SARAVANA STORES TEX,CHENNAI V. DCIT, CENTRAL CIRCLE-1(2), CHENNAI

ITA 3246/CHNY/2024

AI Insights

The case involves multiple appeals by both the assessee, M/s Saravana Stores Tex, and the revenue, concerning the assessments made following a search operation under section 132 of the Income Tax Act. The search revealed various entries in seized notebooks, which were alleged to represent unaccounted income. The primary legal contention revolved around the interpretation of these entries and whether they constituted undisclosed income or merely reflected internal fund rotations and legitimate business expenses. The Tribunal examined the nature of the entries, the methodology of the assessments, and the legal principles governing the taxation of undisclosed income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 668598 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2018-2019
• Other Referred Cases: Navjivan Oil Mills, Indeo Airways P. Ltd., D.D. Gears Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS LD
• Assessee Lawyers: V. NAGAPRASAD LD; WAY OF EXPENDITURE OUT OF NET RECEIPTS; WAY OF BILLS; THIRD
• Keywords: Set aside; Business income; Business expenditure; Corroborative evidences; Unexplained investment; Income from undisclosed sources; Rule of consistency; Document seized; Documents seized; Bogus
• Section: 147; 148; 142(1); 132

Judgement Text

" आयकर अपीलीय अिधकरण “बी” ा यपीठ चे\u0012ई म\u0015। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHENNAI मा ननीय \u0018ी एबी टी. वक , ा ियक सद एवं मा ननीय \u0018ी मनोज क ुमा र अ$वा ल ,लेखा सद क े सम&। BEFORE HON’BLE SHRI ABY T. VARKEY, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM 1. आयकरअपील सं . / ITA No.3243/Chny/2024 (िनधा 'रण वष' / Assessment Year: 2015-16) & 2. आयकरअपील सं . / ITA No.3244/Chny/2024 (िनधा 'रण वष' / Assessment Year: 2016-17) & 3. आयकरअपील सं . / ITA No.3245/Chny/2024 (िनधा 'रण वष' / Assessment Year: 2017-18) & 4. आयकरअपील सं . / ITA No.3246/Chny/2024 (िनधा 'रण वष' / Assessment Year: 2018-19) & 5. आयकरअपील सं . / ITA No.3247/Chny/2024 (िनधा 'रण वष' / Assessment Year: 2019-20) & 6. आयकरअपील सं . / ITA No.3248/Chny/2024 (िनधा 'रण वष' / Assessment Year: 2020-21) & 7. आयकरअपील सं . / ITA No.3249/Chny/2024 (िनधा 'रण वष' / Assessment Year: 2021-22) & 8.आयकरअपील सं . / ITA No.3250/Chny/2024 (िनधा 'रण वष' / Assessment Year: 2022-23) M/s Saravana Stores Tex # 42-45, Ranganathan Street, T. Nagar, Chennai-600 017. बना म/ Vs. DCIT Central Circle-1(2), Chennai. 2 \u0001थायीलेखासं./जीआइआरसं./PAN/GIR No. AAWFS-6761-Q (अपीलाथ /Appellant) : ( थ / Respondent) & 9. आयकरअपील सं. / ITA No.287/Chny/2025 (िनधा 'रण वष' / Assessment Year: 2015-16) & 10. आयकरअपील सं. / ITA No.288/Chny/2025 (िनधा 'रण वष' / Assessment Year: 2016-17) & 11. आयकरअपील सं. / ITA No. 289/Chny/2025 (िनधा 'रण वष' / Assessment Year: 2017-18) & 12. आयकरअपील सं. / ITA No.290/Chny/2025 (िनधा 'रण वष' / Assessment Year: 2020-21) & 13. आयकरअपील सं. / ITA No.291/Chny/2025 (िनधा 'रण वष' / Assessment Year: 2021-22) & 14. आयकरअपील सं. / ITA No.292/Chny/2025 (िनधा 'रण वष' / Assessment Year: 2022-23) DCIT Central Circle-1(2), Chennai. बनाम/ Vs. M/s. Saravana Stores Tex # 42-45, Ranganathan Street, T. Nagar, Chennai-600 017. \u0001थायीलेखासं./जीआइआरसं./PAN/GIR No. AAWFS-6761-Q (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ कीओरसे/ Assessee by : Shri V. Nagaprasad (Advocate)- Ld.AR थ कीओरसे/Revenue by : Shri Shiva Srinivas (CIT) - Ld. DR सुनवाईकीतारीख/Date of Hearing : 28-04-2025 घोषणाकीतारीख /Date of Pronouncement : 27.06.2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1.1 The assessee is in further appeal before us for Assessment Years 2015-16 to 2022-23 whereas the revenue is in further appeals before us 3 for AYs 2015-16 to 2017-18 and 2020-21 to 2022-23. It is admitted position that facts as well as issues are substantially the same in all the years. First, we take up cross-appeals for AY 2015-16 which arises out of an order passed by Ld. Commissioner of Income Tax (Appeals), Chennai-18 [CIT(A)] on 25-11-2024 in the matter of an assessment framed by Ld. AO u/s 147 of the Act on 26-03-2024. 1.2 The grounds as raised by the assessee read as under: - 1. The Ld. CIT(A) erred in relying on bland, illegible and uncorroborated entries found recorded in the seized material. 2. The Ld. CIT(A) erred in relying on the statement of Managing Partner recorded during the search as the only conclusive evidence ignoring the entries in the seized material on record. 3. The Ld. CIT(A) ought to have allowed set off of all the payments found recorded in the same seized material as business expenses against business receipts contained therein without being selective as per the provisions of section 132(4A) of the Act. 4. The Ld. CIT(A) erred in determining \"Undisclosed Income\" of the appellant on estimation basis when the entire seized material gathered during the extensive searches carried out by the Department was before him and there was no scope to resort to estimation. 5. The Ld. CIT(A) erred in estimating the \"Undisclosed Income\" of the appellant@ 70% of the total receipts recorded in the seized material without any basis. 6. The Ld. CIT(A) erred in confirming the hypothetical addition made by the Assessing Officer (AO) on account of opening balance recorded in the seized material commencing from 26.08.2014 without ascertaining the exact assessment year to which it pertained to in violation of the mandatory charging provisions under section 4 of the Act. 7. The Ld. CIT(A) erred in rejecting the grounds raised by the appellant, about the absence of any findings relating to application of Income generated from such unaccounted transactions. 