HOTEL TAJ ,MUMBAI vs. DCIT, CENTRAL CIRCLE 8(3), MUMBAI

आदेश / ORDER

PER BENCH: These four appeals by the assessee are directed against four separate orders, each dated 16.10.2025, passed by the learned Commissioner of Income-tax (Appeals)-50, Mumbai [“learned CIT(A)”] under section 250 of the Income-tax Act, 1961 [“the Act”], for A.Ys. 2019-20 to 2022-23. The impugned orders arise from separate reassessment orders passed under section 143(3) read with section 147 of the Act. Since the appeals arise from a common survey action and involve substantially identical facts and issues, they are being disposed of by this consolidated order. Year-wise details are:

A.Y. 2019-20 A.Y. 2020-21 A.Y. 2021-22 A.Y. 2022-23 Particulars Date of filing original return 13.09.2019 23.09.2020 23.12.2021 23.08.2022 under section 139(1) Income declared in original Nil Nil Nil Nil return Date of notice under section 20.04.2023 17.10.2023 17.10.2023 17.10.2023 148 Date of return filed in response 21.12.2023 21.12.2023 29.01.2024 30.01.2024 to section 148 Income declared in return filed Nil Nil Nil Nil in response to section 148 Date of assessment order 28.03.2024 23.03.2024 24.03.2024 24.03.2024 Section under which assessment 143(3) r.w.s. 143(3) r.w.s. 143(3) r.w.s. 143(3) r.w.s. order was passed 147 147 147 147 Income assessed by the Rs.4,96,500/- Rs.4,22,250/- Rs.2,54,000/- Rs.2,38,250/- Assessing Officer

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Date of order of learned CIT(A) 16.10.2025 16.10.2025 16.10.2025 16.10.2025

Facts of the Case

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worked out the alleged actual sales and underreported sales for F.Ys. 2018-19 to 2021-22.

A.Y. 2019-20 A.Y. 2020-21 A.Y. 2021-22 A.Y. 2022-23 Particulars Relevant F.Y. 2018-19 2019-20 2020-21 2021-22 Sales reported in return Rs.46,35,000/- Rs.41,68,000/- Rs.23,71,000/- Rs.22,23,000/- Alleged actual sales Rs.66,21,000/- Rs.58,57,000/- Rs.33,87,000/- Rs.31,76,000/- Alleged underreported Rs.19,86,000/- Rs.16,89,000/- Rs.10,16,000/- Rs.9,53,000/- sales Profit rate applied 25% 25% 25% 25% Addition made Rs.4,96,500/- Rs.4,22,250/- Rs.2,54,000/- Rs.2,38,250/-

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evidence had been produced to establish coercion. The Assessing Officer also referred to the statement of the deponent that he was mentally and physically fit, that the statement had been given voluntarily and that its contents had been correctly recorded. The retraction was, therefore, treated as an afterthought and rejected. 10. The Assessing Officer held that Shri Ashraf Yunus Kharawala was the key person managing the affairs of the assessee firm and that his statement was corroborated by the loose papers, sales register, impounded cash receipts and other documents found during the survey. According to the Assessing Officer, the examination of the said material established that approximately 30% of the sales made in cash were not recorded in the books of account and that the assessee had consistently underreported its sales during F.Ys. 2018-19 to 2021-22. 11. The Assessing Officer rejected the contention that the additions were based merely on borrowed satisfaction or on the statement of another person. He held that the notices had been issued after examination of the information and material gathered during the survey. The decisions relied upon by the assessee were stated to be distinguishable on facts. 12. The Assessing Officer further held that the entire amount of alleged underreported sales could not be treated as income and that only the profit element embedded therein could partake the character of taxable income. Considering the assessee’s business to be that of a small restaurant, the Assessing Officer observed

