GUNASEKARAN MANNAR,VILLUPURAM vs. ASST. COMMISSIONER OF INCOME TAX, CHENNAI

Since, the issues raised in these appeals are similar based on the same identical facts, with the consent of both the parties, we proceed to

First, we shall take appeal in ITA No. 1863/Chny/2025 -AY:2017-18 for adjudication.

Ground Nos. 2 to 7 raised by the assessee in challenging the action of the ld. CIT(A) in confirming addition made by the AO on account of suppressed sales in the facts and circumstances of the case.

We note that the facts as emanating from the record, the assessee is engaged in the business of retail garment trading through the proprietary concern and conducts business under name and style as M/s. Sri Kannika Parameswari Stores (SKPS), having operating showrooms at Villupuram and Neyveli. The assessee originally filed the return of income for AY 2017-18 on 24.10.2017 under section 139(1) of the Act declaring income comprising from house property, business or profession, and capital gains. A search action under section 132 of the Act was conducted at the residential and business premises of the assessee on 02/03.11.2022. During the course of search, the Respondent examined the billing software "S.S. Retail" used by the assessee and found the difference of ₹.1,00,11,231/- between the Trans_Sales_Mas, treated as

The Ld.AR Sri. D. Anand raised a question on merits as to "Whether the Assessing Officer was justified in drawing an adverse

Further, he submits that the barcode is a physical identifier created to track stock movement and to prevent pilferage, it does not and cannot record supplier invoice details. The same barcode-generation process is applied to goods irrespective of whether a supplier invoice exists. The barcode does not identify whether the underlying purchase was invoiced. An entry in SS-Retail showing a barcode or a sale of that barcode does not establish that the underlying purchase had an invoice or that the purchase was posted in Tally. He vehemently argued that the barcoding is an inventory-control process and barcode/sales entries in S.S. Retail do not prove or establish that the purchases underlying those barcoded goods were entered in the purchase data sheet or in Tally.

Further, he, argued that a fundamental flaw in the Department's reasoning is the assumption that the barcoding process in the S.S. Retail system is directly linked to the purchase accounting module and the said assumption is factually incorrect and technically impossible within the structure of the assessee software ecosystem, as demonstrated by both the assessment record and the functioning of the S.S. Retail software. Further, he referred to the sequence (i). goods arrive (with or without invoice), (ii) Goods are segregated and tagged, (iii) Barcode is generated for showroom identification, (iv) Goods are displayed and sold and (v) Only if there is a supplier invoice, the purchase entry is made in the purchase data sheet, which then flows into S.S. Retail accounts and then into Tally. He argued that the barcoding precedes and is independent of accounting and it does not require an invoice, nor does it create a purchase record.

The Ld.AR further submits that the barcoding is designed exclusively for inventory identification and physical stock tracking within the showroom. It is an operational tool used by sales personnel to track movement of goods from store to racks, prevent pilferage, identify products during billing, and maintain uniformity in stock classification. Further, barcoding has nothing to do with recording purchases or passing

He submits further, that the Department's assumption is When a sale is reduced or deleted in S.S. Retail, it implies the purchase must have existed and been recorded and the said inference is technically impossible for the reasons, a) The database tables for product master / barcode generation operate independently of purchase ledgers, b) the sale screen pulls data from the product master (barcode table), not from the purchase table, c) the S.S. Retail software has no validation that "a purchase entry must exist before a barcode is generated" and argued that, reducing or modifying a sale entry does not imply that a corresponding purchase entry ever existed.

He referred to unbilled goods are barcoded and sold exactly like billed goods and was admitted in the statement of the inventory manager. Goods purchased without invoice are mixed with regular goods. Barcoding is done uniformly for all goods. There is no system flag or identifier that differentiates "billed purchases" from "unbilled purchases". He argued, when a sale is altered in S.S. Retail, one cannot conclude that the goods were billed and the purchase was in the accounting software or that the purchase is traceable in Tally. The system architecture simply does not support such a conclusion. He submits that the Department's entire theory of suppression rests on the premise if sale is shown in the software, purchase must be in the software and argued the premise collapses because, a) Barcoding does not bring a purchase into the accounts, b) Barcoded items may or may not have corresponding purchase entries, c) The software does not link the barcode table to purchase ledger tables, d) Audit trails of purchase ledger entries were never produced by the AO, e) No purchase invoices corresponding to suppressed sales were produced, f) No supplier statements or confirmations were obtained and g) No evidence shows that unbilled purchases were recorded in Tally.

