THE DCIT CEN. CIR-1, RAJKOT V. SHRI DAYALRAJAN S. PILLAI, GANDHIDHAM

ITSSA 13/RJT/2023

AI Insights

The case involves an appeal by the Deputy Commissioner of Income-tax, Central Circle-1, Rajkot against Shri Dayalrajan Sunderrajan Pillai concerning the assessment year 2018-19. The appeal was directed against the order passed by the CIT(A)-11, Ahmedabad, which partly deleted the addition made by the Assessing Officer on account of unaccounted business receipts amounting to Rs.2,33,46,956. The Assessing Officer had treated these receipts as unexplained business income based on an excel sheet found during a search operation. The CIT(A) estimated the net profit on these receipts at 20%, differing from the lower profit ratios declared in the audited books due to various factors like the element of indirect tax and different types of business activities. The Tribunal upheld the CIT(A)'s decision, agreeing that only the profit element on the unaccounted receipts should be taxed, not the entire receipts.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 711463 (ITAT-RAJKOT)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 25-07-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2018-2019
• Other Referred Cases: CIT Vs. President Industries [(2002) 258 ITR 654 (Guj)]
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY PUNGLIA; LD.
• Assessee Lawyers: MEHUL RANPURA; LD
• Keywords: Set aside; Business income; Income from undisclosed sources; Document seized; Documents seized; Gross profit estimation; Search and seizure; Loose papers
• Section: 143(3); 142(1); 132; 153A; 139

Judgement Text

"आयकर अपीलȣय अͬधकरण, राजकोट Ûयायपीठ, राजकोट। IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER AND SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER आयकर अपील सं. / IT(SS)A No.13/RJT/2023 Ǔनधा[रण वष[ / Assessment Year: (2018-19) Deputy Commissioner of Income-tax, Central Circle-1, Rajkot, \"Amruta Estate\", 2nd Floor, M.G. Rajkot-360 001 Road बनाम Vs. Shri Dayalrajan Sunderrajan Pillai, Prime Roadlines & Yuvraj Enterprise, 2nd Floor, Plot No.10, Sector-1A, Gandhidham, Kutch-370 201 èथायी लेखा सं / जी आइ आर सं/. PAN/GIR No. ACTPP 5247 M (अपीलाथê/Assessee) : (ÿÂयथê/Respondent) Ǔनधा[ǐरती कȧ ओर से/Assessee by. : Shri Mehul Ranpura, Ld.AR राजèव कȧ ओर से/Revenue by : Shri Sanjay Punglia, Ld.CIT-DR सुनवाई कȧ तारȣख /Date of Hearing : 05/05/2025 घोषणा कȧ तारȣख /Date of Pronouncement : 25/07/2025 आदेश / O R D E R Per, Dr. Arjun Lal Saini, AM: Captioned appeal filed by the Revenue, pertaining to assessment year (AY) 2018-19, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad [in short 'Ld.CIT(A)'], dated 27.01.2023, which in turn arises out of an assessment order passed by the Assessing Officer, under section 143(3) r.w.s. 153A of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), dated 31.03.2022. 2. The grounds of appeal raised by the Revenue are as follows: \"1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A)) erred in deleting the addition made on account of unaccounted business receipts, particularly when the assessee failed to explain the source of such income and even failed to Printed from counselvise.com IT(SS)A No.13 /RJT/2023 A.Y. 18-19 Sh. Dayalrajan S Pillai 2 reconcile the same with the regular books of account having total amounting to Rs.2,33,46,956/-. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the assessing officer. 3. It is therefore, prayed that the order of the learned Commissioner (Appeals) be set aside and that of the assessing officer be restored to the above extent.\" 3. The facts of the case which can be stated quite shortly are as follows: The assessee is an individual and filed his return of income u/s 139 of the Act, on 29.10.2018, declaring therein total income at Rs.20,48,230/-. The assessee has earned income from business and other sources during the year. A search and seizure action u/s 132 of the Act, on 10.11.2020, in the case of Neelkanth Group, was conducted. The \"Neelkanth Group\" consists various companies, partnership firms, proprietorship firms of family members and HUFs and all such group / associated concerns are engaged in the diversified business activities, such as salt manufacturing, salt trading, transportation and logistics, liquid cargo storage terminal, construction contract, manufacturing of packaging materials, trading in automobile spare parts, custom house agent, renting of godown and warehouse etc. A search action u/s 132 of the Act was also carried out at the residential premises of various key persons and associates of Neelkanth Group, including the assessee. The assessee has common stakes with the members of Neelkanth Group in concerns such as M/s Aayush Procon Pvt. Ltd, M/s Varadhish Apparels, M/s Kandla Packaging Pvt. Ltd etc. Further, the assessee is also proprietor of M/s Yuvraaj Enterprise and M/s Prime Roadlines. During the