DCIT Vs Kalkar Seetharam Rai (ITAT Bangalore)
Search Evidence Has an Assessment-Year Address: Material for AY 2016-17 Cannot Travel Backwards u/s 153C; 15.15% Liquor Profit Cut to 5.5%-Bangalore ITAT
Summary: The Bangalore ITAT held that material discovered for AY 2016-17 could not be extrapolated to earlier unabated AYs 2012-13 to 2015-16 for making additions u/s 153C. A general admission during search, unsupported by year-specific incriminating material, was also insufficient. For AYs 2016-17 & 2017-18, the Tribunal accepted 5.5% net profit from the liquor business instead of the AO’s excessive estimate of 15.15%.
Delay of 612 Days Condoned
The assessee, aged about 77 years, resided in a village nearly 70 kilometres from his tax consultant’s office. He suffered from high blood pressure, leg pain & had undergone permanent pacemaker implantation. Due to old age, health problems, restricted movement after Covid & memory-related issues, he failed to hand over the CIT(A)’s order to his consultant.
Relying upon Collector, Land Acquisition v. Mst. Katiji, the Tribunal observed that substantial justice should prevail over technical considerations. The explanation was supported by an affidavit & was not disproved by the Revenue. Accordingly, the delay of 612 days was condoned.
Search of Premises Does Not Automatically Make One a “Searched Person”
A search u/s 132 was initiated against Ramakrishna Credit Co-operative Society Ltd. The assessee’s residential premises were also searched. He contended that since his residence was covered, he became a “searched person” & assessment should have been framed u/s 153A rather than u/s 153C.
The Tribunal rejected the argument. Relying upon DCIT v. C.R. Ram Mohan Raju, it explained that a search is person-centric, not premises-centric. The “searched person” is the person against whom satisfaction is recorded & in whose name the warrant is issued. The premises merely identify where the warrant is executed.
Since the warrant was issued against the co-operative society & not the assessee, he remained an “other person” for purposes of s.153C. Consequently, assumption of jurisdiction u/s 153C was valid.
Liquor Profit of 15.15% Was Unrealistic
The assessee operated seven liquor bars & wine outlets, apart from a hotel & commercial complex. He was also a partner in Rai Associates & managing trustee of SNR Educational Trust.
During search & survey proceedings, documents concerning cash investments & liquor business margins were found. An accountant of Rai Associates stated that liquor outlets earned margins of approximately 24% to 25%, while only about 10% was disclosed. The assessee initially accepted the statement & agreed to offer additional income, but did not do so in the return.
The AO determined a gross profit rate of 21.98% & net profit rate of 15.15% on turnover of ₹22.76 crore, resulting in an addition of ₹2.20 crore.
The CIT(A), using purchases recorded by the Government agency in Form 27D, reduced the gross profit rate to 17.35%. He accepted indirect expenses of ₹2.35 crore but rejected expenses of approximately ₹35.53 lakh for want of complete evidence.
While giving effect, the AO added both the difference in net profit & again the rejected indirect expenses. The Tribunal held that this amounted to a double addition, because non-allowance of those expenses was already embedded in the higher net profit.
The Tribunal further observed that the accountant whose statement was heavily relied upon was associated with Rai Associates, not the assessee’s liquor outlets, & had subsequently retracted his statement. Even his original statement acknowledged that indirect expenses of 8% to 9% had been omitted.
Expenses relating to staff batta, minor repairs, managers, sales discounts, coffee powder & consumables were commercially plausible for seven liquor outlets. Absence of vouchers might justify reasonable estimation, but not complete rejection. Considering decisions accepting profit rates of 3% to 5% in comparable liquor businesses, the assessee’s declared net profit rate of approximately 5.5% was held fair & reasonable. The related additions were deleted.