8. The Ld. CIT(A) erred to adjudicate all the grounds raised by the appellant. 1.3 The grounds as raised by the revenue read as under: - 1. The order of the ld. Commissioner of IT (Appeals) is opposed to law and facts of the case. 2. The ld. CIT(A) erred in allowing relief to assessee to the extent of 30% of total cash receipts as expenses incurred and directed to considered the balance 70% of the cash receipts as income against the total addition of Rs.9,51,06,502/- 3. The ld.CIT(A) erred in allowing relief to the assessee which was not based on any substantial corroborative evidence merely on estimated basis. 4 4. The ld. CIT(A) erred in partial deletion of the addition made by the AO based on incriminating evidence found during the course of search by allowing lump sum 30% deduction on account of corresponding cash expenses without any concrete evidence. 5. The Ld. CIT(A) failed to appreciate that during the assessment proceedings, the assessee neither explained the nature of these expenses nor identified the parties to whom the payments were made. . 6. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of ld. CIT(A) may be set aside on this ground and that of the Assessing Officer be restored. As is evident, the impugned issues arise out of a search conducted by the department in the case of assessee group on 01-12-2021. 1.4 The Ld. AR advanced arguments and supported the case of the assessee with various case laws and furnished various documents containing workings / computations etc. The Ld. CIT-DR also advanced arguments and supported the findings rendered by Ld. AO and likewise, relied on various case laws. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. 1.5 The assessee being resident firm is stated to be engaged in wholesale and retail trading of textiles, groceries, household articles etc. The assessee filed its regular return of income u/s 139(1) on 28-09-2015 declaring income of Rs.49.85 Crores. Assessment Proceedings 2.1 Pursuant to search action on the assessee u/s 132 on 01-12-2021, certain incriminating material / documents were found on the basis of which the impugned assessment for AY 2015-16 has been framed. On the basis of seized material, it was alleged that the assessee received unaccounted cash from various sources during the course of its business. Accordingly, notice u/s 148 was issued to the assessee on 28- 03-2023. The assessee admitted same income in response to the same. 5 Notices u/s 143(2) and 142(1) were issued in due course calling for requisite information / explanation from the assessee. The Managing Partner, Shri Sabapathy was examined during search wherein he, inter- alia, admitted that payment was received back from the vendors, cash was generated from scrap sales and rental income was received in cash. 2.2 During search, small diaries were found and seized vide Annexure ANN/SR/SSSLLP/B&D/S-1 to S-11 containing various entries of cash receipts (a sample has been extracted on Page-2 of the assessment order) which were digitized during the course of search. The diaries were kept with an employee Shri A. Julian in his office at Saravana Store Jewel Super LLP on Pursaiwalakam and the entries were stated to be made by Managing Director (MD). 2.3 Upon analysis of entries, it was found that the cash was sourced out of multiple sources viz. cash received back for bogus RTGS payments, unaccounted cash receipts from weighing machines / toy machines, receipts towards bogus labour bills and rental receipts etc. The search findings revealed that the payment made to certain vendors through RTGS would be received back in cash by Shri Siva Perumal and given to Shri Gurunathan. One Mr. Anil acted as an agent who would arrange for supply of products to the assessee group from various vendors whose names were found mentioned in the seized material. It was also found that he also arranged bogus bills for which cash would be returned back. The rental receipts were nothing but rent earned out of spaces let out for stalls at assessee’s Textile Showrooms. The same was received in cash and not accounted for in the regular books of accounts. All these facts were confronted to the Managing Partner of the assessee- firm during the course of assessment proceedings. The additions for this 6 year are based on entries founds in Book No.11 containing entries for the period 26-08-2014 to 02-08-2017. 2.4 The assessee stated that as per this book, the total receipts worked out to be Rs.787.08 Lacs and out of the same, payments made from the receipts were to be deducted and only the net receipts were to be considered. The same was summarized by the assessee as under: - Particulars Receipts Payments Net Receipts Cash receipts against RTGS Payments Rs.430.98 Lacs Rs.219.27 Lacs Rs.211.70 Lacs Rental Receipts Rs.119.35 Lacs Nil Rs.119.35 Lacs Other Income (weighing machines, toy machine etc.) Rs.33.83 Lacs Nil Rs.33.83 Lacs Sub-Total (A) Rs.584.17 Lacs Rs.219.27 Lacs Rs.364.89 Lacs Receipts not to be treated as income Mama / Sabapathy Rs.100 Lacs Rs.66.06 Lacs Rs.33.93 Lacs Jamai Rs.102.90 Lacs Nil Rs.102.90 Lacs Sub-Total (B) Rs.202.90 Lacs Rs.66.06 Lacs Rs.136.83 Lacs Grand Total (A+B) Rs.787.08 Lacs Rs.285.34 Lacs Rs.501.73 Lacs It was stated by the assessee that the transactions with narrations ‘mama / sabapathy’ were mere internal rotation of funds which were not out of any income sources whereas the entries with narrations ‘Jamai’ were stated to be pertaining to associated concern M/s Saravana Stores Foods Pvt. Ltd. (SFPL) and therefore, these entries could not be considered to be the income of the assessee. The net receipts were thus quantified at Rs.364.89 Lacs. It was further stated that certain payments were made for business expenditure such as purchases from grey markets, expenditure on interior decoration during festive season, staff welfare expenses which were not accounted for in the regular books and these payments formed part of seized material. Such expenditure for this 7 year was quantified at Rs.357.89 Lacs, the deduction of which was sought by the assessee by way of expenditure out of net receipts. 