SANKALP RECREATION PRIVATE LIMITED,AHMEDABAD vs. THE ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(2), AHMEDABAD

Facts of the case: 2. The assessee is a company engaged in the hospitality business, was subjected to a search and seizure operation under Section 132 of the Act on 30-10-2018 at the premises of the Kailash Goenka Group. The search revealed incriminating materials in the form of handwritten diaries, loose papers, and bills, indicating substantial unaccounted receipts from the hotel and restaurant businesses, as well as corresponding unaccounted expenditures incurred in cash.

During the assessment proceedings under Section 153A read with Section 143(3) of the Act, the AO rejected the assessee’s books of accounts under Section 145, stating that they were incomplete and unreliable due to the non-disclosure of significant unaccounted receipts and expenditures. The AO proposed to treat the entire amount of unaccounted receipts as income

Aggrieved by the order of CIT(A) both the assessee and the revenue are in appeals before us, contesting various aspects of the CIT(A)’s order. The respective grounds of appeal are as follows:

The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 153A r.w.s. 143(3) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases.

The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer without any incriminating material found during the search.

The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs.1,60,608/- by estimating net profit at the rate of 12%. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant.

The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees contribution to PF & ESIC, amounting to Rs. 5,04,832/- u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees contribution to PF & ESIC u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, despite of the issue being covered by the completed assessment u/s 143(3) of the Act.

Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts of the case in making a disallowance of payments of PF & ESImade within the grace period.

Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts of the case in not appreciating the due date as defined under the respective PF and ESI Acts.

Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234A/B/C of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act.

The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.

The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 153A r.w.s. 143(3) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases.

The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer without any incriminating material found during the search.

The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs. 28,509/- by estimating net profit at the rate of 12%. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant.

The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees contribution to PF & ESIC, amounting to Rs. 8,71,723/- u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees' contribution to PF & ESIC u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, despite of the issue being covered by the completed assessment u/s 143(3) of the Act.

Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts of the case in making a disallowance of payments of PF & ESI made within the grace period.

Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts of the case in not appreciating the 'due date' as defined under the respective PF and ESI Acts.

Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234A/B/C of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act.

The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.

The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 153A r.w.s. 143(3) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases.

The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs. 4,70,502/- by estimating net profit at the rate of 12%. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant.

The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees’ contribution to PF & ESIC, amounting to Rs. 5,46,758/- u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees’ contribution to PF & ESIC u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, despite of the issue being covered by the completed assessment u/s 143(1) of the Act.

Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts of the case in making a disallowance of payments of PF & ESI made within the grace period.

Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts of the case in not appreciating the ‘due date' as defined under the respective PF and ESI Acts.

Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234A/B/C of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act.

The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the unaccounted income should be telescoped against the unaccounted expenditure to determine the real income of the assessee

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition of Rs. 1,81,99,048/- towards unaccounted cash receipts income to Rs 21,83,886/-estimating the N.P. at 12%.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.2,00,96,792/- towards unexplained cash expenditure u/s 69C holding that the unaccounted expenditure is incurred out of unaccounted receipts of the business, hence telescoping is applied.

It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the unaccounted income should be telescoped against the unaccounted expenditure to determine the real income of the assessee.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition of Rs.4,61,09,275/- towards unaccounted cash receipts income to Rs.55,33,113/- estimating the N.P. at 12%.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.3,93,81,546/- towards unexplained cash expenditure u/s 69C holding that the unaccounted expenditure is incurred out of unaccounted receipts of the business, hence telescoping is applied.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of unexplained expenditure incurred of Rs.43,83,995/- holding that the unaccounted expenditure is incurred out of unaccounted receipts of the business, hence telescoping is applied.

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 A.O.

It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the unaccounted income should be telescoped against the unaccounted expenditure to determine the real income of the assessee.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition of Rs.4,46,29,473/- towards unaccounted cash receipts income to Rs.53,55,536/-estimating the N.P. at 12%.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 4,75,71,939/- towards unexplained cash expenditure u/s 69C holding that the unaccounted expenditure is incurred out of unaccounted receipts of the business, hence telescoping is applied.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of unaccounted income of Rs. 1,05,98,670/- holding that double addition made, despite the addition was made on the basis of seized materials seized from Corporate office of the assessee, which were not recorded in the books.