Unabated Years Require Their Own Incriminating Material
For AYs 2012-13 to 2015-16, assessments had already attained finality before the search & were therefore unabated assessments. The CIT(A) deleted the additions by applying PCIT v. Abhisar Buildwell Pvt. Ltd.
Significantly, the Revenue itself admitted that the seized material related to AY 2016-17, though it argued that its “ramifications” extended to earlier years.
The Tribunal rejected this backward extrapolation. Material pertaining to one year cannot automatically become incriminating material for other completed years. Suspicion that similar suppression may have occurred earlier cannot substitute for tangible, year-specific evidence.
No document, loose paper or books pertaining specifically to AYs 2012-13 to 2015-16 were produced. Statements of the assessee & accountant allegedly admitting suppression from AYs 2011-12 to 2017-18 could not independently sustain additions without corroboration.
The Tribunal also referred to CBDT communications discouraging extraction of confessions during search without collecting supporting evidence. Tax liability must rest upon credible material—not an uncorroborated confession.
Accordingly, additions for AYs 2012-13 to 2015-16 were deleted, the Revenue’s appeals were dismissed & the assessee’s appeals for AYs 2016-17 & 2017-18 were partly allowed.
Author’s Comments
The ruling draws two sharp boundaries. First, the warrant identifies the searched person—not the door on which the search team knocks. Secondly, seized material must carry a clear nexus with the particular unabated year being disturbed.
The Revenue may follow evidence wherever it genuinely leads, but evidence for one year cannot be issued a retrospective season ticket. Search assessments run on incriminating material, not backward-moving presumptions.
Cases Discussed
- Collector, Land Acquisition v. Mst. Katiji; 167 ITR 471 (SC)
- DCIT v. C.R. Ram Mohan Raju; W.A. No. 382 of 2026, dated 24.04.2026; 185 taxmann.com 1012
- CIT v. Calcutta Knitwears; [2014] 43 taxmann.com 446 (SC)
- PCIT v. Abhisar Buildwell (P.) Ltd.; [2023] 149 taxmann.com 399 (SC)
- ITO vs. Shri Banda Mallesh; ITA No. 761/Hyd/2015
- Shivhare Associate Gwalior vs. ACIT Gwalior
- CIT Vs. Mekala Balreddy; ITTA No. 28 & 29/2013, dated 30/07/2013
FULL TEXT OF THE JUDGMENT/ORDER OF INCOME TAX APPELLATE TRIBUNAL, BANGALORE
These appeals comprised ITA Nos. 820 & 821/Bang/2025 filed by the assessee for A.Y. 2016-17 & 2017-18 and ITA Nos. 2547 to 2551/Bang/2025 filed by the Revenue for A.Ys. 2012-13 to 2016-17 arise out of the separate orders passed by the Ld. CIT(A) u/s 250 of the Act. Since common facts and interconnected issues are involved in these appeals, they were heard together and are being disposed of by way of this consolidated order for the sake of convenience and brevity.
First, we take up ITA No. 820/Bang/2025, an appeal by the assessee pertaining to AY 2016-17.
2. At the outset, we note that there has been a delay by the assessee in filing this appeal. The Ld. AR before us submitted that this appeal has been filed with a delay of 612 days. In support of the petition for condonation of delay, the assessee has filed a notarized affidavit dated 14.07.2025 explaining the reasons which prevented him from filing the appeal within the prescribed period. It was stated that the assessee is about 77 years of age and is residing in a village. Being not well versed with taxation matters, he was dependent upon his tax consultant for pursuing the appellate proceedings. It is further submitted that the consultant’s office is situated about 70 kilometers away from the assessee’s residence and travelling to his (consultant) office takes considerable time owing to poor road conditions. The assessee has also explained that he has been suffering from various age-related ailments including high blood pressure and leg pain and had undergone implantation of a permanent pacemaker in the year 2019. According to the assessee, after the outbreak of the Covid-19 pandemic, he substantially restricted his movement and managed his affairs from home.