course of search, various loose papers, digital data, that is, hard disk, Pen-Drive, laptop etc were found and seized. One of the key persons, Smt. Unnati Lakhnori who is the company secretary of M/s AAYUSH PROCON (whereby assessee is beneficial stakeholder) and works under guidance of assessee was also covered under this search operation. From the residential premises of Smt. Unnati Lakhnori, various Printed from counselvise.com IT(SS)A No.13 /RJT/2023 A.Y. 18-19 Sh. Dayalrajan S Pillai 3 digital data was found and seized during the course of search. Some of the data related to the assessee was found during the course of search action at the said premise. In reference to the above, notice u/s 153A of the Act was issued on 06.10.2021 to the assessee. 4. The assessee had filed its return of income, against notice u/s 153A on 01.11.2021, declaring the same income which was earlier declared in original return of income. Thereafter, notice u/s 143(2) of the Act, was issued on 19.11.2021. The assessee was requested to furnish relevant information u/s 142(1) of the Act on several dates. In response to the same, the assessee furnished its reply on various dates. 5. The Assessing Officer had gone through the reply of the assessee and observed that during the course of search an excel sheet named, as Hisabforsir.xls, was found in the computer of Prakashbhai. Shri Prakashbhai is the employee of the assessee. The Assessing Officer observed that the data therein contained were unaccounted business receipts of the assessee and the excel sheet contains unaccounted business income of assessee. The Assessing Officer, reproduced the excel sheet in the assessment order, vide para No.5 of the assessment order. 6. On perusal of the excel sheet, the assessing officer observed that the assessee has unaccounted business receipts of Rs. 2,33,46,956/- (83,87,986 + 1,49,58,970). Therefore, assessing officer, treated, it as unexplained business income of the assessee and added to the total income for the concerned year, to the tune of Rs.2,33,46,956/-. 7. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the Ld.CIT(A), who has partly deleted the addition. The Printed from counselvise.com IT(SS)A No.13 /RJT/2023 A.Y. 18-19 Sh. Dayalrajan S Pillai 4 ld.CIT(A) noticed that entire receipts or payments cannot be the subject matter of tax, but estimated profit element on the gross business receipts can only be taxed. The assessee, in his written submission worked out the average gross profit (GP) from the business at 5.49% and average net profit (NP) at 1.45%. However, GP/NP declared in the audited books of account cannot be the same in the unaccounted business activities because of various factors such as element of indirect tax, different type/nature of business activities and the profitability in such different activities etc. Hence, looking to the overall factual or legal aspects of this case, net profit on the unaccounted receipts was estimated at 20%, and this way ld. CIT(A) restricted the addition up to 20% of unaccounted receipts. Aggrieved by the order of Ld.CIT(A) the Revenue is in appeal before this Tribunal. 8. Before us, Ld.CIT-DR for the Revenue argued that addition made by the Assessing Officer to the tune of Rs.2,33,46,956/-, was restricted up to 20%, by Ld.CIT(A), therefore, Revenue is in appeal before the Tribunal that original addition made by the Assessing Officer to the tune of Rs.2,33,46,956/-, should be sustained. The Ld. CIT-DR pointed out that Assessing Officer has reproduced the excel sheet found and seized, during search operation and in this excel sheet there is only personal expenses and personal withdrawal, there is no office expenses and no withdrawal for the purposes of office expenses. Therefore, the entire credit side entries and the debit side entries both should be added in the hands of the assessee, as the assessee is engaged in the illegal business activities. Therefore, the Ld.CIT-DR further pointed out that in assessee's case under consideration, considering the nature of transactions, 100% addition should be made in the hands of the assessee, instead of 20% addition sustained by the Ld.CIT(A). Printed from counselvise.com IT(SS)A No.13 /RJT/2023 A.Y. 18-19 Sh. Dayalrajan S Pillai 5 9. On the other hand, Ld.Counsel for the assessee submitted that the documents which are seized during search proceedings should be read whole, in excel sheets, the Assessing Officer has only took the expenses side and only took the income of the assessee, from excel sheets-document. Therefore, it is not justifiable that Assessing Officer can take data from the excel sheet, which is favourable to him, and Assessing Officer ignored the data of the excel sheet, which is favourable to the assessee. Therefore, the excel sheet/document found during the search proceedings, should be read as a whole. The Ld.Counsel for