2.5 The Ld. AO noted that book No.11 had opening cash balance of Rs.266.88 Lacs which was not considered by the assessee in its working whereas this much cash was available with the assessee as on 26-08- 2014 which was to be treated as unaccounted receipts. The plea that internal rotation of amount as found noted against mama / sabapathy were to be rejected since the assessee did not furnish any corroborative evidences with regard to this claim. The allowance of business expenditure was also not be granted since the assessee did not furnish additional supporting evidences in that respect. It was not established that such payments were made towards earning of receipts as noted in the notebooks. The parties who received such payments were not identified by the assessee. Therefore, this plea was also rejected. In para 7.6 of the assessment order, it was noted by Ld. AO that the assessee did not explain the nature of utilization of payments having the narrations ‘mama / sabapathy’ and merely stated that this was internal rotation of funds. However, the outflow of such entries was higher than the inflow of funds and this plea was also rejected. However, the assessee’s plea regarding entries pertaining to M/s SFPL was accepted and these transactions were excluded while making additions in the hands of the assessee. 2.6 In the above background, the balance receipts of Rs.951.06 Lacs (after excluding entries pertaining to M/s SFPL but including opening balances) was added to the total income of the assessee as unaccounted business income and the impugned assessment was 8 framed which was subjected to assessee’s further challenge in first appeal. 2.7 Similar assessments were framed for AY 2016-17 & 2017-18. In AY 2018-19, Ld. AO did not even allow the benefit of entries pertaining to M/s SFPL and made addition of Rs.133.40 Lacs. 2.8. In AY 2019-20, the addition has been made on the basis of Book No.10 which contained entries from the period 16-04-2019 to 01-12-2021 (i.e., till the date of search). The opening balance of this book was Rs.555.06 Lacs which was also considered by Ld. AO to be pertaining to this year. The entries pertaining to M/s SFPL were excluded. 2.9 In AY 2020-21, entire cash receipts were treated as undisclosed income of the assessee. Similar was the assessment for AY 2021-22. 2.10 In AY 2022-23, Ld. AO made addition of entire gross receipts. Another addition was made for discrepancies in the stock. The net deficit of physical stock was worked out to be Rs.32.92 Lacs. The Ld. AO applied Gross Profit Rate of 26.39% on the same and made addition of Rs.8.68 Lacs. 2.11 Aggrieved as aforesaid, the assessee assailed all the assessments before first appellate authority which were disposed-off vide separate orders on similar lines. The adjudication of Ld. CIT(A) has led to present cross-appeals before us. The core issue in the first appeal was qua entries of receipts and payments as found noted in the seized notebooks. Appellate proceedings 3.1 The assessee contended that the entries were maintained by its employee in a haphazard manner and the notebooks merely contained various numbers without proper narration or date of transactions. Wherever date and narrations were mentioned, the same were not 9 legible and no interpretation or conclusion could be arrived at based on such entries. It was further submitted that the seized notebooks contained entries regarding receipts as well as payments and only net receipts were to be considered after deducting payments found recorded therein against receipts as the payments were made towards various business expenditures viz. purchases from grey markets, expenditure incurred by the assessee on interior decoration of the showrooms during festive seasons, staff welfare expenses etc. which were not recorded in the regular books. The assessee also contended that the entries containing description like ‘Mama/Saba/Sabapathy’ were mere internal rotation of funds which were to be excluded altogether since the same would not have any element of income. Likewise, the entries having narrations like ‘Jamai’ were to be excluded since these entries pertained to another associated entity M/s Saravana Stores Foods Pvt. Ltd. (SFPL). The assessee made elaborate written submissions during first appeal which have already been extracted in the impugned order. In these submissions, the assessee, inter-alia, sought exclusions of those entries which were not in the nature of income. The assessee also pleaded for allowance of business expenditure as found noted in the notebooks. The assessee also opposed impugned additions in the absence of any corroboration of these entries. The receipts and payments under separate heads were tabulated and summarized in the written submissions. Reference was made to various judicial decisions to support the same. 3.2 The Ld. CIT(A) observed