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that the average net profit in such business was approximately 25% of turnover. He accordingly estimated the taxable profit at 25% of the alleged underreported sales and made the respective additions set out in the preceding table. 13. For A.Ys. 2021-22 and 2022-23, the assessee additionally contended that the restaurant business was adversely affected by the COVID-19 pandemic and the lockdown. The Assessing Officer accepted that the pandemic had resulted in a reduction in economic activities but held that no further adjustment was required because the alleged underreported sales had been quantified with reference to the turnover actually reported in the returns, which already reflected the reduction caused by the pandemic. 14. The Assessing Officer thus assessed the total income at Rs.4,96,500/- for A.Y. 2019-20, Rs.4,22,250/- for A.Y. 2020-21, Rs.2,54,000/- for A.Y. 2021-22 and Rs.2,38,250/- for A.Y. 2022- 23. 15. Aggrieved by the respective assessment orders, the assessee preferred appeals before the learned CIT(A). As the Assessing Officer did not furnish the reports sought in Form ITNS-51, the learned CIT(A) proceeded to decide the appeals on the basis of the material available on record. The assessee challenged the additions on the grounds of violation of natural justice, denial of cross-examination, retraction of the survey statement, absence of corroborative material for extrapolating sales to earlier years,

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non-rejection of the audited books of account and arbitrary estimation of profit at 25% of the alleged underreported sales. 16. The learned CIT(A) rejected these contentions. He noted that a copy of the statement of Shri Ashraf Yunus Kharawala had been supplied to the assessee on 23.09.2023 and that Shri Kharawala was the key person managing the affairs of the firm. He upheld the rejection of the subsequent retraction as an afterthought and observed that the statement was corroborated by the loose papers, sales register, impounded cash receipts and other documents found during the survey. According to the learned CIT(A), the material established that approximately 30% of the cash sales were not recorded and that the sales disclosed in the books and returns represented only 70% of the actual sales. He consequently held that the audited books did not correctly disclose the assessee’s turnover and profit. 17. The learned CIT(A) further held that the effect of seasonal or slack periods, as well as the COVID-19 pandemic for A.Ys. 2021- 22 and 2022-23, already stood reflected in the turnover disclosed in the respective returns and, therefore, no further reduction was warranted. The assessee’s reliance on the assessment for A.Y. 2023-24 was also rejected on the ground that substantially higher turnover had been disclosed for that year. The estimation of profit at 25% of the alleged underreported sales was upheld considering the nature of the assessee’s restaurant business, and the substantive grounds were dismissed.

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I. Additions for alleged Cash Sales & Estimation of 25% Embedded Profit Element at Rs. 4,96,500/- : 1. The Ld. CIT(A) erred in confirming the Assessment order computing the unrecorded cash sales at Rs. 19.86 lacs and making an addition of Rs. 4,96,500/- applying rate of 25% (profit element ), without bringing any cogent, corroborative, or without any incriminating evidence to substantiate the allegation that such unaccounted sales were made by the assessee during the year. 2. The Ld. CIT(A) erred in upholding the estimation of profit by applying an arbitrary and excessive profit rate of 25% on the alleged unreported cash sales by ignoring the books of accounts, sales register, past history of sales and without demonstrating any basis for such high estimation. 3. The Ld. CIT(A) failed to appreciate that extrapolation of sale turnover without any evidence for the particular year is not justified, further ad-hoc or hypothetical percentage of 25% cannot form bases of addition. 4. The Ld. CIT(A) erred in upholding the addition solely on the basis of survey statement recorded in year 2022 which was retracted and explained thus without establishing a link between such statement and the actual business transactions of the assessee addition is not justified. 5. The assessee craves leave to add, modify, alter, or withdraw any of the above grounds at the time of hearing.