the assessee further submitted that assessee had net profit ratio, as per audited books of accounts @ 1.4%, whereas the Ld.CIT(A) has estimated net profit @ 20%, on all the transactions, which is abnormally, very higher side. In fact, Ld.CIT(A) should have estimated the profit of the assessee as per the audited profit and loss account of the assessee, which is only 1.45%( net profit ratio). Besides, the excel sheet on the basis of which addition was made by the Assessing Officer in the year under appeal and in subsequent years contains entries on debit and credit side and the Assessing Officer had treated the same as unaccounted income for the year under consideration, however, it is settled law that in case of unaccounted activities, what is to be taxed is the unaccounted profit/income from such transactions and as such, entire amount of either receipts or expenditure cannot be taxed. 10. In rejoinder, Ld. CIT-DR for the Revenue submitted that first of all, the assessee has raised the money for illegal purpose and engaged in illegal transactions and moreover most of the withdrawals made by the assessee are for his personal household expenses and personal expenses. Therefore, no any concession should be given to the assessee and entire addition made by the Assessing Officer, should be sustained by Ld.CIT(A). Printed from counselvise.com IT(SS)A No.13 /RJT/2023 A.Y. 18-19 Sh. Dayalrajan S Pillai 6 11. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that the finding of the ld. CIT(A) to estimate net profit at 20% on unaccounted business receipts/transactions in excel sheet, despite the assessee declaring a lower gross profit/net profit ratio in audited books, can be justified provided certain conditions are met which are discussed by Ld. CIT(A) in his appellate order. We find that in the assessee`s case, under consideration, audited books show GP of 5.49% and NP of 1.45%, however, ld.CIT(A) holds that these are not applicable to unaccounted business transaction found in excel sheet, due to, different nature of business, lack of documented expenses, and element of indirect taxes (GST/VAT etc.), hence, Ld.CIT(A) applies 20% net profit rate on unaccounted receipts found in the excel sheet. We find that this approach of ld.CIT(A) is not inherently wrong. We note that Hon`ble jurisdictional High Court in the case of CIT Vs. President Industries [(2002) 258 ITR 654 (Guj)], held that only profits embedded in unaccounted sales can be added, not the entire sales. This principle supports taxing only net profit or gross profit on unaccounted receipts, and not full receipts. 12. The ld.CIT(A) noticed from the assessment order that, during the course of search at the residence of Smt. Unnati Lakhnori, company secretary of M/s. Aayush Procon Pvt. Ltd., various digital data were found and seized. These were held to be that of the assessee, as the nature of entries made therein reveals the same. The Assessing Officer reproduced content of the excel sheets, which were found from the residence of Smt. Unnati Lakhnori, in para 5 of the assessment order. In the assessment order, the Assessing Officer held that the assessee failed to explain the source of such income as mentioned in the seized excel sheet and Printed from counselvise.com IT(SS)A No.13 /RJT/2023 A.Y. 18-19 Sh. Dayalrajan S Pillai 7 hence, treated the total amount of Rs.2,33,46,956/-, as unaccounted income. The Closer perusal of the impugned seized data reveals that this is kind of a cash book showing inflow and outflow of cash. This is evident from similar cash book found for other years that is, A.Ys. 2016-17 and 2019-20 for which addition has been made in those years by the Assessing Officer either as unexplained receipt or unaccounted business receipts. 13. Before the learned CIT(A), the assessee submitted that Smt. Unnati Lakhnori was an employee of M/s. Aayush Procon Pvt Ltd and handling the finance/accountancy Department of the said company only. She is nowhere connected with the assessee. This fact was also confirmed by her in reply to question no. 14 & 42 of her statement recorded u/s. 132(4) of the Act. It was also contended that, the impugned data was not found from the possession of assessee, but the same was found from the possession of Ms. Unnati Lakhnori, who is neither an employee nor accountant of the assessee. Further, she was not confronted by the Department regarding the ownership of the alleged data and therefore the entries in the digital data (excel sheet) cannot be treated as that of the assessee on the basis of which the Assessing Officer has made additions. 