Further, he argued that there is no evidentiary nexus between altered sale entries and any purchase entries. The AO's conclusion that

He submit that the purchase Data Sheet captures only invoiced purchases and referred to assessment order's own narration, a) A purchase data sheet is prepared only where supplier name, invoice date, invoice number, item code, design number, and purchase rate are available, b) These fields cannot be filled for unbilled cash purchases and goods purchased without bills cannot enter the purchase data sheet, and consequently, cannot enter S.S. Retail software, Tally software, Final books of account. He referred to the assessment order and submits that itself reproduces the purchase data sheet and describes the mandatory fields contained therein supplier name, invoice number and date, item

He argued that the record demonstrates two distinct workflows, (A) Purchase Data-sheet-Barcode S.S. Retail Accounting (Tally) for purchases with bills; and (B) Purchase (cash, unbilled)→Barcode Showroom sale for unbilled purchases i.e. the barcode is generated for physical control but no purchase ledger entry is created in Tally because of absence of invoice/payment trail. Both workflows are documented in the assessment record and witness statements. He argued that it could be seen that factual basis for the AO's assumption that deletion/reduction of sale entries in S.S. Retail necessarily implies corresponding purchase entries in accounting is rebutted by the assesses own material and by the AO's description of processes. He submits that the purchase data sheet is invoice-driven and the purchase data sheet fields are invoice-dependent. Without an invoice, the mandatory fields cannot be populated and the item does not form part of the purchase data sheet. The AO's order

He further submits that the unbilled cash purchases cannot be reflected reasonably in Tally: Entry in accounting software requires a supplier, invoice number and a payment record; unbilled cash purchases lack these. If such purchases had been improperly forced into Tally (by creating false supplier/invoice entries), the books would show unexplained negative cash balances or other inconsistencies, yet no such anomalous accounting trail exists in the record (and AO has not produced any). Merely because the assessee could not and did not lawfully enter unbilled purchases in Tally, it is not open to the AO to assert that purchases corresponding to suppressed sales were entered in the accounting system.

The ld. AR submits that the statements of the inventory manager and accounts manager admit that unbilled purchases exist and that these are barcoded and routed to showrooms precisely the process the assessee has described. Those very statements are in the AO's own

He argued vehemently that a fundamental factual and accounting flaw in the Assessing Officer's assumption is the belief that unbilled cash purchases could have been, or were, entered into the assessee's Tally accounting system. This is impossible as a matter of accounting procedure. A valid purchase entry in Tally mandatorily requires the existence of a supplier ledger, a tax invoice number, and a corresponding payment trail, none of which exist in the case of unbilled cash purchases. Without these indispensable elements, Tally simply cannot register a legitimate purchase entry. Any attempt to artificially force such entries into the system would necessarily create distortions in the books, such as fictitious creditors, fabricated invoices, unexplained or negative cash balances, GST liability mismatches, unverifiable cash outflows, or discrepancies in supplier reconciliation. These distortions are inevitable accounting consequences if unbilled purchases had been entered into Tally.

However, the search as well as the assessment have yielded no such accounting aberrations. There are no bogus or untraceable creditors in the books. There are no mismatches between purchase entries and payment trails. There are no GST discrepancies or phantom outward tax liabilities arising from non-existent inward supplies. The cash book does not show negative balances at any point. The complete absence of such anomalies conclusively demonstrates that unbilled cash purchases were never recorded in Tally and cannot either factually or logically be connected to the modified or reduced sales entries detected in the S.S. Retail software. Further, he argued that in the absence of such nexus, the presumption that the suppressed sales were matched by recorded purchases collapses entirely, and the Department's conclusion stands on no evidentiary foundation.

He concludes by arguing that no addition can be made by treating entire suppressed sales as income on the basis of S.S. Retail differences alone and prayed to allow the ground, by deleting the addition made by the AO.