2.1 The assessee has further stated that upon receipt of the order of the Ld. CIT(A), he inadvertently failed to hand over a copy of the said order to his consultant due to old age and memory-related issues. It is submitted that when the omission came to light, the auditor initially indicated that a copy of the order would be procured from the office of the Ld. CIT(A). Subsequently, the order was downloaded from the ITBA Portal, and the present appeal was filed without any further delay. Hence, the ld. AR prayed for the condonation of delay and decide the issue on merit of the case.
3. The Ld. DR, on the contrary, opposed the petition for condonation of delay and submitted that the delay of 612 days is inordinate and has not been properly explained. It was contended that the reasons furnished by the assessee are general in nature and do not explain the entire period of delay with supporting evidence. The Ld. DR submitted that merely stating old age, health issues, and difficulty in travelling to the consultant’s office cannot constitute sufficient cause for such a prolonged delay. It was further argued that the assessee has not demonstrated that he was continuously prevented from pursuing the appellate remedy during the entire period of delay. Therefore, in the absence of a satisfactory and cogent explanation, the assessee has failed to establish sufficient cause for condonation of the delay, and hence, the appeal deserves to be dismissed as barred by limitation.
4. We have considered the rival submissions of both the parties and perused the petition for condonation of delay along with the notarized affidavit dated 14.07.2025 filed by the assessee. The assessee has explained that he is aged about 77 years, residing in a village and is not well versed with taxation matters. It has been stated that the tax consultant handling his matters is situated about 70 kilometers away from his residence and travelling to the consultant’s office requires considerable time owing to poor road conditions. The assessee has further explained that he has been suffering from various health issues including high blood pressure and leg pain and had undergone implantation of a permanent pacemaker in the year 2019. It has also been stated that after the outbreak of the Covid-19 pandemic, he substantially restricted his movements and managed his affairs from home. According to the assessee, due to old age and memory-related issues, he inadvertently failed to hand over the copy of the order of the Ld. CIT(A) to his consultant in time. Subsequently, when the omission came to light, the order was downloaded from the ITBA portal, and the present appeal came to be filed. Considering the facts of the case and the explanation offered by the assessee, we are of the view that the delay in filing the appeal was due to reasons beyond the control of the assessee. While considering a similar issue, the Hon’ble Apex Court in the case of Collector, Land Acquisition v. Mst. Katiji reported in 167 ITR 471 (SC) laid down the following principles:
(1) Ordinarily, a litigant does not stand to benefit by lodging an appeal late.
(2) Refusing to condone delay can result in a meritorious matter being thrown at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties.
(3) ‘Every day’s delay must be explained’ does not mean that a pedantic approach should be made. Why not every hour’s delay, every second’s delay? The doctrine must be applied in a rational, commonsense and pragmatic manner.
(4) When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done because of a non-deliberate delay.
(5) There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk.
(6) It must be grasped that the judiciary is respected not on account of its power to legalise injustice on technical grounds but because it is capable of removing injustice and is expected to do so.
5. In the present case, the explanation furnished by the assessee appears to be bona fide and supported by a duly sworn affidavit. The Revenue has not brought any material on record to disprove the averments made therein. We find no material suggesting that the delay was intentional or attributable to any mala fide motive. Having regard to the advanced age of the assessee, his medical condition, the circumstances explained in the affidavit and keeping in view the principles laid down by the Hon’ble Supreme Court, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the prescribed period. Accordingly, in the interest of substantial justice, we condone the delay of 612 days in filing the present appeal and admit the appeal for adjudication on merits.
6. The assessee in the memo of appeal has raised 07 grounds of appeal which we, for the sake of brevity and convenience, are not inclined to reproduce here.
