) 154 taxmann.com 22 (GUJARAT)
We have heard the parties and perused the material available on record. In the present case the Ld.CIT(A) deleted the additions holding that the addition was made on the basis of extrapolation without bringing any material/evidence in support of addition. It is evident of the order of the Ld. CIT(A) that the loose paper containing paper sheets totaling Rs.1,72,85,000/- was seized during the search operation, was indeed for the period 30-12-2021 to 09-02-2022 and transaction related information was retrieved from Whatsapp chats, neither pertains to FY 2020-21 (AY2021-22). The Assessing officer made the addition on the seized material for the FY 2021-22 on the basis of extrapolation methodology without any supported evidence. The Ld. CIT(A) has rightly held the addition was made without incriminating evidence on the extrapolation methodology. We find that no addition can be made on the basis of extrapolation without bringing any material evidence. The Ld. CIT(A) has examined the issue in the correct prospective and give the relief to the assessee. We do not find any reasons to interfere with the findings of the Ld. CIT (A), thus we uphold the same. Accordingly, the revenue’s appeal is dismissed.
In the result, the appeal of the Revenue is dismissed.