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Facts
A search and survey operation at the Sukhija Group of restaurants led to the seizure of documents indicating undisclosed cash sales and expenses. The assessee's group had previously approached the Settlement Commission, which determined an undisclosed income. For A.Y. 2017-18, the AO extrapolated suppressed profit for the period after the search based on pre-search data.
Held
The Tribunal held that the addition made by the AO for the period after the search was not supported by any seized materials and was based on extrapolation from earlier periods. Relying on judicial precedents, the Tribunal found that estimations for periods without incriminating material cannot be made based on extrapolation.
Key Issues
Whether the AO can extrapolate suppressed sales and profits for a period beyond the search date based on seized materials from an earlier period, without specific incriminating evidence for the later period.
Sections Cited
153A, 143(3), 245C(1), 245D(4)
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Income Tax Appellate Tribunal, DELHI ‘A’ BENCH,
Before: SHRI SATBEER SINGH GODARA, & SHRI NAVEEN CHANDRA
This appeal by the Revenue is directed against the order of the ld.
CIT(A), Thane dated 24.07.2024 pertaining to A.Y 2021-22.
The solitary grievance raised by the Revenue reads as under:
“Whether on facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 3,74,62,677/- on account of suppression of profit.”
Page 1 of 9 carried out at the business and residential premises of the Sukhija Group of restaurants at 22.10.2016 where various documents, tally data, hard- disk, pen-drive and other documents were found and seized which mainly pertained to the undisclosed cash sale, un-disclosed cash receipts from the investors, un-disclosed cash restaurant expenses, undisclosed cash payment to the investors and personal expenses of the directors and the partners.
The promoters, along with five private limited closely held companies filed applications u/s. 245C(1) of the Act for the A. Y. 2011- 12 to 2017-18 before the Hon'ble Settlement Commission wherein the promoters owned up all the impugned cash receipts and all cash payments including all the undisclosed sales Rs. 77,20,59,557/- and expenses of all the restaurants managed and controlled by the them including the restaurant of the assessee. The undisclosed additional income as offered by the promoters and as calculated by the Interim Settlement Board (ISB) was determined at Rs 19.21 crore vide its Final Order u/s. 245D(4) of the Act dated 23.06.2023. The sales of Rs 31,159,100/- for FY 2016-17, made by the instant restaurant, outside the books, was also declared.
Page 2 of 9 was made under section 153A of the act for the AY 2012-13 to 2016-17 and under section 143(3) of the act for the AY 2017-18. In the course of assessment the AO, from examination of seized documents, and analysis of seized material tally data sets, Excel, found that in the AY 2017-18, upto 30.09.2016, there was a sales suppression of Rs 4,91,87,884/- and suppressed profit of Rs 56,74,691/-. Thereafter, the AO, for the remaining part of the year, extrapolated the undisclosed suppressed profit at Rs 3,74,62,677/-.
The CIT(A) found that the suppressed sales and profit for AY 2017- 18, upto the period of 30.09.2016, is covered in the order of Interim Settlement Board (ISB) dated 26.03.2023 in the case of Mr. Yash Pal Ashok along with his wife Mrs. Sunita Sukhija & Son Sh. Priyank Sukhija, the Promoters of the Sukhija Group, controlling and managing various restaurants for carrying out the restaurants business known as Sukhija Group of Restaurants. For the remaining part of the year, the suppressed profit of Rs 3,74,62,677/- was deleted on the ground that the AO had no incriminating material for the period after 22.10.2016 and therefore he cannot extrapolate the undisclosed income on the basis of undisclosed income of the 1st half of the year.
Page 3 of 9 that it is permitted to extrapolate on the basis of seized materials.
Per contra, the ld AR submitted that the assessee has approached the Settlement Commission and has declared the amount and the Settlement Commission has admitted the amount declared and passed an order to this extent. The amount in dispute is covered in the Settlement Commission Order.
We have heard the rival submissions and have perused the materials on record. We find that the assessee has settled the issues of suppressed income before the Settlement Commission, for the period covered under search, on the basis of seized materials found during the search. The fact that amount surrendered before the ISB by the assessee, is based on the materials seized during the search upto 22.10.2016, has remained uncontroverted. The issue before us for adjudication is whether the seized materials utilized for determining the suppressed sales and profits upto 22.10.2016 i.e., the period covered under search, can be utilized for determining the suppressed sales and profits for the part of year after 22.10.2016 which is not covered by search. We find that the AO has made additions of undisclosed income on account of suppressed sales and profits for part of the year after
Page 4 of 9 period upto 22.10.2016 in the search.