7. First, we proceed to adjudicate the interconnected legal grounds raised through Ground Nos. 2, 3 & 4 of the appeal challenging the jurisdiction assumed under section 153C of the Act
8. The brief facts of the case on hand are that the assessee, an individual, is engaged in the business of running liquor bars. A search action u/s 132 of the Act was initiated in the case of M/s Ramakrishna Credit Co-Operative Society Limited on 01.02.2017. In connection with this search, residential premises of the assessee was also covered under search. The AO issued notice u/s 153C of the Act and completed assessment u/s 153C of the Act by determining total income at Rs. 2,96,00,816/- only.
9. The aggrieved assessee preferred an appeal before the Ld. CIT(A).
10. Before the Ld. CIT(A), the assessee submitted that the AO erred in initiating and completing the assessment proceedings u/s 153C of the Act instead of under section 153A of the Act. The Ld. CIT(A), however, rejected this ground of appeal of the assessee by observing that the assessee did not provide a proper explanation towards this ground.
11. Aggrieved by the order of the Ld. CIT(A), the assessee filed an appeal before us.
12. The Ld. AR submitted that the assessment framed u/s 153C of the Act is without jurisdiction. It was contended that the residential premises of the assessee were admittedly covered during the search conducted u/s 132 of the Act and, therefore, the assessee assumed the character of a searched person. Consequently, if any assessment was required to be framed, the same could only have been initiated u/s 153A of the Act and not u/s 153C, which applies only to a person other than the searched person. It was further submitted that the assumption of jurisdiction u/s 153C is contrary to the scheme of the Act and, therefore, the impugned assessment deserves to be quashed.
13. On the other hand, the Ld. DR before us filed a written submission vide letter received dated 16-07-2026, supported the orders of the AO and the Ld. CIT(A). It was submitted that the AO had validly assumed jurisdiction u/s 153C of the Act after recording the requisite satisfaction and that the assessment had been framed in accordance with law. It was further contended that merely because the residential premises of the assessee were covered during the search action, the proceedings initiated u/s 153C would not become invalid. Accordingly, the Ld. DR submitted that the order of the Ld. CIT(A) deserves to be upheld.
14. We have considered the rival submissions and perused the materials available on record. The short issue for our consideration is whether the assessee, merely because its residential premises were covered during the course of search, would acquire the status of a “searched person” so as to make the provisions of section 153A of the Act applicable, or whether the assessee would continue to be an “other person” for whom proceedings can validly be initiated u/s 153C of the Act.
14.1 From the facts born out from the assessment order, it is evident that a search action u/s 132 of the Act was conducted in the case of M/s Ramakrishna Credit Co- operative Society Limited on 01.02.2017. It is further not in dispute that in connection with the said search operation, the residential premises of the assessee were also covered by the search action. However, we find that the warrant of authorization was not issued in the name of the assessee. The assessee’s premises were merely one of the places identified for execution of the search warrant issued in the case of the aforesaid third party. The AO thereafter initiated proceedings against the assessee u/s 153C of the Act.
14.2 The contention of the Ld. AR is that since the assessee’s residential premises were actually searched and materials were found/seized therefrom, the assessee should be regarded as a “searched person”. According to the assessee, the assessment could therefore be made only u/s 153A of the Act and not u/s 153C of the Act. We are unable to accept this contention. In our considered view, the expression “searched person” has to be understood with reference to the person in whose case the search u/s 132 of the Act was initiated and against whom the requisite satisfaction was recorded for issuance of the warrant of authorization. It cannot be determined merely with reference to the ownership or occupation of the premises where the warrant was executed.
14.3 The provision of section 132 of the Act itself makes a clear distinction between the person and the place of search. The satisfaction contemplated under clauses (a) to (c) of section 132(1) is with reference to a person, whereas the authorization to search for a building, place or premises is based on the satisfaction contemplated under clauses (i) to (v) of section 132(1) of the Act. Therefore, the person against whom the search is authorized and the premises where the search is actually carried out are two distinct concepts. The identity of the person searched is to be determined with reference to the person against whom satisfaction is recorded, and not with reference to the ownership of the premises searched.
