Kapil Gupta Vs ACIT (ITAT Chandigarh)
Unaccounted Liquor Sales—Profit to Be Estimated, Not Gross Receipts Taxed: ITAT Chandigarh Restricts Additions, Deletes Multiple 69A/69 Addition
The Chandigarh ‘B’ Bench of the Income Tax Appellate Tribunal, Chandigarh Bench partly allowed a batch of four appeals filed by Shri Kapil Gupta for AYs 2020-21 to 2023-24, arising out of search proceedings in the Himgiri Beverages group, and granted substantial relief by rationalising additions on commercial principles.
A search u/s 132 on 04.11.2022 resulted in seizure of three personal diaries (Annexures A-1 to A-3) containing entries of accounted and unaccounted liquor transactions. Based on these diaries and statements recorded u/s 132(4), the AO treated entire cash receipts (₹121.46 crore) as unaccounted sales, applied GP rate of 5.38%, and simultaneously made multiple additions u/s 69A/69 for alleged cash payments, jewellery, gold bars, loans, land purchase and other items—leading to cascading and overlapping additions.
The Tribunal rejected the assessee’s plea that the diaries were “dumb documents”, holding them corroborated by statements and surrounding material. However, on merits, the ITAT held that the AO’s approach of taxing gross receipts and again taxing payments/investments out of the same receipts was legally impermissible. Once business receipts are brought to tax, payments, investments and assets sourced from the same material cannot be separately added, as it would amount to double or triple taxation of the same income.
Key findings and relief granted:
Estimation of business income: Instead of GP, the Tribunal held that net profit estimation is appropriate, since no regular books existed and the assessee had only one business. It estimated NP @ 2.5% on total cash receipts of ₹121.46 crore, resulting in a sustained addition of ₹3.03 crore (aggregate for all years) u/s 28, in substitution of much higher additions made by the AO.
Jewellery & gold bars (₹295.48 lakh): Deleted in full, as purchases were found to be out of business receipts already subjected to profit estimation; separate addition would amount to double taxation.
Payments to M/s Jia Diamonds (₹265 lakh): Deleted; payments were recorded in seized diaries and represented purchase of jewellery out of business funds, already covered by estimated profits.
Alleged cash dealings with Sunil Bansal (₹220 lakh / ₹200 lakh / etc.): Deleted; no corroboration, no admission of cash transactions, confirmations showed banking transactions, and in any case amounts stood subsumed in business receipts.
Alleged cash investment in land (₹126.95 lakh): Deleted; based only on third-party statement, seller denied cash receipt, and no incriminating material supported the addition.
Mercedes car cash component (₹10.50 lakh, AY 2022-23): Deleted; documentary evidence showed purchase in earlier year through banking channels; WhatsApp chat alone held insufficient.
Cash found (₹113 lakh, AY 2023-24): Deleted by granting telescoping, holding that estimated business income was sufficient to explain cash, especially as assessee had no other income source.
Legal grounds relating to DIN, JAO vs FAO notices, and centralisation u/s 127 were kept open, being sub-judice before the Supreme Court or not pressed.
Result:
AYs 2020-21 to 2023-24: Appeals partly allowed.
Only NP @ 2.5% on total cash receipts sustained as business income.
All separate additions u/s 69/69A deleted.
The ruling strongly reiterates that in search cases based on seized business records, income must be assessed on real commercial profits, and the Revenue cannot tax the same stream of receipts, payments and assets multiple times.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
