DCIT Vs Zen Industries Pvt. Ltd. (ITAT Ahmedabad)
In this case, the entire addition was triggered by certain loose sheets (pages 156–159 of Annexure A/3) found not from the assessee’s premises but from a two-wheeler belonging to an employee. These documents contained handwritten figures in coded form without any identifying particulars such as name of the assessee, name of parties, description of goods, quantity, rate, delivery details, or payment trail. Despite this, the Assessing Officer treated the figures as representing unaccounted sales of the assessee to entities of the MHS Group, rejected the books of account under section 145(3), and proceeded to estimate gross profit at 15% on both recorded and alleged unaccounted turnover.
Facts of the Case :The assessee, a private limited company engaged in the manufacturing of mouth fresheners and tobacco products, filed its return declaring income of approximately ₹9.97 crores for AY 2020–21. A search under section 132 was conducted, not on the assessee, but on a third-party group, namely the MHS Group. Simultaneously, a search was carried out at the residence of an employee of the assessee, Shri Mayank Ashokbhai Khatri.
During the course of search, certain loose sheets (pages 156–159 of Annexure A/3) were found from an Activa scooter parked at the employee’s residence. These sheets contained handwritten numerical entries in coded form, without any narration or identifiable particulars. The Assessing Officer relied on:
(I) The statement of the employee, who tentatively stated that the figures may relate to sales to certain parties and may be in lakhs;
(II) The statement of the Director, who merely acknowledged that the alleged parties were regular buyers in recorded transactions.
Based on this, the AO concluded that:
(I) The loose sheets represented unaccounted sales made by the assessee to entities of the MHS Group;
(II) Such transactions were not recorded in the books;
(III) Therefore, books were unreliable and liable to be rejected under section 145(3).
The AO:
(I) Treated the figures in loose sheets as unaccounted turnover;
(II) Rejected books of account;
(III) Estimated gross profit at 15% on combined turnover (recorded + alleged unaccounted);
(IV) Made addition of ₹3.85 crore as undisclosed profit.
Proceedings before CIT(A) The assessee contested the addition on multiple grounds:
(I) The seized documents did not contain basic transactional details such as:
(a) Name of assessee or buyer
(b) Nature/quantity of goods
(c) Rate or value
(d) Delivery details
(e) Payment trail
(II) The documents were not found from the assessee’s premises, but from an employee.
(III) In the search conducted on the alleged purchaser group (MHS Group):
(a) No evidence of unaccounted purchases was found
(b) No excess stock was detected
(c) No unaccounted cash payments were discovered
(IV) The Director categorically denied any unaccounted transactions.
(V) The employee later retracted, filing an affidavit stating that:
(a) The documents pertained to his personal financial dealings
(b) They had no connection with the assessee
(VI) Importantly, in the employee’s own assessment, the Department accepted this explanation.
Further, in the case of the alleged purchasers, the CIT(A) had already deleted additions based on the same documents, holding them unreliable.