14.4 The distinction is important for the application of sections 153A and 153C of the Act. Section 153A applies where a search is initiated u/s 132 of the Act in the case of a person. Thus, the person contemplated by section 153A is the person against whom the search authorization has been issued. On the other hand, section 153C of the Act specifically deals with a person other than the person referred to in section 153A of the Act, where material belonging to or pertaining to such another person is found during the course of search.
14.5 In this regard, we find support and guidance from the reasoning adopted by the Hon’ble Karnataka High Court in the case of DCIT v. C.R. Ram Mohan Raju, W.A. No. 382 of 2026, dated 24.04.2026 reported in 185 taxmann.com 1012. In that case also, the search warrant was issued in the name of one person, whereas the residential premises of another person were searched. The Hon’ble High Court, after examining section 132 of the Act and the distinction between the person against whom satisfaction is recorded and the premises where the search is conducted, held that the warrant of authorization is person-specific and that the “searched person” is the person against whom the satisfaction is recorded and in whose name the warrant is issued. Mere search of the premises belonging to another person does not make such person a “searched person”. The relevant observation and finding of the Hon’ble High Court case of DCIT v. C.R. Ram Mohan Raju, for ready reference, is extracted as under:
7.1 In the present appeal, there is no challenge to the competency of the authority issuing the warrant of authorization, nor to the validity of the search warrant or the correctness of the premises searched. The controversy is confined to the determination of the “searched person”.
7.2 Under Section 132(1), the competent authority, in consequence of information in its possession, may form a “reason to believe” that: (a) any person to whom a summons under Section 131(1) or a notice under Section 142(1) has been issued to produce books of account or documents has omitted or failed to produce the same; or (b) such person would not produce the said material even if so summoned; or (c) any person is in possession of money, bullion, jewellery, or other valuable articles or things representing wholly or partly undisclosed income or property. Upon recording such satisfaction, the competent authority may authorize the conduct of a search in terms of the provision.
7.3 Clauses (a) to (c) of Section 132(1) thus pertain to the formation of satisfaction in respect of a person. On the other hand, clauses (i) to (v) thereof deal with the nature of actions that may be undertaken pursuant to such authorization, including the place or premises where the search is to be carried out and the consequential steps that may follow.
7.4 Thus, while the “reason to believe” is person-centric, the execution of the authorization extends to the premises where the competent authority has reason to suspect that the specified materials are kept.
7.5 When satisfaction is recorded for the issuance of a warrant of authorization for search, the competent authority is required to specify the details of the building, place, vessel, vehicle, or aircraft in respect of which it has reason to suspect that books of account, documents, money, bullion, jewellery, or other valuable articles or things are kept.
7.6 A close reading of clauses (a) to (c) and clauses (i) to (v) of Section 132(1) indicates that the satisfaction contemplated under clauses (a) to (c) is in relation to a person, whereas the authorization under clauses (i) to (v) pertains to the premises or locations where the search is to be carried out. The provision does not mandate that the premises to be searched must necessarily belong to the person referred to in clauses (a) to (c). Rather, it is sufficient if the competent authority has reason to suspect that the specified items are kept in such building, place, vessel, vehicle, or aircraft.
7.7 Further, while the formation of “reason to believe” under clauses (a) to (c) is person-centric, the standard applicable to the place of search is one of “reason to suspect”. The legislative intent underlying Section 132(1) clearly distinguishes between the person in respect of whom satisfaction is recorded and the premises where the search is to be executed.
7.8 To determine who is the “searched person”, clauses (a) to (c) and clauses (i) to (v) must be read conjointly. On such a reading, it becomes evident that the person searched is the person against whom satisfaction is recorded under clauses (a) to (c). Once such satisfaction is recorded for issuance of a warrant of authorization, the place of search and consequential actions fall within the ambit of clauses (i) to (v).
