2025 (6) TMI 1474 - AT - Income Tax

Addition u/s 69A - unexplained money - assessee is into the business of sweets and snacks shop - business had been transferred and is now being carried out in - two bills were found in the name of old name - HELD THAT - The amounts mentioned in these two bills are meagerly Rs. 25, 467/- and Rs. 68, 977/. The entire exercise done by the AO may impress a student of mathematics but does not make any sense so far as the income tax proceedings are concerned. No effort was taken to verify from the books of Krishay Enterprises. The month-wise details of sales made by two firms mentioned elsewhere speak for itself. As can be seen Krishay Enterprises has actually shown more sales than the amount of sales estimated by the AO for 24/10/2018 and 25/10/2018. Considering the fact that the entire assessment exercise is extrapolated on the basis of two bills found at the time of survey but explained to be recorded in the book of Krishay Enterprises we do not find any reason to interfere with the findings of the ld. CIT(A) and dismiss the effective ground/s raised by the revenue.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

• Whether the addition of Rs. 5,39,10,500/- made by the Assessing Officer (AO) under section 69A of the Income Tax Act, 1961, as unexplained cash income, is justified based on the evidence found during the survey under section 133A.
• Whether the AO's method of estimating turnover by extrapolating from two days' bills found during survey, without verifying books of account of the successor firm, is legally sustainable.
• Whether the explanation and evidence furnished by the assessee regarding the business transfer and sales figures of the successor firm, Krishay Enterprises, sufficiently rebut the presumption of unexplained cash income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of addition under section 69A based on survey findings

Relevant legal framework and precedents: Section 69A of the Income Tax Act permits the AO to make an addition to income where any money, bullion, jewellery or other valuable article or thing is found and the assessee fails to satisfactorily explain the source of such money or asset. The burden lies on the assessee to provide a satisfactory explanation. Survey proceedings under section 133A enable the AO to collect evidence but do not themselves constitute proof of income. The AO must corroborate survey findings with books of account or other material.

Court's interpretation and reasoning: The AO, during the survey dated 20/10/2018, seized certain documents including cash books, cash memos, and bills. The AO noted only two bills in the name of the assessee's erstwhile firm, Vividham Sweets & Dry Fruits, dated 24/10/2018 and 25/10/2018, totaling Rs. 94,444/-. However, based on token numbers on the bills, the AO estimated an average daily turnover of approximately Rs. 1,35,000/- to Rs. 1,60,400/- and extrapolated this turnover for the entire year to arrive at an alleged unexplained cash income of Rs. 5,39,10,500/- under section 69A.

Key evidence and findings: The AO's estimation was based solely on two days' bills and the token numbers suggesting 200 bills per day. No verification or reconciliation was done with the books of the successor firm, Krishay Enterprises, which had taken over the business from 01/04/2018. The assessee submitted that Vividham Sweets & Dry Fruits was dissolved on 31/03/2018 and the business was carried on by Krishay Enterprises thereafter. The sales figures of Krishay Enterprises for the relevant period were significantly higher than the AO's estimated turnover for the two days in question.

Application of law to facts: The AO's addition under section 69A lacked a proper basis as it was an arbitrary extrapolation without verifying the books of account of the successor firm. The mere presence of two bills during survey cannot justify such a large addition without corroborative evidence. The assessee's explanation that the business was transferred and the sales declared by Krishay Enterprises were higher than the AO's estimates was accepted by the ld. CIT(A).

Treatment of competing arguments: The revenue argued that the AO's estimation was valid based on the token numbers and bills found during survey. The assessee countered that the business continuity was with Krishay Enterprises and the sales declared by it were higher, negating any unexplained income. The ld. CIT(A) accepted the assessee's submissions. The Tribunal concurred, emphasizing that the AO's mathematical exercise was not substantiated by evidence from books of account.

Conclusions: The addition under section 69A was not sustainable as the AO failed to establish any unexplained cash income beyond the declared sales of the successor firm. The extrapolation based on two days' bills was arbitrary and not supported by the record.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The entire exercise done by the AO may impress a student of mathematics but does not make any sense so far as the income tax proceedings are concerned. No effort was taken to verify from the books of Krishay Enterprises."

"Considering the fact that the entire assessment exercise is extrapolated on the basis of two bills found at the time of survey but explained to be recorded in the books of Krishay Enterprises, we do not find any reason to interfere with the findings of the ld. CIT(A) and dismiss the effective ground/s raised by the revenue."

Core principles established include:

• An addition under section 69A must be based on credible evidence and cannot be sustained on arbitrary mathematical extrapolation without verification from books of account.
• Survey findings alone do not constitute conclusive proof of undisclosed income; the AO must corroborate with other material.
• Business transfer and continuity must be considered while assessing unexplained income, and sales declared by the successor entity are relevant.

Final determination: The addition of Rs. 5,39,10,500/- under section 69A was deleted by the ld. CIT(A), and the Tribunal upheld this deletion, dismissing the revenue's appeal.