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A.Y. 2019-20 A.Y. 2020-21 A.Y. 2021-22 A.Y. 2022- Particulars 23 Alleged underreported sales Rs.19,86,000/- Rs.16,89,000/- Rs.10,16,000/- Rs.9,53,000/- Addition sustained Rs.4,96,500/- Rs.4,22,250/- Rs.2,54,000/- Rs.2,38,250/-

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unchallenged finding, the Co-ordinate Bench restricted the undisclosed sales to 30% of the sales disclosed in the original return. It further found that the profit rate of 25% had been applied on an ad hoc basis without any supporting material and, therefore, restricted the profit element to 8% of such undisclosed sales. The learned AR submitted that the aforesaid ratio squarely applied to the present appeals. 24. Per contra, the learned Departmental Representative relied upon the orders passed by the authorities below and supported the additions sustained by the learned CIT(A). 25. We have heard the rival submissions and carefully perused the assessment orders, the impugned orders of the learned CIT(A), the extracts of the statement recorded during the survey, the retraction affidavit referred to by the authorities below, the year-wise sales figures, the trading results furnished by the assessee and the judicial precedent relied upon by the learned AR. Since the underlying facts, the nature of the addition and the reasoning adopted by the authorities below are substantially common for all four assessment years, the issue is being adjudicated together while preserving the year-wise amounts. 26. The material on record shows that the additions did not arise merely from a general presumption concerning the nature of the assessee’s business. The Assessing Officer referred to the statement of Shri Ashraf Yunus Kharawala recorded under section 131, the loose papers and sales register impounded

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during the survey, the cash receipts and the discrepancy alleged between the sales disclosed in the returns and the sales inferred from the survey material. The retraction of the statement was not accepted by the authorities below on account of the delay in furnishing the affidavit and the absence of supporting evidence regarding the alleged coercion. The learned CIT(A) concurred with the Assessing Officer that the books and returns did not reflect the entire cash sales. 27. At the same time, neither the existence of discrepancies in the recorded turnover nor the rejection of the retraction permits the income to be determined on an arbitrary or conjectural basis. An estimation necessitated by incomplete or unreliable accounts must have a reasonable nexus with the material available on record, the nature of the business and the disclosed trading results. Though some degree of approximation is inherent in such an exercise, the estimate cannot be vindictive, excessive or detached from relevant commercial considerations. 28. We also bear in mind that the suppression of sales ordinarily implies that corresponding direct expenditure would have been incurred outside the books. Therefore, the entire suppressed turnover cannot be treated as income. Equally, the assessee cannot claim an unrestricted deduction for every expenditure appearing in the regular accounts because the fixed and establishment expenses already debited against the disclosed turnover do not necessarily increase in the same proportion as

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the additional sales. The taxable component must, therefore, be determined by reasonably estimating the incremental profit embedded in the suppressed turnover. 29. In this background, we are unable to accept either of the two extreme positions. The complete deletion sought by the assessee is not warranted in view of the survey material and the findings recorded by the authorities below. On the other hand, the rate of 25% adopted by the Assessing Officer cannot be sustained merely on the general observation that the assessee was engaged in the small restaurant industry, particularly when no comparable case, industry data or specific computation was brought on record. The appropriate rate must be determined independently on the basis of the material available in the present appeals, including the assessee’s own historical gross- profit figures and the factual basis of the decision relied upon by the learned AR. 30. The controversy requiring adjudication at this stage concerns the appropriate rate at which the profit embedded in the underreported cash sales should be estimated. The Assessing Officer applied a rate of 25%, which was sustained by the learned CIT(A), whereas the assessee has contended that the rate should be restricted to 8% by taking guidance from section 44AD of the Act and the decision of the Co-ordinate Bench in Zahoora Sweets & Confectionery v. DCIT, ITA Nos. 8592 to 8595/Mum/2025, order dated 26.03.2026.

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for some of the years contain a bare assertion that the firm had declared income under section 44AD. However, that assertion is not supported by the return forms or computations available in the present record and is inconsistent with the admitted position that nil income was returned. In the written submissions presently relied upon, the assessee has invoked 8% as the presumptive rate prescribed under section 44AD and not as a rate of profit actually declared and accepted in the assessments under consideration. Consequently, the factual premise on which 8% was adopted in Zahoora Sweets & Confectionery is absent in the present appeals. 34. Section 44AD provides a statutory method of presumptive taxation subject to the conditions prescribed therein. In the absence of material establishing that the assessee had returned its income under that provision and that the declared rate had been accepted, the rate of 8% cannot be mechanically imported as the profit rate applicable to the suppressed sales. It may, at the highest, furnish one of the broad reference points. The appropriate rate must ultimately be determined having regard to the nature of the assessee’s business, its disclosed trading results, the extent and manner of suppression and the material found during the survey. 35. We also find that the application of 25% by the Assessing Officer is not supported by any comparable case, market data or specific working. The observation that the average net profit in

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the small restaurant industry is around 25% is not accompanied by any supporting material. Therefore, the rate of 25% cannot be sustained merely on the basis of such a general observation.