7.9 Thus, the identity of the “searched person” is to be determined with reference to the person against whom satisfaction is recorded, and not with reference to the ownership of the premises searched. It follows that a search under Section 132 of the Act is person-centric and not premise centric.
14.6 The above principle squarely applies to the facts of the present case. The warrant of authorisation was issued in the case of M/s Ramakrishna Credit Co- Operative Society Limited and not in the name of the assessee. The fact that the assessee’s residential premises were also specified as a place where the search was to be conducted does not alter the identity of the person against whom the search was initiated. The assessee’s premises constituted only the place of execution of the search warrant. The assessee, therefore, cannot be treated as the “searched person” merely because the search was physically conducted at its premises.
14.7 If the contention of the assessee is accepted, the expression “searched person” would become premises-centric rather than person-centric. Such an interpretation would create an anomalous situation where every owner, occupant or person connected with premises searched pursuant to a warrant issued against somebody else would automatically become a searched person. This would defeat the carefully structured distinction made by the legislature between the person searched and the other person whose material may be found during the search. In CIT v. Calcutta Knitwears, reported in [2014] 43 taxmann.com 446 (SC), the Hon’ble Supreme Court emphasised that the machinery provisions relating to search assessments must be applied in accordance with the statutory scheme and the conditions prescribed therein. The relevant observation of the Hon’ble Supreme Court reads as under:
37. It is the duty of the court while interpreting the machinery provisions of a taxing statute to give effect to its manifest purpose. Wherever the intention to impose liability is clear, the Courts ought not be hesitant in espousing a commonsense interpretation to the machinery provisions so that the charge does not fail. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same (Whitney v. Commissioners of Inland Revenue 1926 A C 37 , CIT v. Mahaliram Ramjidas [1940] 8 ITR 442 (PC), Indian United Mills Ltd. v. CIT [1955] 27 ITR 20(SC), and Gursahai Saigal v. CIT [1963] 48 ITR 1 (SC); CWT v. Sharvan Kumar Swarup & Sons [1994] 6 SCC 623; CIT v. National Taj Traders [1980] 121 ITR 535/[1979] 2 Taxman 546 (SC); Associated Cement Co. Ltd. v. CTO [1981] 48 STC 466 (SC). Francis Bennion in Bennion on Statutory Interpretation, 5th Ed., Lexis Nexis in support of the aforesaid proposition put forth as an illustration that since charge made by the legislator in procedural provisions is excepted to be for the general benefit of litigants and others, it is presumed that it applies to pending as well as future proceedings.
38. Having said that, let us revert to discussion of Section 158BD of the Act. The said provision is a machinery provision and inserted in the statute book for the purpose of carrying out assessments of a person other than the searched person under Sections 132 or 132A of the Act. Under Section 158BD of the Act, if an officer is satisfied that there exists any undisclosed income which may belong to a other person other than the searched person under Sections 132 or 132A of the Act, after recording such satisfaction, may transmit the records/documents/chits/papers etc. to the assessing officer having jurisdiction over such other person. After receipt of the aforesaid satisfaction and upon examination of the said other documents relating to such other person, the jurisdictional assessing officer may proceed to issue a notice for the purpose of completion of the assessments under Section 158BD of the Act, the other provisions of XIV-B shall apply.
14.8 The principle laid down by the Hon’ble Supreme Court becomes particularly relevant in the present case because the legislature has consciously created two separate mechanisms. Section 153A governs the person against whom the search is initiated, whereas section 153C governs a person other than such searched person when the statutory conditions relating to seized materials are satisfied. The two provisions cannot be interchanged merely because the premises of the other person happened to be searched.
14.9. We also find that the assessee’s reliance on the fact that its premises were included in the panchanama does not advance its case. The panchanama records the execution of the search and the place where the search was carried out. It cannot, by itself, override the warrant of authorisation or convert the person whose premises were searched into the person against whom the search was authorised. The identity of the searched person has to be determined from the search authorization, and the satisfaction recorded u/s 132 of the Act.