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 A.O.

It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.

The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 153A r.w.s. 143(3) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases.

The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer without any incriminating material found during the search.

The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs.21,83,886/- by estimating net profit at the rate of 12%. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant.

The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees contribution to PF & ESIC, amounting to Rs. 5,03,557/- u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees' contribution to PF & ESIC u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, despite of the issue being covered by the completed assessment u/s 143(1) of the Act.

Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts of the case in making a disallowance of payments of PF & ESI made within the grace period.

Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts of the case in not appreciating the 'due date' as defined under the respective PF and ESI Acts.

Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234A/B/C of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act.

The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.

The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 153A r.w.s. 143(3) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases.

The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer without any incriminating material found during the search.

The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs. 55,33,113/- by estimating net profit at the rate of 12%. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant.

The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees' contribution to PF & ESIC, amounting to Rs. 12,189/- u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming the disallowances pertaining to employees' contribution to PF & ESIC u/s. 36(1)(va) r.w.s. 2(24)(x) of the Act, despite of the issue being covered by the completed assessment u/s 143(1) of the Act.

Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts of the case in making a disallowance of payments of PF & ESImade within the grace period.

Alternatively, and without prejudice, the CIT(A) have erred in law and on the facts of the case in not appreciating the 'due date as defined under the respective PF and ESI Acts.

Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234A/B/C of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act.

The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.

The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 153A r.w.s. 143(3) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases.

The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer without any incriminating material found during the search.

The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs. 53,55,513/- by estimating net profit at the rate of 12%. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant.

Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234A/B/C of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act.

The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.

The learned CIT(A) has erred in law and on facts of the case in confirming the assessment order u/s 143(3) r.w.s. 153B(1)(b) of the Act which is passed in violations of provisions of the Act and against the scheme of assessment related to search cases.

The learned CIT(A) has erred in law and on facts of the case in confirming the additions made by learned Assessing Officer without any incriminating material found during the search.

The learned CIT(A) has erred in law and on facts of the case in rejecting the books of accounts of the appellant u/s 145 of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming an addition of Rs. 23,10,559/- by estimating net profit at the rate of 12%. In the facts and circumstances of the case, such estimation is highly excessive and does not reflect the real income earned by the appellant.

The learned CIT(A) has erred in law and on facts of the case in not adjudicating upon ground No. 6 raised before him with respect to issue of addition of Rs. 1,50,000/- u/s 69C of the Act as unexplained unaccounted expenditure.

Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234A/B/C of the Act.

The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in initiating penalty under various sections of the Act.

The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the unaccounted income should be telescoped against the unaccounted expenditure to determine the real income of the assesseu.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition of Rs.1,92,54,656/- towards unaccounted cash receipts income to Rs 21,83,886/-estimating the N.P. at 12%

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 1,53,81,860/- towards unexplained cash expenditure u/s 69C holding that the unaccounted expenditure is incurred out of unaccounted receipts of the business, hence telescoping is applied.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of unexplained expenditure Incurred of Rs.1,50,000/- holding that the unaccounted expenditure is incurred out of unaccounted receipts of the business, hence telescoping is applied.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance u/s 36(1)(va) of Rs. 127,450/-

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of unexplained cash of Rs. 1,92,05,140/- u/s 69A, despite the assessee failed explain the source thereof.

In the facts and on the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of unexplained cash of Rs.9,00,000/- u/s 69A, despite the assessee failed explain the source thereof

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 A.O.

It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent.

These grounds are interrelated; therefore, we discuss and decide together. Before CIT(A), the assessee contended that the assessment orders passed under Section 153A r.w.s. 143(3) were in violation of the provisions of the Act. Specifically, the assessee argued that the assessments were made without any incriminating material found during the search, and therefore, the proceedings under Section 153A were not valid. The assessee also contended that certain additions made by the AO were unsupported by incriminating material found during the search. The argument was that for the assessment years where no incriminating material existed, no additions could be made under Section 153A. The AO rejected the assessee’s books of accounts under Section 145 of the Income Tax Act, citing substantial discrepancies discovered during the search, including unaccounted receipts and payments. The assessee argued that the rejection of books was improper and unwarranted.

