RASHAD ABDUL REHMAN,MANGALURU V. DCIT, CENTRAL CIRCLE-2, MANGALORE, MANGALORE

ITA 1586/BANG/2025

AI Insights

The case involves Rashad Abdul Rehman, a businessman engaged in the restaurant and catering sector, who faced allegations of suppressing sales based on a survey conducted under section 133A of the Income Tax Act, 1961. The survey led to the discovery of discrepancies between the Kitchen Order Tickets (KOT) and the sales recorded in the billing software, 'Mensons Hotel Manager'. The Assessing Officer (AO) made additions to the assessee's income based on these discrepancies, which were contested in appeals. The Tribunal's decision to allow the appeals was influenced by a precedent set in similar cases within the Kairali group, where it was found that the additions made were based on estimations and not on concrete evidence.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 840615 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2019-2020
• Appeal Filed On: 16-07-2025
• Other Referred Cases: CIT vs. S. Khader Khan Son, Kathyayini Hotels Pvt. Ltd. vs. Addl. Commissioner of Commercial Taxes & Anr., State of Tamil Nadu vs. New Kamaliya Hotel, DCIT vs. Sunil Kumar Sharma
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REVENUE; GANESH R GHALE; STANDING
• Assessee Lawyers: NARENDRA SHARMA
• Keywords: Set aside; Corroborative evidences; Retraction
• Section: 133A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL ‘SMC’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No.1585 to 1587/Bang/2025 Assessment Year: 2018-19 to 2020-21 Rashad Abdul Rehman, Flat No.202, Fathima Apartments, Britto Lane, Mangalore, Falnir, Mangaluru – 575 001. PAN – BBDPR 1260 E Vs. The Dy. Commissioner of Income Tax, Central Circle – 2, Mangalore. APPELLANT RESPONDENT Assessee by : Shri Narendra Sharma, Advocate Revenue by : Shri Ganesh R Ghale, Advocate – Standing Counsel for Revenue Date of hearing : 24.02.2026 Date of Pronouncement : 25.02.2026 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The set of 3 appeals filed at the instance of the assessee directed against the order under section 250 of the Income Tax Act, 1961, (hereafter the Act) dated 19th May, 2025 for the assessment years 2018-19 to 2020-21 First, we take up assessee’s appeal bearing ITA No. 1585/Bang/2025 for A.Y. 2018-19 as lead case. Printed from counselvise.com ITA No.1585 - 1587/Bang/2025 Page 2 of 10 . 2. The effective issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of gross profit of Rs. 1,60,167/- on alleged unaccounted sales based on surmise and conjecture. 3. The relevant facts are that the assessee is engaged in the business of restaurant and catering forming part of the Kairali group. A survey under section 133A was conducted on 24.02.2020 at the business premises of the Group including the assessee. During the survey, certain loose sheets and data from the billing software “Mensons Hotel Manager” were examined. Based on analysis of Kitchen Order Tickets (KOT) and billing records, the department alleged that the assessee had suppressed sales. 4. The AO observed that the billing software installed at the restaurants had the capability to modify or reduce sales figures. Statements of partners recorded during survey indicated that sales figures were altered and reduced in the system. The AO relied on the difference between the KOT analysis and sales declared in the return and treated the same as suppressed turnover. The assessee had initially admitted suppression during survey and even offered additional income at certain gross profit rates. Though the admission was later retracted, the AO did not accept the retraction. Accordingly, the AO based on difference observed quantified the supressed sales at Rs. 20,02,088/- for the year under consideration and applying gross profit rate on the quantified suppressed turnover made addition of Rs. 1,60,167/- only to the total income of the assessee. Printed from counselvise.com ITA No.1585 - 1587/Bang/2025 Page 3 of 10 . 5. The aggrieved assessee preferred an appeal before the learned CIT(A). 6. Before the learned CIT(A), the assessee contended that the addition was made mainly based on the statements recorded during survey operation without any independent corroborative evidence. It was submitted that books of account were audited, and no defects were pointed out. The assessee argued that the software was only a billing tool and there was no proof of actual suppression of sales. It was further submitted that the loose sheets did not conclusively establish unaccounted sales. The assessee also argued that the retraction of statement should have been considered and that the gross profit adopted by the AO was excessive. 6.1 However, the ld. CIT(A) upheld the addition. It was observed that during survey, partners had admitted suppression of sales and the same was supported by loose sheets and analysis of billing data. The ld. CIT(A) held that the retraction made after considerable delay was not supported by evidence and could not nullify the earlier admission. It was further observed that the assessee failed to reconcile the differences in sales or produce convincing evidence to disprove the suppression detected during survey. The ld. CIT(A) held that admission is a strong piece of evidence and in the absence of contrary material, the AO was justified in estimating gross profit on the suppressed sales. Accordingly, the addition made by applying gross profit rate on suppressed turnover was confirmed and the appeal was dismissed. Printed from counselvise.com ITA No.1585 - 1587/Bang/2025 Page 4 of 10 . 7. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 8. The learned AR of the assessee before us submitted that identical addition was made in the cases of other assessee of Kairali group for A.Y. 2017-18 to 2020-21 based on finding of survey as in the case of appellant assessee. The dispute in the group cases of the assessee has been settled in the favour of the assessee by Tribunal order dated 12th January 2026 in appeal bearing ITA Nos. 1550, 1573 to 1584 & 1599/Bang/2025. Accordingly, the addition made by the Revenue deserves to be deleted. 9. On the contrary, the learned Departmental Representative (ld. DR) supported the orders of the Assessing Officer and the learned CIT(A), contending that the addition was based on cogent materials found during the survey under section 133A of the Act. It was submitted that analysis of Kitchen Order Tickets (KOTs), loose sheets, and data from the billing software “Mensons Hotel Manager” revealed clear discrepancies between actual sales and recorded sales. 9.1 The ld. DR emphasized that the partners had admitted during survey that sales figures were altered in the system. Such admission, corroborated by electronic data, constituted strong evidence of suppression. The subsequent retraction was belated and unsupported by credible evidence and therefore could not negate the earlier statement. It was further argued that the Assessing Officer made a reasonable addition by taxing only the gross profit element on the suppressed Printed from counselvise.com ITA No.1585 - 1587/Bang/2025 Page 5 of 10 . turnover, rather than the entire sales. Accordingly, the ld. DR prayed that the addition sustained by the learned CIT(A) be upheld. 10. We have heard the rival contentions of both the parties and perused the materials available on record. The undisputed facts are that the assessee is in the business of restaurant and catering forming part of the Kairali group which included several assessees. Simultaneous survey proceeding was carried on the business premises of the group and based on survey finding addition was made across all the assessee on account of suppression of sale. The dispute in the case of group reached to this Tribunal in ITA Nos. 1550, 1573 to 1584 & 1599/Bang/2025. The coordinate bench vide order dated 12th January 2026 decided the issue in favour of the assessee. The detailed finding of the bench in the above stated appeals are extracted as under: 22. We have perused the assessment order in which the AO had mainly relied on the statements given by the manager, the software provider to arrive a conclusion that the assessee had indulged in the practice of showing the lesser sales figures in the system after the sale has been completed. The AO had considered the fact that the sale amount would be the KOT amount and since the original sale invoices were not available or produced, the AO had estimated the addition. Further, the AO had relied on the impounded materials i.e. the exhibit ‘A/HRP/3’ which contains loose sheets of page nos. 8,9,10 & 11 which are extracted below. ********************** 23. We have also perused the loose sheets extracted by the AO which relates to the alleged KOT and page no. 11 relates to some noting in it. The AO had mainly relied on page 11 of the material for arriving a conclusion that the assessee had modified the sales figures as stated by the manager and two partners. We have perused the said page no. 11 of the exhibit in which we are not able to find out any details relating to the assessee as well as other assessees. It is a hand written loose sheet and from the said sheet, it could not be concluded that the said amounts are actual sales effected on 03/02/2020. 24. The AO had also relied on the fact that the assessee had not maintained the purchase bills and other records in support of the expenditure incurred by them. In fact, the AO had alleged that the assessee had not maintained the books of accounts properly and therefore the AO had taken the sales figure for one week randomly for various months by analysing the KOT and arrived a weekly average sale for a month and thereafter estimated the sales made during the entire year. From the said finding, it is clear that the AO had made Printed from counselvise.com ITA No.1585 - 1587/Bang/2025 Page 6 of 10 . only an estimation which is not based on any other materials seized or impounded at the time of survey. Even the alleged document impounded at the time of survey in page 11, nothing was available to estimate the sales turnover. Further, the impounded materials are only loose sheets and therefore on that basis, no estimation could be made for the whole year. As already stated, we have also perused the page 11 of impugned material which is in handwriting and from that, we could not presume that the figures mentioned in the said loose sheet is the actual sales effected by the assessee as well as other assessees. No details were available in the alleged page 11 of the impounded material and therefore it could not be treated as an incriminating material for confirming the addition made by the AO. At the best, the said page 11 of the impounded material could be termed as a dumb document and therefore it could not be relied on for making any estimation. Further, the loose sheet was impounded at the time of survey in the place of the assessee M/s. Hotel Malabar Regency and therefore the estimation could not be made on other assessees when nothing was found at the time of survey in their place of business. 