He further submits that on perusal of the example provided by the assessee reveals that in the first scenario, the bill value to the customer was ₹. 495/- and the suppressed value was ₹. 396/-, resulting in a suppression of ₹. 99/-. In the second instance, since the bill value to the customer was ₹. 545/- and the suppressed value was ₹.396/-, hence the Revenue has taken the suppressed value at ₹.149/-. The amount of ₹.50/- as contested by the assessee which department has taken is nothing but the extra amount the assessee has earned on the increased price of the Product. Accordingly, the Assessing Officer has revised the

The ld. DR drew our attention to page 16 of the assessment order and submits that in an affidavit filed by the assessee, at para 4 to 6, the assessee confirms that the evidence gathered during the search and based on which confessional statement was recorded which revealed that a sales turnover to the extent of ₹. 21.41 crores for the period F.Y. 2016- 17 to 2022-23 (till the date of search) for both the showrooms was suppressed. Based on such evidence a declaration was obtained as per the assessee's reply to Q.No.30 of his statement dated 06-11-2022. In spite of the declaration, the assessee in the affidavit claims that the department has formed a wrong presumption that the said quantification of ₹. 21.41 crores represent additional income of the assessee for the Asst. Years 2017-18 to 2022-23. The Assessing Officer rightly narrated the reasons for not accepting the arguments of the assessee at pages 16 to 20 of the assessment and prayed to reject the submissions of the ld. AR and sustain the additions confirmed by the ld. CIT(A) for the assessment years under consideration. The Ld. DR vehemently opposed the arguments of the Ld.AR and relied on the order of the ld. CIT(A). He prayed to dismiss the grounds raised by the assessee.

Heard both the parties and perused the material on record. We note that the assessee explained before the AO that the alleged suppression computed by the respondent did not factor in festival discounts, scheme discounts, bulk discounts, and product-specific discounts legitimately offered to customers as part of regular business operations, but, we find upon verification, the AO accepted only the scheme discount of ₹.2,30,87,925 for the year (AY: 2017-18 to 2023-24) and rejected assessee's contention regarding product discounts, alleging absence of evidence in the software to support price revision.

Further, we find the assessee contended that even assuming any suppressed turnover, only the gross profit element thereon could be added as income, supporting the same, relied on the decision in the case of CIT v. President Industries (258 ITR 654) of Hon’ble High Court of Gujarat. The AO rejected the assessee's explanation and concluded that only sales were suppressed, while purchases and all other components of the trading account remained recorded and unaltered in the system. Therefore, the AO held that the entire difference in sales represented undisclosed income under section 69A, and not merely the gross profit component. But we find no evidence like vendor invoices / supplier confirmations / supplier ledger entries matching those purchases, system

As we held above, we find that there is no factual basis, evidentiary material, or industry rationale to assume that undisclosed sales yield a higher profit margin than disclosed sales, let alone an impossible 100% profit. We find the nature of goods, the pricing pattern, the customer base, and the competitive retail environment remain identical for both sets of

Further, we find there must exist tangible evidence of undisclosed assets or investments commensurate with such turnover. It is only when the suppressed receipts are found to have been converted into assets, or when there is evidence of retention of the entire sale proceeds as unexplained money, that the total turnover could conceivably represent income. In the present case, no such undisclosed asset, investment, or cash was found during the course of the search to justify the assessment

We find no justification of the Assessing Officer in arriving at a conclusion of any corroborative evidence linking the alleged suppressed sales to corresponding purchase entries in the books of account and the AO has assumed that all goods relating to the suppressed turnover must have been purchased and recorded in the accounts, no supporting material has been identified or produced to substantiate this assumption. Further, we find no supplier invoices have been found or referred to; no

In the present case, we find the Assessing Officer has failed to bring any material on record to demonstrate that the alleged suppressed sales were made without any corresponding purchases or that the goods sold were self-generated without incurring cost. On the contrary, the statements recorded during the course of search, as referred by the Ld.AR, including those of the inventory and accounts managers, affirm

The above said principle has also been accepted by the Jurisdictional High Court of Madras in the case of M/s. Jubilee Plots & Housing Ltd. in TCA No. 228 of 2014, dated 02.03.2021, wherein, it was held that only a reasonable percentage of profit on unrecorded receipts could be taxed and not the entire receipts. We find the ratio laid down by the Hon’ble High Courts of Gujarat and Madras that "turnover is not income." What is assessable to tax is only the income component within