The CIT(A) rejected the assessee's contention and upheld the assessments under Section 153A r.w.s. 143(3). The CIT(A) upheld so on the basis of the fact that the search operation under Section 132 led to the discovery of incriminating material, including unaccounted receipts and expenditures, which provided the necessary foundation for the assessments. The CIT(A) emphasised that the mere initiation of proceedings under Section 153A, following a valid search under Section 132, is sufficient to justify the assessment, provided there is evidence to support it. The CIT(A) noted that the presence of incriminating material, such as unaccounted transactions, clearly linked to the assessee's business activities, justified the continuation

We note that the Ld.CIT(A) acted in accordance with the legal framework governing Section 153A assessments, correctly dismissing the assessee's objections and confirming the assessment under Section 153A r.w.s. 143(3) as valid. The discovery of substantial incriminating material during the search further solidified the CIT(A)’s decision to uphold the assessment. In case of addition without incriminating material the CIT(A) followed the principle laid down in judicial precedents such as CIT vs. Kabul Chawla (380 ITR 573) and PCIT vs. Saumya Construction Pvt. Ltd. (387 ITR 529), where it was held that additions under Section 153A can only be made in respect of incriminating material unearthed during a search for IT(ss)A No.64/Ahd/2022 along with 10 other appeals (By assessee and By Revenue) Sankalp recreation Pvt.Ltd. vs. ACIT. Asst. Years : 2013-14 to 2019-20 16 completed/unabated assessments. The CIT(A) correctly assessed each year’s case individually. Additions were upheld where incriminating material was found and limited in other cases. The approach is consistent with established legal principles. Under Section 145, the AO has the power to reject books of accounts if they are deemed incomplete or inaccurate, or if substantial discrepancies are found. The CIT(A) rightly upheld the rejection, considering the extent of unrecorded transactions uncovered during the search. The assessee’s defence, citing regular accounting methods, was dismissed because the search uncovered a clear pattern of non-disclosure of business income in the books, justifying the rejection. The rejection was justified based on the material discrepancies in the books.

The concise grounds of both assessee and revenue are tabulated below to deal with them together.

The CIT(A) allowed telescoping of unaccounted income against unaccounted expenditures, setting off the unaccounted income discovered during the search with the unexplained expenditure incurred by the assessee. Since the unaccounted receipts and expenditures were part of the same business activity and the expenditures were incurred from the unaccounted receipts, the CIT(A) found it appropriate to apply telescoping to avoid double taxation. The CIT(A) restricted the addition concerning unaccounted cash receipts by applying a net profit rate instead of taxing the entire receipts as IT(ss)A No.64/Ahd/2022 along with 10 other appeals (By assessee and By Revenue) Sankalp recreation Pvt.Ltd. vs. ACIT. Asst. Years : 2013-14 to 2019-20 20 income. The CIT(A) took into account that the entire gross receipts do not represent the actual income but include business expenditures. Accordingly, a reasonable net profit rate of 12% was applied on the unaccounted receipts to determine the taxable income. The CIT(A) applied at 12% net profit rate after considering both the AO’s likely demand for a higher percentage (or full taxation of receipts) and the assessee’s argument for a lower percentage based on industry conditions and operational expenses. The CIT(A) took into account 6.58% (represent the difference between unaccounted receipts & payments) and 8.83% (represent the net profit margins from the accounted business transactions of the assessee, as per the regular books of accounts) — as reference points for determining the true profitability of the business. The 12% net profit rate was chosen instead of 8.83% by the CIT(A) for estimation of profit. The CIT(A) recognised the importance of taxing only the real income of the assessee.