14. However, ld. CIT(A) did not accept the above contention of the assessee and noted from the cash book that the name of the assessee is clearly mentioned along with the details of specific dates of transactions. Thus, it is clear that the entries belongs/pertains or relates to the assessee and these transactions are undoubtedly carried out by the assessee. Therefore, this is clearly not a dumb document and the transactions mentioned in the seized documents belongs/pertains or relates to the assessee himself. Printed from counselvise.com IT(SS)A No.13 /RJT/2023 A.Y. 18-19 Sh. Dayalrajan S Pillai 8 15. However, the assessee also argued before the ld. CIT(A) that that he had sufficient cash on hand by way of withdrawal from bank account from which expenses are incurred, therefore, entries in the excel sheet are nothing but movement/rotation of cash on hand. In this regard, it was observed by ld.CIT(A) that the claim of the assessee is not correct because, the assessee has failed to furnish the entry wise details of cash expenses as mentioned in the seized excel sheet. The assessee has also failed to substantiate his claim by tallying entry to entry with cash book. It clearly shows that the assessee is trying to justify the cash entry found in the seized excel sheet by giving vague details of overall cash inflow and cash outflow. Thus, the said argument of the assessee was rejected by ld CIT(A). 16. The assessee, during the appellate proceedings, also submitted before the ld. CIT(A) that the excel sheet on the basis of which addition was made by the Assessing Officer in the year under appeal and in subsequent years contains entries on debit and credit side and the Assessing Officer had treated the same as unaccounted income for the year under consideration as well as for A.Y.2019-20. Therefore, it is settled law that in case of unaccounted activities (though, not admitted), what is to be taxed is the unaccounted profit/income from such transactions and as such, entire amount of either receipts or expenditure cannot be taxed. However, the ld.CIT(A) noticed on verification of contents of the cash book, that various excel sheets mentioned in the assessment order for the year under appeal and subsequent years contains movements of cash, which is apparently in the nature of business activity. The assessee is engaged in various business i.e. trading of salt, cashew nuts, transportation, trading in metal scrap etc. However, one to one correlation of the entries with the regular cash book as per books was not reconciled by the assessee, either during the assessment proceedings nor during the appellate proceedings. Therefore, all the cash receipts and payments on these excel sheets have to be treated as unaccounted business Printed from counselvise.com IT(SS)A No.13 /RJT/2023 A.Y. 18-19 Sh. Dayalrajan S Pillai 9 receipts and payments, which is line with the finding of the Assessing Officer in the assessment orders for A.Ys.2018-19 & 2019-20. However, ld.CIT(A) noticed that it is a settled proposition that entire receipts or payments cannot be the subject matter of tax, but estimated profit element on the gross business receipts can only be taxed. The assessee worked out the average GP from the business at 5.49% and average NP at 1.45%. However, GP/NP declared in the audited books of account cannot be the same in the unaccounted business activities because of various factors such as element of indirect tax, different type/nature of business activities and the profitability in such different activities etc. Hence, looking to the overall factual or legal aspects of this case, NP on the unaccounted receipts was estimated at 20% by ld.CIT(A), on gross receipts of Rs.2,33,46,956/-, which worked out at Rs.46,69,391/- (20% of Rs.2,33,46,956). This way, the ld. CIT(A) partly allowed the appeal of the assessee. We have noted above, the arguments made by the assessee, during the appellate proceedings before ld. CIT(A) and the findings of the ld. CIT(A) and noticed that there is no infirmity in the above conclusion reached by the ld. CIT(A). On a careful reading of the ld.CIT(A)`s order and the findings thereon, we do not find any valid reason to interfere with the decision and findings of the ld.CIT(A) in estimating on unaccounted receipts, the profit at 20%, hence we sustain the order of the ld.CIT(A) and reject the grounds raised by the Revenue. 17. In the result, the appeal of the Revenue, is dismissed. Order is pronounced in the open court on 25/07/2025 Sd/- Sd/- (DINESH MOHAN SINHA) (DR.ARJUNLAL SAINI) ÛयाǓयक सदèय/JUDICIAL MEMBER लेखा सदèय/ACCOUNTANT MEMBER राजकोट /Rajkot Ǒदनांक/ Date: 25/07/2024 DKP Outsourcing Sr.P.S Printed from counselvise.com IT(SS)A No.13 /RJT/2023 A.Y. 18-19 Sh. Dayalrajan S Pillai 10 आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the order forwarded to :  अपीलाथȸ/The Appellant  Ĥ×यथȸ/The Respondent  आयकर आयुÈत/ CIT  आयकर आयुÈत(अपील)/ The CIT(A)  ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय आͬधकरण, राजकोट/ DR, ITAT, RAJKOT  गाड[ फाईल/ Guard File // True Copy // By order/आदेश से , सहायक पंजीकार आयकर अपीलȣय अͬधकरण ,राजकोट Printed from counselvise.com "