25. Further, we have noted that in respect of the assessee M/s. Kairali Bhavan Restaurant, the statement was recorded from the cashier Mr. Abdul Hameed who has stated that the General Manager Mr. Mohammed have access to KOT data and other details and modify the said details but the statement of the cashier was not supported with the statement of the alleged General Manager Mr. Mohammed. 26. In respect of the M/s. Hotel Residency Park, no such statements were recorded from any of the employees but only a statement was recorded from the software provider Shri Vijendra Shetty. 27. In respect of the M/s. Kairali Adukkala, we find that the statement of Manager, Mr. Ahmed T K was recorded in which he has stated that there is a provision in the system to modify the bills. But to support the said statements, no other evidences were made available by the authorities except the hand written loose sheet impounded at the time of survey. As already stated, based on the hand written entries in the loose sheet, we are not able to find out any correlation between the assessees and the entries made in the said loose sheet and therefore the additions are made by the AO without any corroborative evidences. 28. We have also considered the statements given by the various persons and we do not find how the statements would support the case of the AO. In fact, all the deponents had given a stereotyped statement by accepting the alleged mischief done by the assessee. The authorities below had also not taken any steps to test the veracity of the statements by feeding the data into the computer and ascertain whether there is a mechanism available in the system for reducing the actual sale value. No such exercise was done by the authorities to strengthen their case. In order to rely on the said statements, some further investigation should have been done by the authorities than merely by relying on the statements given by the persons. The statements would show that the software has been designed in such a way that the actual sale figures would be modified subsequent to the raising of the sale invoices. If it is so, the authorities should have very well verified the said fact at the time of survey by doing some mock KOT as well as the sale invoices. In the present Printed from counselvise.com ITA No.1585 - 1587/Bang/2025 Page 7 of 10 . case, nothing was done by the authorities and the authorities had relied on the statements and the documents impounded at the time of survey. 29. From the assessment order, we found that the AO had merely estimated the undisclosed sales turnover and on that basis, estimated the undisclosed income. We have also considered the fact that the sale of food items could not be uniform throughout the year and the sales depends upon various factors and therefore the estimation done by the authorities are not in order. We have also considered the fact that the AO had also relied on the admissions given by the partners in which they had admitted the undisclosed sales turnover estimated by the authorities. We do not think that the estimation could be made merely based on the admission statement but it should have some corroborative evidences to confirm the said additions. Further, the impounded loose sheets are not disclosing anything and also not established any connection between the assessee and the other assessees and therefore the reliance made by the AO on the said page 11 of the loose sheet is not correct. We do not find that the page 11 of the impounded document also establishes the fact that the same are the actual sales turnover not shown in the accounts. 30. We have also considered the common written submissions filed by the Ld.DR in which the revenue had relied on the various statements given by the various persons including the partners. The revenue also submitted that the estimation has been made after analysing the data in the billing software and the difference in the turnover was considered for making the addition. The revenue further submitted that the difference in turnover considered by the AO in the reopened / scrutiny assessment order is not one week data in each month and extrapolated as claimed by the assessee’s Ld. Counsel. The revenue also submitted that the assessee had not retracted the statements given by the partners in which they admitted the estimation made by the AO. Therefore, the revenue submitted that the orders of the AO is in order. 