Turnover Gross profit Gross profit rate A.Y. 2016-17 Rs.44,31,712/- Rs.16,53,152/- 37.30% 2017-18 Rs.46,70,536/- Rs.18,25,682/- 39.09% 2018-19 Rs.44,06,484/- Rs.18,55,225/- 42.10% 2019-20 Rs.46,35,731/- Rs.19,55,408/- 42.18% 2020-21 Rs.41,68,599/- Rs.17,89,676/- 42.93% 2021-22 Rs.23,71,323/- Rs.10,18,384/- 42.95% Aggregate Rs.2,46,84,385/- Rs.1,00,97,527/- 40.91%

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However, the expenditure relatable to suppressed sales cannot be assumed to include a proportionate repetition of every expenditure already debited in the regular accounts. Direct and variable expenditure, such as the cost of food materials and other inputs, would ordinarily increase with the additional sales and deserves to be factored into the estimation. On the other hand, fixed and establishment expenses already claimed in the regular profit and loss account, such as rent and other recurring overheads, would not ordinarily increase in the same proportion merely because additional sales were made. No separate material has been brought on record to show that the assessee incurred a proportionate additional amount of such fixed expenditure outside the books. 38. The nil returns filed by the assessee assume significance in this context. The returned position shows that the expenditure claimed in the regular accounts had already absorbed the entire income arising from the disclosed turnover. If the additional suppressed turnover were subjected only to an 8% rate without any demonstrated historical net-profit benchmark, it would effectively allow a substantial further deduction for fixed and establishment expenses already claimed against the disclosed turnover. Such an approach would not reasonably capture the incremental profit embedded in the suppressed cash sales. 39. Considering the gross-profit rates ranging from 37.30% to 42.95%, the aggregate gross-profit rate of 40.91%, the need to

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allow corresponding direct and variable expenditure, the absence of material demonstrating a proportionate increase in fixed expenditure, the nil income returned by the assessee, and the absence of an accepted section 44AD benchmark, we are of the considered view that estimation of the profit element at 15% of the underreported sales would meet the ends of justice. This rate is substantially lower than the gross-profit rate disclosed by the assessee and also moderates the unsupported rate of 25% adopted by the Assessing Officer. At the same time, it appropriately distinguishes the present case from Zahoora Sweets & Confectionery, where 8% had already been declared under section 44AD and accepted by the Revenue.

Particulars A.Y. 2019-20 A.Y. 2020-21 A.Y. 2021-22 A.Y. 2022-23 Underreported sales Rs.19,86,000/- Rs.16,89,000/- Rs.10,16,000/- Rs.9,53,000/- Rate applied by Assessing Officer 25% 25% 25% 25% Addition made by Assessing Officer Rs.4,96,500/- Rs.4,22,250/- Rs.2,54,000/- Rs.2,38,250/- Rate sustained by the Tribunal 15% 15% 15% 15% Addition sustained Rs.2,97,900/- Rs.2,53,350/- Rs.1,52,400/- Rs.1,42,950/- Relief granted Rs.1,98,600/- Rs.1,68,900/- Rs.1,01,600/- Rs.95,300/-

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Order pronounced in the open court on 29.07.2026.

Sd/- Sd/- (CHALLA NAGENDRA PRASAD) (MAKARAND VASANT MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 29/07/2026 Dhananjay, Sr.PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. संबंधधत आयकर आयुक्त / The CIT(A) 3. आयकर आयुक्त(अपील) / Concerned CIT 4. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई / DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai