2025 (7) TMI 1422 - AT - Income Tax

Unaccounted sales - unexplained money u/s 69A - cash receipts under the V series were unaccounted receipts - AO applied the ratio of unaccounted income offered by the assessee for the period from May 2017 to November 2017 in comparison to the accounted sales during that period which was worked out at 17%. Using this ratio the AO estimated the V series sales for the all the relevant assessment years Entire basis for the addition by the Assessing Officer is on the statements recorded and on extrapolating the unaccounted sales for three months (Sept Nov 2017) to earlier years - HELD THAT - This approach cannot be sustained. Firstly the evidence found pertains only to the three-month period. There is no material on record proving that similar suppression existed in the earlier years. Estimating past unaccounted sales based on such limited data is speculative. No documents or material conclusively show that the assessee followed the same practice before May 2017 except the statement. Secondly the addition is based solely on statements. These statements particularly that of the Managing Director were later retracted. Statements without corroborative evidence cannot form the basis of addition. This principle is well supported by settled judicial precedents. It is equally important to note that the search team also seized hard drive containing the data but yet nothing was brought on record suggesting the suppressed sale under V series. If such unaccounted income was generated one would expect some unaccounted investment unexplained asset or expenditure. But in this case there is no evidence of the assessee investing in property gold or other assets using this income. Nothing was found during the search that establishes the flow or utilization of this alleged suppressed income. Lastly the books of account were not rejected by the AO. In the absence of rejection of books any estimation of income is not valid. Therefore we find that the ld. CIT(A) has correctly deleted the addition on merit for A.Y. 2014-15 to 2017-18 and we uphold that decision. Similarly for A.Y. 2018-19 the AO s attempt to estimate suppression beyond what the assessee has already admitted (Rs. 2.28 crores) lacks supporting material. We find no justification to disturb the CIT(A) s conclusion on this point. Accordingly the Revenue s appeals on merit are dismissed.

Summary

ISSUES:

Validity of initiating proceedings under section 153A of the Income Tax Act for assessment years where assessments were completed/unabated prior to search.Whether unaccounted sales through a specific "V" series billing system constitute suppressed income liable to tax.Admissibility and evidentiary value of statements recorded during search proceedings, especially when retracted.Whether additions based on estimation of suppressed sales without rejection of books of accounts are valid.Whether cash found during search, admitted as suppressed sales income and declared in returns, can be additionally taxed as unexplained money under section 69A of the Act.

RULINGS / HOLDINGS:

Proceedings under section 153A for assessment years where the last date for issuing notice under section 143(2) had expired are invalid in the absence of incriminating material found during search pertaining to those years; thus, assessments for such years are quashed.The addition of suppressed sales based solely on statements recorded during search and extrapolation of limited period data without rejection of books of account is not sustainable; "where the books of accounts of the assessee were not challenged per se, the explanation offered by the assessee requires to be construed as reasonable."Statements recorded during search proceedings, especially when retracted, without corroborative evidence, cannot form the sole basis for addition; "powers given to the Revenue authority, howsoever wide, do not entitle him to make the assessment on pure guess without reference to any evidence or material."Estimation of suppressed income must be supported by concrete evidence and rejection of books of accounts; estimation based on "extrapolating based on a single month's data is untenable, especially in the absence of any corroborating evidence."Cash found during search, admitted as income and declared in returns, cannot be taxed again as unexplained money under section 69A; "once the income has been taxed, the same cannot be taxed again in a different manner."

RATIONALE:

The Court applied the statutory framework of the Income Tax Act, particularly sections 132 (search), 133A (survey), 143(2) (scrutiny notice), 153A (assessment following search), 145(3) and 144 (income estimation), and 69A (unexplained money), alongside established judicial precedents.Reliance was placed on the Supreme Court ruling that completed assessments cannot be reopened under section 153A without incriminating material pertaining to those years, ensuring protection against arbitrary reassessment.Precedents emphasize that assessments cannot rest on suspicion, conjecture, or uncorroborated statements, particularly those recorded under duress during search operations, consistent with CBDT Instruction F. No. 286/98/2013-IT(Inv.II) discouraging reliance solely on confessions without tangible evidence.The Court underscored the principle that estimation of income requires rejection of books of accounts and concrete evidence, referencing authoritative judgments that assessments based on guesswork or extrapolation without evidence are impermissible.The principle against double taxation was applied to reject the addition under section 69A where the cash found was already accounted for in declared income, emphasizing that unexplained money additions require the money to be unrecorded and source unexplained or unsatisfactorily explained.The Court noted the absence of independent evidence such as examination of alleged recipients of referral fees, corroborative documents, or unaccounted investments that would substantiate the Revenue's claims, leading to dismissal of estimation-based additions.