We find that the CIT(A) has dealt with the issues as follows:
6.2.1 This addition has been made by the ld. AO for the period beyond the search date as search took place on 22.10.2016. There is no incriminating material in the possession of the Id. AO for the period beyond 22.10.2016 and logically there cannot be any material in the possession of the AO as this period is beyond the search date. Therefore, ld.AO has resorted to extrapolation of undisclosed income on the basis of undisclosed income of the 1st half of the year. 6.2.2 The issue of extrapolation of income has been decided by the Hon'ble ITAT Mumbai in the case of Thakkar Popatlal Velji Sales Ltd vs Department Of Income Tax vide order dated 8 March, 2013. The relevant part of the order is as under: "5. We have heard both the parties on this limited issue of whether the extrapolation beyond the assessment year for which the seized papers are found is allowable in the eyes of law or not? it is an admitted case that the seized material indicates unaccounted sales only for the period relating to the AYs 2006-07, 2007-08 and 2008-09 and not to any of the Assessment Years which are under consideration. We have also perused the decision of ITAT, Pune Bench in the case of ACIT vs. Shri Gurumukh M. Jagwani (supra), in which one of us is a party, and find that the same issue has been decided by the ITAT in favour of the assessee vide para 4 of the said order and the same reads as under: "4. We have heard both the parties and perused the para 4 of the order of the Tribunal vide to 1378/PN/07 dated 22.6.2009, for the proposition that the extrapolation of suppressed sales to an AY based on the seized data for part of the PY of a different AY, is not to be entertained legally. For the sake of completeness relevant para 4 and 5 of the order dated 22.6.2006 are reproduced as under: "4. Heard the submissions of both the sides. From the side of revenue Shri A.S. Singh appeared and placed reliance
Page 5 of 9 on the order of the AO. However, from the side of respondent, assessee Shri Sunil Pathak appeared and supported the order of the Ld CIT (A). On appreciation of facts of the case as discussed hereinabove, it is evident that the AO has attempted to extrapolate turnover of the assessee on the basis of diary which has recorded deposits of goods only for the period from 1.5.2004 to 22.9.2004. On due appreciation of facts and circumstances of the case, the first appellate authority has arrived at the conclusion that there was no basis for the impugned backward extrapolation of the turnover especially when no incriminating evidence or material was found consequent upon the search to demonstrate that in the past years as well, the assessee was indulged in suppression of sales. Moreover, the admitted position is that the assessee has maintained regular books of accounts stated to be covered under tax audit report being duly audited. An another factual finding is placed on record that the stock for the said period was found short at the time when the search was conducted. Therefore, vehement contention was that a conclusion could easily be drawn that the shortage of stock has established the fact that those dispatches as recorded in the diary were made out of the said stock. A legal plea has also been raised that once the seized material i.e., diary pertained to a specific financial year ie 2004-05 relevant to AY 2005-06, then if at all any action was required, the same ought to be for the AY 2005-06 as it was held by several courts that no income could be estimated for the other years on the basis of evidence found for one particular year especially when there was no incriminating evidence pertained to any other assessment year. The case law cited was as follows:- 1. Royal Marwal Tobacco Products (P) Ltd (120 TTJ 387) (Ahd) 2. H.C. Chandna (P) Ltd. vs. DCIT (91 TTJ 243 (Del)) 3. ACITvs. Smt. Radha Rani (101 TTJ 1017 (JP)) 4. ACIT vs. Ambica Food Industries Ltd. (110 TT] (Hyd)) 5. ACIT vs. M.M. Sales Agencies (97 TTJ 575 JP) 6. State of Orissaj vs. J.P. Sikiria 7 CO (67 stc 101 (Orissa)) 5. On the examination of the law laid down in the above precedents and also considering the totality of the facts and circumstances of the case, as discussed hereinabove, we find no fallacy in the order of the Page 6 of 9 CIT (A) especially when the impugned unsupported backward extrapolation of the turnover was not based upon or supported by any incriminating material for the years under consideration though the revenue department had taken an extreme step of search at the premises of the assessee. We hereby confirm the findings of the Ld CIT (A) and dismiss the grounds of the Revenue."
From the above, it is evident that there is no incriminating material for supporting the Revenue's allegations that there is suppression of sales for all these three years. In such circumstances, the issue stands covered in favour of the assessee by our orders referred above. In the result, the grounds raised
by the Revenue are dismissed."
6. Considering the above, we are of the opinion that it is a reasonably settled issue that no estimation can be made by the AO for which no incriminating material were discovered and no estimations were made based on the theories of extrapolation and multiplication. In the absence of any material of evidence found during the course of search to suggest that assessee was all along indulging in such unaccounted transactions, we are of the opinion that the decision of the CIT (A) to all the issues raised in all the three appeals does not call for any interference. Accordingly, grounds raised by the Revenue in all the three appeals are dismissed.
7. In the result, all the three appeals filed by the Revenue are dismissed." 6.2.3 It has further been observed that no incriminating material in the nature of undisclosed receipts pertaining to earlier years was found during the search on the basis of which addition on account of undisclosed receipts could be made in respective years. Therefore, it would not be correct to say that this is the modus oparendi of the assessee to suppress its sales. 6.2.4 In view of the above discussion, facts of the case and judicial decisions, I do not find any merit in making the addition of Rs.3,74,62,677/- on account of undisclosed receipts by resorting to extrapolation methodology and therefore this addition is deleted.
Page 7 of 9 we concur with findings of the CIT(A) that the additions made for the period after 22.10.2016 are not supported by any seized materials and the AO has taken recourse to extrapolation of suppressed sales on the basis of seized materials pertaining to earlier part of the year. The judicial precedence as cited by the CIT(A) lead us to a view that the AO is not legally empowered to make estimation for the period, where incriminating materials do not exists, on the basis of extrapolation. We are therefore of the considered view that there is no valid reason to interfere with the decision of the CIT(A). We accordingly, find no merit in the appeal of the Revenue and the ground raised by the Revenue stands dismissed. dismissed.
Order pronounced in open court on 21.08.2025.