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TMI Blog2025 (2) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... ot negate the possibility of clandestine sales. Absence of a transaction in official records does not imply its non-existence, especially when corroborative evidence exists in the form of seized materials and thirdparty admissions. AO's rejection of the assessee's contention is supported by judicial precedents where unaccounted transactions are inferred from circumstantial evidence and cash trail analysis. The acceptance of such indirect evidence, particularly in cases involving tax evasion, is consistent with the principle laid down in the case of Sumati Dayal [1995 (3) TMI 3 - SUPREME COURT] and Collector of Customs vs. Bhoormull [1974 (4) TMI 33 - SUPREME COURT] which emphasize that the test of human probabilities must be applied in determining the nature of unexplained income. Estimation of income/profit determination - As settled legal principle that only the profit element in unaccounted turnover can be subjected to tax, not the entire sales figure. As decided in the case(s) President Industries [1999 (4) TMI 8 - GUJARAT HIGH COURT] and Panna Corporation [2014 (11) TMI 797 - GUJARAT HIGH COURT] held that when unaccounted turnover is detected, only the embedded profit is ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in law and on facts in not deleting the entire addition made u/s. 69A of the Act ofRs.7,51,35,438/- and in partly confirming the addition of Rs. 45,08,126/-. 3. On the facts and in the circumstances of the case and in law the learned CIT (A) ought to have quashed the proceedings u/s. 147 of the act, and annulled the reassessment made and ought to have deleted the entire addition u/s. 69A of the Act of Rs. 7,51,35,438/-. 4. It is therefore prayed that the proceedings u/s. 147 may be quashed, the reassessment may be annulled, and the entire addition u/s. 69A of the Act of Rs. 7,51,35,438/- may be deleted. 5. Your appellant craves leave to add, amend, alter or withdraw any ground of appeal at the time of hearing. Grounds of Revenue's appeal in ITA No.1922/AHD/2019 1. Whether the La. CIT(A) was correct in partly deleting the addition of Rs. 7,51,35,438/- u/s. 69A of the Income-Tax Act, 1961 when the assessee has failed to demonstrate that corresponding purchases were accounted for against the unaccounted sales made. Ground relating to challenging the reassessment proceedings u/s 147 of the Act: 5. Based on incriminating evidence obtained during the search, the DGCEI concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeared in the seized diary, it referred to cash amounts given by him to the Mumbai office of Shah Foils Ltd. He also confirmed that these cash payments were made through the Mumbai office, and in some cases, they were routed through M/s. Purnima Angadia Service. His statement corroborated the depositions of other individuals, including Shri Kalubhai Jivaji Desai (Accountant of M/s. Paras Bhavani Steel Pvt. Ltd.) and Shri Parasmal Shremal Bohra (Managing Director of M/s. Paras Bhavani Steel Pvt. Ltd.). These individuals had also confirmed that cash payments were made for the clandestine procurement of SS Strips from Shah Foils Ltd. The statement was compared with entries in the seized diary (A/8), which recorded 176 transactions totalling Rs. 7,51,35,438/- as cash payments to Shah Foils Ltd. Jayeshbhai Khandhar was shown these entries and acknowledged their accuracy. While Kartikbhai Rameshbhai Shah (Director of Shah Foils Ltd.) denied receiving cash, he could not provide evidence to disprove the seized diary entries or the statements of Jayeshbhai Khandhar and others. 5.3. Based on the seized documents and statements recorded by the DGCEI, the AO had reasons to believe that inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatements and relied on corroborative evidence such as seized materials, third-party statements, and judicial precedents to justify the addition under Section 69A of the Act. 7. The CIT(A) held that the AO was justified in reopening the assessment based on information received from DGCEI and the information revealed cash transactions linked to unaccounted sales, which provided the AO with prima facie "reason to believe" that income had escaped assessment. The CIT(A) examined the assessee's submissions and correspondence with the AO (letter dated 28.08.2017). It was concluded that the assessee had NOT formally objected to the reassessment proceedings but instead filed submissions on merits of the case. The CIT(A) observed that the AO had relied on multiple pieces of evidence, including seized diaries (A/8), third-party statements, and search findings of DGCEI which constituted fresh tangible material, which justified the initiation of reassessment proceedings u/s 147 of the Act. The CIT(A) also rejected the assessee's claim of violation of natural justice, noting that the reasons for reopening were provided to the assessee on 05.05.2017 and the assessee had the opportunit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atements clearly establish unaccounted cash transactions, which the assessee failed to rebut with credible evidence. The revenue seeks restoration of the entire addition, while the assessee prays for complete deletion of the addition. 13. The AO after considering the submissions of the assessee, rejected the assessee's contentions and upheld the addition of Rs. 7,51,35,438/- under Section 69A of the Act. The AO relied on the Corroborative Evidence in the form of Seized diary (marked as A/8) recovered from M/s. Paras Bhavani Steel Pvt. Ltd. contained 176 entries of cash payments made to Shah Foils Ltd. and statements of Shri Jayeshbhai Anilbhai Khandhar (commission agent), Shri Kalubhai Jivaji Desai (authorized signatory of M/s. Paras Bhavani Steel Pvt. Ltd.), and Shri Parasmal Shremal Bohra (Managing Director of M/s. Paras Bhavani Steel Pvt. Ltd.) confirming the cash payments for clandestine purchases of SS Strips. The AO applied the principles laid down in the case(s) of CIT vs. Durga Prasad More (82 ITR 540) (SC) and Sumati Dayal vs. CIT (214 ITR 801) (SC), emphasizing that mere denial by the assessee cannot override strong circumstantial evidence. The transaction, being in cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive evidence on record and mere reliance on third-party findings, without further verification, is insufficient to justify an addition under the Act. 16. In case of Revenue's appeal on the solitary ground, the DR stated that the details of cash payments recorded in the diary and the statements recorded in the search by DGCEI have been discussed by the AO in detail. The DR further stated that the CIT(A) has erred in confirming only profit margin of 6% by giving deduction for corresponding purchases and expenses which are also unaccounted. 17. We have carefully considered the submissions of both parties, the assessment order, the order of the CIT(A), and the material placed on record. The core issue before us pertains to the addition made under Section 69A on account of alleged unaccounted sales. The Revenue has challenged the restriction of the addition to 6% of unaccounted sales, arguing that no deduction for corresponding purchases and expenses should have been allowed since the entire transaction was outside the books of account. 17.1. The assessment in this case is primarily based on evidence gathered by the DGCEI, including seized diary entries (marked A/8), third-party stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit of deductions for corresponding purchases and expenses, and the entire sum should be taxed as income. However, it is a settled legal principle that only the profit element in unaccounted turnover can be subjected to tax, not the entire sales figure. The Hon'ble Gujarat High Court in the case(s) President Industries (258 ITR 654) and Panna Corporation (2012) 82 CCH 0266 has held that when unaccounted turnover is detected, only the embedded profit is taxable. 17.6. The CIT(A) adopted a profit margin of 6% based on the assessee's reported financials and general industry trends. However, it is noted that the CIT(A) has not examined whether the profit margin of 6% is reflective of the actual earnings from such clandestine transactions. The CIT(A) has not analyzed profit margins over multiple years nor compared them with industry benchmarks. Further, considering that the assessee was involved in such transactions as claimed by DGCEI, there exists a possibility that the corresponding purchases and expenses relating to these unaccounted sales are recorded in the books under different accounting heads, effectively reducing the actual profit margin. Had such purchases been unaccounted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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