During the course of hearing before us, the Senior Advocate/the Authorised Representative (Sr.Adv/AR) of the assessee acknowledged that certain unaccounted cash receipts were earned from its hospitality business (restaurant and hotel operations) but argued that these receipts were partially

The Departmental Representative (DR) contended that the assessee was involved in substantial unaccounted cash transactions, which were only

The AR, in rejoinder, argued that the mechanism to calculate profit is provided by the Act as per section 28 to 40 of the Act and when the books of accounts are rejected, the estimation has to be resorted to. The CIT(A) has neither adopted the percentage of 8.83% as per the accounted books of accounts nor 6.58% as per unaccounted records of receipts and payments but he has adopted 12% which is almost double the percentage of as per unaccounted records. CIT(A) has not considered entire unaccounted expenditure as allowable and has disallowed considerable amounts of expenses by adopting 12% rate of net profit which is far more than the rate of net profit as per regular books of accounts. The AR also stated that the DR’s estimation of PBDIT / PBT is misplaced which do not consider unaccounted records of receipts and expenses and the PBT rate put forward by the DR is 9.58% which is much lower than the rate adopted by CIT(A) and therefore requested to uphold the decision of CIT(A). The AR placed reliance on the various judicial precedents including the judgements of Hon’ble Gujarat High Court in case of Dy. CIT Vs. Panna Corporation in Tax Appeal No. 323 of 2000 and CIT Vs. President Industries (2002) 258 ITR 654. The AR also pointed out that even the decision of Rajkot Bench of the Tribunal relied on by the DR in case of ACIT Vs Conor Granito (P.) Ltd. reported at [2024] 159 taxmann.com 1209 also talks about the justifiable rate and not ad hoc rate.

The primary issue under consideration is whether the entire unaccounted receipts should be taxed as income or whether only the profit element embedded in these receipts should be considered. The assessee has IT(ss)A No.64/Ahd/2022 along with 10 other appeals (By assessee and By Revenue) Sankalp recreation Pvt.Ltd. vs. ACIT. Asst. Years : 2013-14 to 2019-20 24 relied on the Gujarat High Court’s judgement in President Industries (cited supra), which held that the entire amount of unaccounted sales cannot be treated as income. In that case, the court ruled that only the net profit element should be taxed, as the sales represent receipts from which the cost of goods sold must be deducted. In the present case, similar facts exist where the AO has not provided any evidence of undisclosed investments used to generate the unaccounted receipts. The CIT(A) correctly followed the principle established in President Industries, by estimating the profit embedded in the unaccounted receipts rather than taxing the entire amount. The judgement of Hon’ble Gujarat High Court in the case of President Industries was based on the absence of any findings indicating that the assessee had incurred costs outside the books to generate the unaccounted sales, and the same logic applies here. The DR contended that no nexus between the unaccounted receipts and expenses had been established, and hence, set-off should not have been allowed. However, the CIT(A) and the assessee have provided sufficient grounds for applying a reasonable net profit rate, as unaccounted receipts are generally accompanied by unaccounted expenses. The DR’s reliance on cases, such as, Kantilal Exports Surat (supra) and Sunil Balsubramaniam Shankar (supra), where no explanation was provided for credit card expenses and cash receipts, is distinguishable. In those cases, there was no evidence to explain the expenses, whereas in the present case, the CIT(A) has rightly applied an estimated NPR based on business realities. While the DR has argued that there were violations of Section 40A(3) of the Act due to cash payments and non-deduction of TDS, these do not automatically warrant the taxation of the entire unaccounted receipts. The issue at hand is the estimation of profit, and the CIT(A) has correctly factored these into the Net Profit Rate estimation without making an arbitrary decision.

