2025 (7) TMI 1380 - AT - Income Tax

Addition made on account of undisclosed sales - discrepancy in cash-in-hand found on the date of survey as also to explain the genuineness of alleged stock transfer of 27 kgs. of gold ornaments -CCTV footage of 31.03.2014 revealed 106 persons visiting the shop premises at Cuttack meaning thereby 106 sales transactions had taken place why it should not be presumed that similar sales transactions had taken place on the other days of the year and to that extent the assessee had suppressed sales at Cuttack branch office -HELD THAT - On examination of the CCTV footages it was found by the department that on 31.03.2014 106 number of persons visited the shop premises at Cuttack. Based on such analysis the A.O. concluded that on 31.03.2014 106 sale transactions had taken place. Extrapolating such number of sale transactions to other days of the year after excluding holidays the AO determined the sale suppression at more than Rs. 72 crores. Except CCTV footage of 31.03.2014 the A.O. had no other incriminating material in his possession to infer the alleged suppression of sales. In absence of any incriminating material found during the survey merely based on CCTV footage of a single day and extrapolating the alleged 106 sale transactions allegedly found in the CCTV footage to the other days of the year the sales turnover could not have been estimated as it has neither any rational or reasonable basis hence far removed from reality. Even the average invoice amount of sale transactions and the rate taken by the AO is purely on guess work. On examination of the cash book sales register and other documentary evidences placed in the paper book it can simply be concluded that sales effected both at the Mumbai HO and Cuttack branch office have been duly reflected in the books of account as there is no specific defect or discrepancy in the entries pointed out by the AO. Thus when the AO has not made any enquiry to either ascertain or demonstrate that the alleged 106 sales transactions actually reflected the sales effected by the Cuttack branch office. No infirmity in the decision of FAA in deleting the addition as such sales suppression is merely based on conjecture and surmises without any cogent evidence to establish it on record. Unexplained stock transfer - addition made on account of stock transfer of 27 kgs. of gold ornaments from Cuttack branch office to Mumbai HO - HELD THAT - Transfer of stock from Mumbai HO to Cuttack was through 15 branch transfer invoices whereas the return of stock from Cuttack to Mumbai HO was through 10 branch transfer invoices. The materials on record reveal that the assessee has reconciled the stock transfer from Mumbai to Cuttack and again from Cuttack to Mumbai not only invoice-wise but through statutory declaration Form F. Even the stock transfer has been duly recorded in the books of account maintained both for Cuttack branch office and Mumbai HO. Notably though the A.O. has rejected the books of account of Cuttack branch office however he accepted the books of account of Mumbai HO which has duly recorded the receipt of 27233 grms. of gold ornaments received from Cuttack branch office through stock transfer. Thus in our view the AO cannot breath hot and cold at the same time as the transactions are two sides of the same coin. As rightly observed by the learned First Appellate Authority merely relying upon the statement of Shri Yashwant Ganpat Rao Gujjar who is not at all trustworthy as he has taken contradicting stand time and again it cannot be inferred that the claim of stock transfer from Cuttack branch office to Mumbai HO is false. When the stock transfer both from Mumbai to Cuttack and again from Cuttack to Mumbai is supported by statutory declaration Form F issued by the Sales Tax Department of both the states. There is no material on record to suggest that the Sales Tax Department either at Mumbai or at Cuttack have alleged any fraudulent activity of stock transfer by assessee. Sales Tax Authorities have also not reported any sale suppression. In these circumstances merely relying upon the statement of Shri Yashwant Ganpat Rao Gujjar without any corroborative evidence addition cannot be made. Though the concerned airline has informed that on the day of travel Shri Yashwant Ganpat Rao Gujjar did not have any check-in baggage however there is no information from the airline regarding the cabin baggage carried by Shri Yashwant Ganpat Rao Gujjar. As rightly submitted by the assessee valuable items like gold jewellery are generally not carried in check-in baggage but rather safely and securely carried in cabin baggage. Thus much reliance cannot be placed either on the statement of Shri Yashwant Ganpat Rao Gujjar or the information received from the airline authorities to conclude that no stock of 27233 gms. of gold jewellery have not been transferred from Cuttack to Mumbai dated 31.03.2014. In any case of the matter the dispute is purely factual and has to be decided based on materials and evidences available on record. While the assessee has furnished cogent evidences to establish his case that there was neither any sale suppression at Cuttack branch office nor there is any unexplained stock discrepancy of 27 kgs. of gold ornaments in contrast the A.O. has failed to bring any corroborative evidence to vindicate his conclusion of sale suppression and unexplained stock discrepancy. CIT(A) correctly deleted addition - Decided in favour of assessee.

Summary

ISSUES:

Whether the addition made on account of undisclosed sales based on extrapolation of a single day's CCTV footage and other material was justified.Whether the addition made on account of unexplained stock transfer of gold jewellery from branch office to head office was justified.Whether the books of accounts maintained for the branch office could be rejected without specific defects.Whether estimation of sales turnover and profit based on assumptions without corroborative evidence is permissible.

RULINGS / HOLDINGS:

The addition on account of undisclosed sales was deleted as the estimation based on a single day CCTV footage extrapolated to the entire year was "merely based on conjecture and surmises without any cogent evidence" and lacked "any rational or reasonable basis."The addition on account of unexplained stock transfer of 27 kgs. of gold jewellery was deleted because the claim of stock transfer was supported by statutory declaration Form F, invoice-wise reconciliation, and acceptance of the corresponding entries in the head office books, and the sole contradictory statement of the employee was not reliable.The books of accounts maintained for the branch office could not be rejected without pointing out "any specific defects," and mere reliance on statements and CCTV footage was insufficient for rejection.Estimation of sales turnover and profit requires "corroborative evidence" and cannot be made solely on assumptions such as average invoice value, number of transactions, or static gold rates; such estimation was held to be unacceptable.

RATIONALE:

The court applied the principle that additions or estimations of undisclosed income must be based on "cogent evidence" and not on "conjecture and surmises." Reliance on a single day's CCTV footage without corroborative evidence or enquiry into customer transactions was deemed insufficient and arbitrary.The statutory framework requires maintenance of proper books of account under the Income Tax Act, and rejection of such books demands specific defects or discrepancies; mere suspicion or isolated statements do not justify rejection.The acceptance of stock transfers recorded in the books of account of the head office and supported by statutory declarations under sales tax law was a key factor; the court emphasized consistency and the principle that transactions are "two sides of the same coin."The court noted that reliance solely on an employee's contradictory statement, especially when contradicted by airline travel records and absence of evidence of check-in baggage, was insufficient to discredit the stock transfer claim.The decision reflects adherence to the requirement that assessments and additions must be based on "materials and evidences available on record," reinforcing the protection against arbitrary or speculative tax assessments.