Accordingly, we find in the present case, the Assessing Officer himself has accepted the audited books of account and the gross profit ratio in respect of the disclosed turnover and there is no finding that the undisclosed turnover carried a higher margin or was earned under abnormal circumstances. We find, according to the Assessing Officer, the total difference of ₹.1,02,28,077/- (₹.4,84,82,155 – ₹.3,82,54,078) between actual sales and modified cash sales for AY 2017-18, which is evident from the tables at pages 2 & 3 of the assessment order. But, however, the details of revised working of sales difference as submitted before the Assessing Officer, reproduced at page 4 of the assessment are tabulated herein below: Particulars AY Suppressed sale (in Rs.) GP Ratio in Addl. Income offered to tax percentage (in Rs.) 2017-18 50,38,639 23.20 11,69,108 2018-19 74,33,565 23.73 17,63,965 2019-20 3,16,21,837 25.08 79,30616 2020-21 4,81,94,011 25.26 1,21,73,564 2021-22 1,38,58,276 23.98 33,23,514 2022-23 2,39,72,625 25.57 61,29,150 2023-24 2,58,36,063 29.97 77,43,378 Total 15,59,55,015 4,02,33,295 31. We find the revised working of sales difference as provided by the assessee is only Rs.50,38,639/- for AY 2017-18, which was made taking

In view of the above decision in grounds No. 2 to 7, the ground Nos. 1 and 8 raised by the assessee become academic. Thus, the appeal filed by the assessee is allowed. I.T.A. No. 1864/Chny/2025 AY 2018-19 33. We find the ground Nos. 2 to 7 raised by the assessee are similar to ground Nos. 2 to 7 in ITA No. 1863/Chny/2025 for AY 2017-18,

In view of the above decision in ground Nos. 2 to 7, the ground Nos. 1 and 8 raised by the assessee become academic. Thus, the appeal filed by the assessee is allowed. I.T.A. No. 1855/Chny/2025 AY 2019-20 35. We find the ground Nos. 2 to 7 raised by the assessee are similar to ground Nos. 2 to 7 in ITA No. 1863/Chny/2025 for AY 2017-18, wherein, we held the addition made by Assessing Officer the entire suppressed sales as income, is not justified and not sustainable both on facts and in law and deleted the addition made by the Assessing Officer in the aforementioned paragraphs and the same finding is applicable equally to the ground Nos. 2 to 7 in this appeal. Accordingly, ground Nos. 2 to 7 are allowed.

In view of the above decision in grounds No. 2 to 7, the ground No. 1 raised by the assessee becomes academic. Thus, the appeal filed by the assessee is allowed. I.T.A. No. 1856/Chny/2025 AY 2020-21 37. We find the ground Nos. 2 to 7 raised by the assessee are similar to ground Nos. 2 to 7 in ITA No. 1863/Chny/2025 for AY 2017-18, wherein, we held the addition made by Assessing Officer the entire suppressed sales as income, is not justified and not sustainable both on facts and in law and deleted the addition made by the Assessing Officer in the aforementioned paragraphs and the same finding is applicable equally to the ground Nos. 2 to 7 in this appeal. Accordingly, ground Nos. 2 to 7 are allowed.

In view of the above decision in grounds No. 2 to 7, the ground No. 1 raised by the assessee becomes academic. Thus, the appeal filed by the assessee is allowed. I.T.A. No. 1857/Chny/2025 AY 2021-22

We find the ground Nos. 2 to 7 raised by the assessee are similar to ground Nos. 2 to 7 in ITA No. 1863/Chny/2025 for AY 2017-18, wherein, we held the addition made by Assessing Officer the entire

In view of the above decision in grounds No. 2 to 7, the ground No. 1 raised by the assessee becomes academic. Thus, the appeal filed by the assessee is allowed.

We find the ground Nos. 2 to 7 raised by the assessee are similar to ground Nos. 2 to 7 in ITA No. 1863/Chny/2025 for AY 2017-18, wherein, we held the addition made by Assessing Officer the entire suppressed sales as income, is not justified and not sustainable both on facts and in law and deleted the addition made by the Assessing Officer in the aforementioned paragraphs and the same finding is applicable equally to the ground Nos. 2 to 7 in this appeal. Accordingly, ground Nos. 2 to 7 are allowed.

In view of the above decision in grounds No. 2 to 7, the ground No. 1 raised by the assessee becomes academic. Thus, the appeal filed by the assessee is partly allowed.

In the result, all the appeals filed by the assessee are allowed. Order pronounced on 22nd January, 2026 at Chennai.