that the notebooks as seized from the premises of the assessee were maintained by its employee Shri Julian. He broadly deposed that few of the entries represented return of cash by 10 some suppliers against bill amounts remitted through RTGS / NEFT, few of the entries represented unaccounted rent, collection of toy machines / weighing machines etc. The Managing Director also confirmed the correctness of the extract of entries and consolidation of the same. However, some of the entries were undated having no description about name of party or nature of transactions, some of the entries were blank in particulars whereas some names were mentioned in short form / abbreviations etc. However, these notebooks could not be treated as dumb document. In the said background, Ld. CIT(A) proceeded to adjudicate the impugned additions on merits. 3.3 For AY 2015-16, the additions were made on the basis of Notebook no.11 which pertained to period from 26-08-2014 to 02-08-2017 meaning that entries of cash receipt and corresponding payments for the earlier period 01-04-2014 to 25-08-2014 was not made in the book. No other material containing entries for the earlier period of this financial year was found. However, Ld. AO included the opening balance of Rs.266.88 Lacs as receipts of this year on the ground that the assessee was in possession of that much of cash as on 26-08-2014 and therefore, the same was to be treated as unaccounted receipt. As against this, the assessee contended that it could not be said that this amount pertained to this year and there could be various possibilities for the opening balance. The Ld. CIT(A) observed that the entry of opening balance was immediately followed by three payments without any further receipts. Since these were cash transactions, the cash payments were not possible without considering the opening balance of Rs.266.88 Lacs which would prove that the assessee was having cash balance of Rs.266.88 Lacs as on 26-08-2014. The same would support the stand of 11 Ld. AO. Therefore, the opening cash balance was to be considered as receipts for this year only. 3.4 On the issue of internal rotation of funds in the name of mama / saba / sabapathy, Ld. CIT(A) noted that receipts found recorded in such names were more than the payments in some assessment years whereas it was lesser in few years. Therefore, no general inference could be drawn. These entries were to be considered at par with other receipts and payment found recorded in the notebooks. Accordingly, this plea of the assessee was rejected. 3.5 On the issue of telescoping of business expenditure, it was noted by Ld. CIT(A) in para 16.3 that the entries would show that cash was received on day-to-day basis and the receipts were used to make payments as represented by payment entries. No concrete inference would be drawn on most of such entries. Nevertheless, the presumption u/s 132(4A) was to be given to all the entries in the seized material. The contents of the incriminating seized material were to be considered as a whole and not in a piecemeal manner. The revenue could not pick and choose certain part of document and disbelieve the other part of the document. The Ld. AO could not ignore expenditure as reflected in the same seized material and when both receipts and expenses were found recorded in the same seized documents and therefore, entries relating to expenses should also be accepted. However, such expenditure ought to have relation with the receipts sides of the notebooks which was payment received from vendors, unaccounted rental receipts and collections from machines etc. The claim of expenditure was unsupported and the perusal of few expenditures would show that these entries were bearing abbreviations such as EB/CMD, CMDA, MLA etc. 12 which prima-facie would be disallowable as not related to assessee’s business. The nature of these payments could not be explained by the assessee. In this situation, no specific expenditure could be directly correlated against receipts as found noted in the note-books. 3.6 The assessee also contended that entire payments recorded were meant for purchase of second and rejected goods from mills in grey market and therefore, the expenditure was incurred wholly and exclusively for the purpose of business. Further, the assessee had to incur expenditure on setting up of transformers on their own account which was reflected as EB payments, The assessee claimed to have made payment to staff on festivals and meeting other incidental expenses in cash which was not recorded in regular books. The expenses were stated to be incurred on regular maintenance and upkeep. However, all these claims were unsupported claims. No foolproof evidence was furnished by the assessee by way of bills, third- party confirmations etc. In the absences of specific correlation between receipts and payments, the only way of determining the income form such cash receipts was to estimate the income. The expenditure was finally estimated as 30% of receipts and Ld. AO was directed to tax the receipts to the extent of 70%. 3.7 For AY 2018-19, the assessee sought exclusion of entries having ‘Jamai’ narration since these receipts were excluded by Ld. AO for AYs 2015-16 to 2017-18 under identical facts and circumstances. These receipts were stated to be pertaining to other entity viz. M/s Saravana Stores Foods Pvt. Ltd. The ‘Jamai’ was brand name used by that entity. The Ld. CIT(A) observed that Ld. AO accepted assessee’s submissions and excluded these receipts for all the years except for AY 2018-19. No 13 reason was given for such a deviation. Therefore, Ld. AO was directed to exclude these receipts for AY 2018-19 also. 3.8 For AY 2019-20, the assessee raised a plea that income for this year was already assessed in AY 2020-21. The Ld. CIT(A) concurred that same amount of Rs.920.55 Lacs (including opening balance of Rs.555.06 Lacs) was included in receipts for both AYs 2019-20 as well as for AY 2020-21. The Ld. AO could not have made addition of Rs.920.55 Lacs in AY 2019-20 since no entries pertaining to the period 01-04-2018 to 31-03-2019 was found in the seized material. Therefore, this addition for AY 2019-20 was directed to be deleted. At the same time, Ld. CIT(A) noted that the closing entry that was considered for AY 2018-19 had closing balance of Rs.130.54 Lacs whereas the next entry available on seized material which was considered for AY 2020-21 was Book No.10 which started from 16-04-2019. This book had opening balance of Rs.555.06 Lacs. Thus, there was a gap of Rs.424.52 Lacs which was not considered for any of the AYs. Though total receipts and payments were not available pertaining to the gap between this closing balance and the opening balance, the assessee had unspent cash balance of Rs.424.52 Lacs. As this cash balance available as on 16-04- 2019 could not be said to be earned after 01-04-2019 i.e., within a gap of 15 days in that financial year, the same was to be considered for AY 2019-20. Accordingly, this amount was directed to be treated as undisclosed income for AY 2019-20. The receipt of Rs.555.06 Lacs as considered by Ld. AO for AY 2020-21, was accordingly, directed to be excluded. 3.9 In AY 2022-23, the assessee challenged addition of Rs.8.68 Lacs as made on account of Gross Profit on value of stock deficit as found 14 during the course of search. The stock deficit was found for Rs.32.92 Lacs out of physical stock of Rs.211.37 Crores on which Ld. AO applied GP rate of 26.39% to make impugned addition of Rs.8.68 Lacs. The assessee contended that difference was only to the extent of 0.17% of book stock value. The physical stock was taken in a haphazard manner and it was practically impossible to take physical quantity of stock of all the locations in 2-3 days’ time. There was more than 10 Lakh variety of items in various brands in all the locations on the date of search. Whatever stock was taken at the time of search could only be a tentative figure. The Ld. CIT(A) concurred that the margin of error was negligible and therefore, no adverse inference was to be drawn against the assessee. This addition was, accordingly, deleted. Finally, Ld. AO was directed to adopt 70% of gross receipts as assessee’s income except for AY 2019-20 wherein the unaccounted income was quantified at Rs.424.52 Lacs. 3.10 Accordingly, all the appeals of the assessee were partly allowed. Aggrieved, the assessee is in further appeal before us for AYs 2015-16 to 2022-23 whereas the revenue is in further appeals before us for AYs 2015-16 to 2017-18 and 2020-21 to 2022-23. The grounds as raised in respective appeals are substantially the same. Our findings and Adjudication 4. It emerges that the assessee is engaged in wholesale and retail trading of textiles, groceries, household articles etc. The assessee is dealing in numerous articles across its various sales outlets. The assessee is regularly assessed to tax. The quantum of turnover and Net Profit (NP) rate as reflected by the assessee, for various years, could be tabulated as under: - 15 5. The impugned assessments have been framed pursuant to search action on the assessee on 01-12-2021 where certain rough books being maintained in a haphazard manner were found and seized. This seized material could be tabulated as under: - The Book No.11 contained entries for the period 26-08-2014 to 02-08- 2017 whereas Book No.10 contained entries from 16-04-2019 to 01-12- 2021 (till the date of search) on the basis of which impugned additions have been made in the hands of the assessee. No other incriminating material or no other evidence of unaccounted investment / undisclosed asset has been found from the possession of the assessee. These books were maintained by assessee’s employee Shri A. Julian. These seized books allegedly contained scribbling of various numbers which were stated to be receipts and payments relating to assessee’s business. Considering the fact that the entries were not easily discernible, the No. AY Turnover (Rs.in Crores) Returned Income (Rs. in Crores) NP Rate 1. 2015-16 839.02 49.85 5.94% 2. 2016-17 1064.59 63.15 5.93% 3. 2017-18 1102.21 59.55 5.40% 4. 2018-19 1245.83 69.00 5.50% 5. 2019-20 1419.25 76.40 5.39% 6. 2020-21 1336.48 72.12 5.40% 7. 2021-22 731.40 0.83 0.11% 8. 2022-23 888.81 9.38 1.06% Average NP Rate 4.63% No. Seized Material Period of Transactions 1. Book No.11 26-08-2014 to 02-08-2017 2. Book No.10 16-04-2019 to 01-12-2021 (till the date of search) 16 same were digitized during search and confronted to assessee’s employee and thereafter to its Managing Partner Shri Sabapathy. These entries were kept in a haphazard / unorganized manner. Many of the entries had no narration / details / description whereas many of the entries had short form / abbreviations only. Many of the entire were undated having no description about name or party or the nature of the transactions. A sample of this material has also been placed before us. Upon perusal of the same, it could be seen that exact nature of transactions could not be deciphered out of these entries and these are mere scribbling of numbers. The same contained receipts as well as payments which, inter-alia, include internal rotation of fund and transactions pertaining to other associated concern of the assessee i.e., M/s SFPL. Few of the entries represent various streams of income for the assessee. The payment side also included business expenses incurred by the assessee under various heads. It could easily be seen that all the receipt transactions do no constitute income of the assessee at all. It is pertinent to note that no independent verification has been carried out by Ld. AO on any of these entries. No corroborative evidence has been found during search supporting any of these entries. The Ld. AO has merely made addition of sum total of all the receipts in the seized material treating it as undisclosed income without analyzing whether each of the receipt represent income, at all, for the assessee and totally ignored the payment entries found intermingled with the receipt entries as recorded on the same pages of seized material. It is trite law that only real income earned by the assessee could be brought to tax. The Income Tax Act requires determination of ‘real income’ on the basis of ordinary commercial principles of accountancy. To determine the ‘real income’, 17 permissible expenses are required to be set-off. Following this cardinal principle of taxation, the approach of Ld. AO in taxing gross receipts and not allowing benefit of expenditure as found noted on the same material could not be held to be a judicious / rational approach. The Hon’ble Delhi Court of Gujarat in the case of Navjivan Oil Mills (124 Taxman 392) held that the seized material has to be read and accepted as a whole and it is not permissible to pick and choose or make further estimates therefrom unless there is cogent material in support of undertaking such an exercise. Similarly, Hon’ble High Court of Delhi in the case of Indeo Airways P. Ltd. (26 Taxmann.com 244) held that whether once a presumption had been drawn as to that the contents of the documents as recovered during search were true, revenue could not have, consistently with that presumption, proceeded to require the assessee to produce material in support of expenditure entries contained in very same document. Similarly, in D.D. Gears Ltd. (25 Taxmann.com 562), it was held by same court that while making additions on the basis of slips as seized during search showing cash receipts as well as expenses, AO could not take note only of income part as reflected in the seized material, ignoring the expenditure part as reflected in the same seized material. Similar is the view of various benches of this Tribunal in various decisions as placed on record. In terms of all these judicial decisions, the approach of Ld. AO in completely ignoring the expenses as found noted on the same seized material could not be said to be a rational approach. 6. Proceeding further, the receipts as found noted in these books have been segregated into various heads. One of the streams is receipt of cash by the assessee from various suppliers against bills for which the payment was made through banking channels. It emerges that the 18 assessee would get part of its supplies from one Mr. Anil who acted as an agent who would arrange for actual supply of products to the assessee group from various vendors and would also arrange for bogus bills for the assessee. In other words, the receipt side would include cash received by the assessee against payments made for bogus supplies and on the other hand, payment side would include payment made by the assessee for purchase of actual material from grey market / related business expenditure. The other stream of receipt is rental income from letting out small spaces at the showrooms. The third stream of receipts is collections from toy machines, weighing machine etc. Both these streams of receipts would primarily be in the nature of business income for the assessee. On the other hand, the payment side include payment made by the assessee on account of staff welfare expenses, expenses on interior decoration and payment to meet various business expenditure. The assessee is not shown to have carried out any other activity except running business activities. All the expenditure as found noted in the seized books are related to the business activities of the assessee and there is no finding by Ld. AO that funds were diverted by the assessee for any other purposes. No undisclosed asset or investments has been found during search on assessee which would substantiate the conclusion that business expenses as noted in the seized books constitute business expenses for the assessee. 7. It is pertinent to note that no evidence of any out-of-books sales have been noted by the searched party during search. The assessee has maintained complete quantitative details of major material being sold by it at its showrooms over all the impugned years. The books of accounts have duly been audited and the assessee has reflected healthy net profit 19 rate on its turnover. In other words, whether the material was purchased as found recorded in the regular books or whether the material was procured from the grey market, the same has ultimately been sold by the assessee which is found recorded in the regular books of accounts or the same form part of its closing stock. No discrepancy has been noted in the quantitative details of the assessee. The sales turnover has duly been accepted by Ld. AO. On these facts, the first and foremost conclusion that could be drawn is that entire receipts found record in notebooks as receipts against bogus bills could not be termed as gross income of the assessee since the sales thereof has already been accounted for in the regular books which has been accepted by Ld. AO. Though the purchases have been booked on the basis of bogus bills but ultimately the goods have been procured by the assessee from grey market since there could be no sales without actual purchase of goods. Therefore, the addition that could be made, at the most, was to account for profit element as embedded in these purchases which could possibly be earned by the assessee in this process and nothing more. It is trite law that only real income could be brought to tax and the receipts which do not have element of income could not be considered to be the income of the assessee. It could also be seen that the impugned additions have been made by Ld. AO on the basis of seized material without there being any independent investigation / finding but yet to consider the plea of allowance of business expenditure as found noted in these books, the assessee was required to prove the same with sufficient documentary evidences. The stand of Ld. AO is quite contradictory in itself qua the receipts and expenditure as found noted in the same seized material. The presumption of law would have equal application to all the entries, 20 whatever the nature of transactions is. Accordingly, the approach of Ld. AO in taxing the gross receipts could not be said to be judicious one to that extent and the same cannot, therefore, be countenanced. 8. We also find that another set of receipts / payments are bearing narrations such as ‘Jamai’. These entries pertain to assessee’s associated entity viz. M/s SFPL. The assessee had sought exclusion of these entries. The Ld. AO himself has accepted this plea of the assessee except for deviation in AY 2018-19 wherein these receipts have been considered to be the assessee’s receipts and accordingly, added to its income. We find that rule of consistency would apply on these facts which mandate Ld. AO not to deviate from the accepted facts. There is no rational for not accepting this plea for AY 2018-19. In our opinion, Ld. Ld. CIT(A) has very rightly decided this issue in assessee’s favor and directed Ld. AO to exclude these receipts for AY 2018-19. We concur with the adjudication of Ld. CIT(A), to that extent. 9. The last set of receipts are bearing narrations such as ‘mama / saba / sabapathy’. It has consistently been stated by the assessee that these entries have no element of income but the same merely represent internal rotation of funds only. The nature of transactions is like putting money from one pocket to another pocket and vice versa. It is settled law that no person can make money out of himself by making entries of receipts and payments in his name. It was duly explained by the assessee that whenever some business cash was left with Managing Partner / his close relative Mama, the same would be kept with Mr. Julian for safekeeping in the locker and collected back whenever it is required. Therefore, this set of receipts / payments could not be considered at all while computing the income of the assessee out of unaccounted 21 transactions. Having held so, the natural corollary would be that opening & closing cash balances as extracted in these books would loose much relevance since these balances could be out of any streams and it could not be said with conviction that these balances would have income element as embedded therein. In other words, unless it was shown that such balances had element of income, these balances could not be considered to be the unaccounted receipts for the assessee. The opening balance of Rs.266.88 Lacs as considered by Ld. CIT(A) to be pertaining to AY 2015-16 is not borne out of the seized material. It could be seen that the notebook no. 11 was pertaining to the period 26-08- 2014 onwards and this book started with opening balance of Rs.266.88 Lacs. Firstly, it could not be said that this opening balance as on 26-08- 2014 had any element of income and secondly, it could also not be said that the said balance pertained to this year only. Guess work is impermissible. The AY 2015-16 was unabated year and therefore, the additions have to be made strictly on the basis of incriminating material only and not on mere presumptions and assumptions. Similar logic would apply for closing balance gap of Notebook No.11 and opening balance of Notebook No.10 since these are disjointed books. The entries between 02-08-2017 to 16-04-2019 are not available, at all. There could be various possibilities explaining this gap. Unless it was shown with concrete evidence that the gap had any element of income, it could not be said that the same represent unaccounted income of the assessee. Therefore, this gap could not be considered to be the unaccounted income for the assessee. Secondly, the period to which this gap could be said to be pertaining to, could not be ascertained with much decisiveness / conclusiveness. Therefore, the opening balance of Rs.266.88 Lacs and 22 gap in balances of two books for Rs.424.52 Lacs could not be considered to be unaccounted receipts for the assessee. Moreso, it could also not be said that these balances / gap has any element of income for the assessee. Therefore, the opening balance as well as balance gap between two notebooks is to be completely ignored while estimating the income of the assessee. We order so. 10. In the above background, the additions made by Ld. AO for various Assessment Years could be tabulated as under: - Particulars 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 Total Income assessed as per 143(1) 498542060 631550210 595588580 685131770 764669400 721230250 8313560 93836860 3998862690 Additions Made 95106502 74979354 86957513 13340790 92055323 277751554 108008703 107057512 855257251 Assessed Income 593648562 706529564 682546093 698472560 856724723 998981804 116322263 200894372 4854119941 Entries in Seized Notebooks Opening Balance 26688810 42452796 69141606 Receipts Receipts againtst RTGS Payments 43098578 22827858 47609131 920000 0 106267387 22556517 83060255 326339726 Rental Receipts 11935174 34585436 12770800 0 0 28894483 14443685 9666316 112295894 Other Receipts 3383940 5766060 19776160 3972691 0 29167990 1093250 0 63160091 Scrap Sales 0 0 0 0 0 835475 0 0 835475 Mama / Sabapathy 10000000 11800000 6801422 0 0 56280848 69915251 13461951 168259472 Gross Receipts (Excl. Op. Bal.) 68417692 74979354 86957513 4892691 0 221446183 108008703 106188522 670890658 Payments Accomodation 21927706 24127211 8341638 1809000 0 2500000 0 38969999 97675554 Business Exp. / Payments 34560170 35855173 86020701 4062731 0 114529684 86232438 31573611 392834508 Other Business Payments 4753859 0 0 0 0 0 0 0 4753859 Mama / Sabapathy 6606489 31949643 21142500 0 0 5000000 81843739 68812878 215355249 Total Payments 67848224 91932027 115504839 5871731 0 122029684 168076177 139356488 710619170 Net Receipts (Receipts - Payments) 569468 -16952673 -28547326 -979040 0 99416499 -60067474 -33167966 -39728512 It could be seen that difference in gross receipts (excl. opening balances) and total payments is yielding negative figures in AYs 2016-17, 2017-18, 2019-20, 2021-22 and 2022-23. 11. We find that Ld. CIT(A) has granted partial relief to the assessee which, inter-alia, include allowance of 30% of receipts on account of expenditure. As per our adjudication in preceding paragraphs, If the entries of internal rotation of funds are removed and opening balances / gap in balances are ignored, the situation that would emerge would be as 23 under: - Particulars Assessment Years 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 Total Receipts Receipts againtst RTGS Payments 43098578 22827858 47609131 920000 0 106267387 22556517 83060255 326339726 Rental Receipts 11935174 34585436 12770800 0 0 28894483 14443685 9666316 112295894 Other Receipts 3383940 5766060 19776160 3972691 0 29167990 1093250 0 63160091 Scrap Sales 0 0 0 0 0 835475 0 0 835475 Gross Receipts (A) 58417692 63179354 80156091 4892691 0 165165335 38093452 92726571 502631186 Payments Accomodation 21927706 24127211 8341638 1809000 0 2500000 0 38969999 97675554 Business Exp. / Payments 34560170 35855173 86020701 4062731 0 114529684 86232438 31573611 392834508 Other Business Payments 4753859 0 0 0 0 0 0 0 4753859 Total Payments (B) 61241735 59982384 94362339 5871731 0 117029684 86232438 70543610 495263921 Net Receipts (Receipts - Payments) -2824043 3196970 -14206248 -979040 0 48135651 -48138986 22182961 7367265 It could be seen that these computations are also yielding negative figures in four assessment years. In other words, the payments are exceeding receipts in four assessment years. 12. Upon perusal of above tabulation, it could be seen that the gross unaccounted receipts for all the years would aggregate to Rs.50.26 Crores as against expenditure of Rs.49.52 Crores leaving income of Rs.73.67 Lacs which could possibly be considered to be the income of the assessee going by the actual incriminating material. The same roughly translates into a profit rate of 1.46% (Rs.73.67 Lacs / Rs.50.26 Crores x 100). However, the exact nature of transactions / business expenses could not be deciphered from incomplete entries. Moreover, the computations are leading to negative figures in four years. Therefore, on these facts, to plug any possible leakage of revenue, we would hold that an estimation of 4% of gross receipts would meet the end of justice considering the facts and circumstances of the case. The same would 24 result into following computations: - Particulars Assessment Years Particulars 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 TOTAL Gross Receipts 58417692 63179354 80156091 4892691 0 165165335 38093452 92726571 502631186 Net Profit Rate 4% 4% 4% 4% 4% 4% 4% 4% 4% Quantum of Unaccounted Income 2336708 2527174 3206244 195708 0 6606613 1523738 3709063 20105247 The quantum additions are accordingly sustained for various assessment years to the extent of above tabulation. The Ld. AO is directed to re- compute the income of the assessee for all the assessment years accordingly. The corresponding grounds raised by the assessee for respective AYs are accordingly, partly allowed. The grounds as raised by the revenue stand dismissed. 13. In AY 2022-23, the revenue has assailed deletion of addition of stock deficit. Considering the fact that, the margin of deviation was merely 0.17%, we would hold that this addition has rightly been deleted by Ld. CIT(A). We order so. The corresponding grounds stand dismissed. 14. All the appeals of the assessee stand partly allowed. All the appeals of the revenue stand dismissed. Order pronounced on 27.06.2025 Sd/- Sd/- (ABY T. VARKEY) (MANOJ KUMAR AGGARWAL) ा ियक सद /JUDICIAL MEMBER लेखा सद / ACCOUNTANT MEMBER चे5ई Chennai; िदनांक Dated : 27.06.2025 25 आदेश की Iितिलिप अ$ेिषत / Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. थ /Respondent 3. आयकरआयु>/CIT Madurai/Chennai. 4. िवभागीय ितिनिध/DR 5. गाडCफाईल/GF "