Under this consolidated grounds, Revenue's Appeal relates to the deletion of disallowances made for late PF/ESIC contributions, with significant amounts at stake and Assessee's Appeal spans multiple years, challenging the disallowance of contributions and seeking relief by invoking the grace period and due date for return filing provisions, supported by judicial precedents. The same are tabulated as below:

The AO had disallowed these payments under Section 36(1)(va) read with Section 43B of the Income Tax Act, 1961, for the Assessment Years under consideration, as they were deposited beyond the due dates prescribed under the respective statutes. The assessee, however, contended that since the contributions were deposited before the filing of the income tax return, no disallowance should be made. The CIT(A) upheld the disallowance made by the AO. While doing so The CIT(A) referred to the clear language of Section 36(1)(va) of the Act, which mandates that employee contributions to PF and ESIC must be deposited within the due dates as prescribed under the relevant Provident Fund Act and ESIC Act. The CIT(A) emphasized that Section 36(1)(va) of the Act differentiates between employer contributions to PF, which are governed by Section 43B of the Act, and employee contributions, which are governed by Section 36(1)(va) of the Act. Unlike employer contributions, employee contributions are not subject to Section 43B and must strictly adhere to the due dates prescribed under the respective labour laws.

During the course of hearing before us, the AR of the assessee argued that the additions are made on the basis of information available in the Audit Report in form 3CD and not on the basis of any seized material. In this respect the AR placed reliance on the judgment of Hon’ble Supreme Court in case of PCIT Vs. Abhisar Buildwell Pvt. Ltd. (2023) 454 ITR 212. The AR submitted that AYs 2013-14 to 2017-18 are unabated assessment. In case of A.Y. 2019-20, the AR submitted that the disallowance for this year was wrongly made by the AO. The contribution in question was for June 2018, and while it was deposited on 16th July 2018, the statutory due date (15th July 2018) was a Sunday. The AR argued that since 15th July 2018 was a public holiday, the contribution made on the next working day (16th July 2018) should be considered as made within time, as per General Clauses Act. The AR supported its position by citing the CIT(A)'s order, which deleted the addition on this ground, and maintained that no disallowance is warranted for this year.

We have considered rival submissions and perused the material available on record. The issue of additions under section 36(1)(va) of the Act, particularly with respect to employees' contributions to PF and ESI, requires careful scrutiny, especially in cases involving completed or unabated assessment years. The Apex Court, in the case of Abhisar Buildwell (supra), reaffirmed the principle that in the case of a completed or unabated assessment, any addition can only be made if it is based on incriminating material found during a search or survey under section 132 or 133A of the Act. In the present case, the additions made by the Assessing Officer (AO) regarding the delayed deposit of employees' contributions to PF and ESI for the assessment years 2013-14 to 2017-18 fall under unabated assessment years, as no proceedings were pending for these years when the search was initiated. As per the judgment in Abhisar Buildwell (supra), for completed assessments, no additions can be made unless they are based on incriminating material found during the search. The revenue and CIT(A) both failed to point out any incriminating material found during the course of the search that would warrant the disallowance under section 36(1)(va) of the Act for these assessment years 2013-14 to 2017-18. Therefore, following the ruling of Apex Court, the additions made by the AO for AY 2013-14 to 2017- 18 under section 36(1)(va) of the Act are hereby directed to be deleted.

The issue of seized cash for A.Y. 2019-20 revolves around the treatment of unexplained cash discovered during the search and seizure operation carried out at the assessee’s premises. The AO made an addition based on the cash seized during the search, treating it as unaccounted income under Section 69A of the Act. The assessee, however, contended that the seized cash was explained and accounted for as income, and therefore, should not be treated as unaccounted income. The CIT(A) found merit in the assessee's submission that the seized cash was likely part of the business receipts, as the assessee had provided sufficient evidence to show that cash was regularly generated from day-to-day operations. The cash flow statement provided by the assessee demonstrated a reasonable link between the seized cash and the business transactions. The CIT(A) concluded that the AO’s treatment of the seized cash under Section 69A of the Act was not justified. The AO had simply classified the cash as unexplained without fully examining the assessee's explanation. The CIT(A) emphasized that the provisions of Section 69A of the act apply to cash that is unexplained or not satisfactorily accounted

Assessee’s ground No. 5 in case of A.Y. 2019-20 i.e.

Thus, in the combined result, all the four appeals of the Revenue in IT(ss)A Nos. 49, 50, 51/Ahd/2022 & ITA 569/Ahd/2022 are dismissed, and appeals of the Assessee in IT(ss)A Nos.64, 65, 66, 67, 68, 69/Ahd/2022 and are partly allowed as discussed hereinabove.