31. As already discussed in the earlier paragraphs, the AO had estimated the sales turnover based on the analysis of the KOT but in support of the said estimation, no other corroborative evidence was available with the revenue. When there are no evidence available with the revenue, we do not know how the authorities had estimated the sales turnover. Further, as seen from the assessment order, we found that, after analysing the KOT details available, the AO had estimated the weekly sales turnover and on that basis, monthly sales turnover was estimated and finally the entire year’s sales turnover was estimated. Further, it is not the case of the AO that the sales turnover has been estimated based on the verification of the each and every KOT details available with the assessee. Further, we could not presume that the sale bills value was reduced based on the KOT details when there is a possibility that the order placed through the KOT could not have been executed. From the reading of the assessment order intoto, one will find that the authorities had estimated the sales turnover and based on that, income has been estimated and therefore the entire addition was made based on surmise and conjectures and not supported by any other evidences. Even the impounded loose sheet also does not support the case of the revenue since the same is only a dumb document. In such circumstances, we do not think that the common written submissions filed by the revenue would support the case of the revenue. 32. We have also perused the judgment of the Hon’ble Supreme Court reported in (2013) 352 ITR 418 in the case of CIT vs. S. Khader Khan Son in which the Printed from counselvise.com ITA No.1585 - 1587/Bang/2025 Page 8 of 10 . Hon’ble Supreme Court had confirmed the finding given by the Hon’ble Madras High Court that, in view of the scope and ambit of the materials collected during the course of survey, the action u/s. 133A would not have any evidentiary value and that it could not be said solely on the basis of the statement given by one of the partners of the firm that the disclosed income was assessable as lawful income of the assessee. 33. We have also considered the principles laid down by the Hon’ble Supreme Court in the judgement reported in 135 STC 77 in the case of Kathyayini Hotels Pvt. Ltd. vs. Addl. Commissioner of Commercial Taxes & Anr. wherein it was held that best judgment assessment has to be made reasonably and not on surmises. 34. Similarly, the Division Bench of the Hon’ble Madras High Court in the judgment reported in 147 STC 111 in the case of State of Tamil Nadu vs. New Kamaliya Hotel held that the estimation for the whole year could not be made based on the sales found out on a single day. 35. We have also considered the Division Bench judgment of the Hon’ble Jurisdictional High Court reported in (2024) 469 ITR 197 in the case of DCIT vs. Sunil Kumar Sharma wherein it was held that notice based on the loose paper is contrary to law and therefore the same should be set aside. We were also informed that the above judgment has been affirmed by the Hon’ble Supreme Court in its judgment reported in (2024) 165 taxmann.com 846. Considering the law laid down by the Hon’ble Supreme Court and the Hon’ble High Courts in the above judgments, we came to the conclusion that the addition could not be made solely on the basis of the statement given at the time of survey and also based on the loose sheet impounded without any corroborative evidence. 36. We also find that the assessee’s books of accounts were audited and there is no mistake pointed out in the Audit report and also by the authorities in the maintenance of books of accounts and therefore we could presume that the assessee had declared his correct income in the return of income. We find that the Ld.CIT(A) also not decided the issue based on the materials but he simply relied on the order of the AO which in our view is not correct. The Ld.CIT(A) had simply extracted the findings given by the AO and the statements given by the partners and rejected the grounds raised by the assessee which in our opinion is not correct. We, therefore set aside the order of the Ld.CIT(A) as well as the AO and allow all the appeals filed by the respective assessees. 37. In the combined result, all the fourteen appeals filed by the respective assessees are allowed. 10.1 Respectfully following the findings of the coordinate bench in the case of group assessee and considering that facts involved in the case of present assessee that are squarely covered by the above-mentioned case, we hereby set aside the finding of the learned CIT(A) and directed the AO to delete the addition made by him. Hence, the grounds of appeal raised by the assessee are hereby allowed. Printed from counselvise.com ITA No.1585 - 1587/Bang/2025 Page 9 of 10 . 11. In the result, the appeal of the assessee is hereby allowed. Coming to ITA No. 1586 & 1587/Bang/2025 for A.Y. 2019-20 and 2020-21 12. At the outset, we note that the issues raised by the assessee in the captioned appeals for the AYs 2019-20 and 2020-21 are identical to the issue raised by the assessee in ITA No. 1585/Bang/2025 for the assessment year 2018-19. Therefore, the findings given in ITA No. 1585/Bang/2025 shall also be applicable for the assessment years 2019- 20 and 2020-21. The appeal of the assessee for the A.Y. 2018-19 has been decided by us vide paragraph No.10 – 11 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2018-19 shall also be applied for the assessment years 2019-20 & 2020-21. Hence, the grounds of appeals filed by the assessee for A.Y. 2019-20 & 2020-21 are hereby allowed. 13. In the result, the appeals of the assessee for A.Y. 2019-20 & 2020-21 are hereby allowed. 14. In the combined result, all three appeals of the assessee are hereby allowed. Order pronounced in court on 25th day of February, 2026 Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 25th February, 2026 / vms / Printed from counselvise.com ITA No.1585 - 1587/Bang/2025 Page 10 of 10 . Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore Printed from counselvise.com "