14.10 Therefore, in the facts of the present case, the mere fact that the residential premises of the assessee were subjected to search cannot lead to the conclusion that the assessee was a “searched person”. The relevant test is not where the search was conducted, but in whose case the search was initiated and in whose name the warrant of authorisation was issued. Since the warrant in the present case was issued against a third party, namely M/s Ramakrishna Credit Co-Operative Society Limited, the assessee was an “other person” for the purposes of section 153C of the Act. Consequently, we hold that the proceedings initiated against the assessee u/s 153C of the Act cannot be held to be without jurisdiction in the given facts and circumstances, as the assessee was not the searched person. In view of the above discussion, we reject the assessee’s contention that the assessment ought to have been framed u/s 153A of the Act. Accordingly, Ground Nos. 2, 3 and 4 raised by the assessee challenging the assumption of jurisdiction u/s 153C of the Act are hereby dismissed.
15. Coming to the issue raised by the assessee through Ground Nos. 1, 5, 6 & 7 of the appeal on the merit of the case.
16. The issue raised by the assessee through Ground No. 1 of the appeal is that the learned CIT(A) erred in confirming/sustaining the addition of Rs. 70,69,659/- only instead of deleting the same in entirety.
17. The relevant facts are that the assessee is running 7 liquor bars and wine outlets at different places, a hotel and commercial complex. He is also a partner in a firm named “M/s Rai Associates” and managing trustee of “M/s SNR Educational Trust”.
17.1 During the search at his residential places, certain documents were seized and marked as annexure- ARCCS/KSR/01. A simultaneous survey proceeding was also carried out at the business premises of the firm M/s Rai Associates, wherein certain documents and materials were also found and marked as Annexure-II/Rai Asso/2017- 17/Puttur running into 1000 pages. The seized materials found from the residence and the business premises contained information regarding cash investments made by the assessee in the trust M/S SNR Educational Trust, aggregating to Rs. 12,37,78,724/- over a period of several years (2004 to 2015). Further, a copy of the calculation of GP earned by the 6 liquor outlets for March 2016 was also found and impounded.
17.2 During the survey, the documents found were confronted to the assessee’s accountant, Shri Krishna Prasad, and his statement was recorded. In which he explained that the cash investment made in M/S SNR Educational Trust was generated from liquor outlets business. He explained that each outlet was managed by separate managers. The managers deposit the daily collection after retaining the margin into the assessee’s bank account, and the retained margin is paid in cash to the assessee. The margin for liquor outlets is around 24-25%. However, in the return of income, the margin is declared around 10% only, resulting in suppression of profits by 14-15%.
17.3 The accountant Shri Krishna Prasad, during the survey, further furnished a working of turnover, margin and suppressed profit in Annexure-I. He also explained that for F.Y. 2015-16 and 2016-17, the indirect expenses, which are around 8 to 9% of total sales, are not included.
17.4 The statement given by the accountant and his explanation were confronted to the assessee while recording his statement under section 132(4) of the Act, and the assessee confirmed the correctness of the accountant’s statement and explanation. The assessee also agreed to declare additional income of Rs. 2,38,23,240/- for the year under consideration. However, in the return of income filed subsequent to search and survey, the assessee did not declare the additional income.
17.5 During the assessment, the AO also noted that the assessee has maintained books of account for only 1 liquor outlet out of 7, meaning thereby no books of account were maintained for 6 liquor outlets.
17.6 The AO, after examination of all the impounded materials in relation to the assessee’s liquor business, prepared a statement of computation of sales, cost of goods sold, gross profit, revenue expenses and net profit, GP ratio and NP ratio for each outlet. The working statement is available at pages 26 and 27 of the assessment order. As per the AO’s working, the combined GP Ratio of the assessee’s liquor business stands at 21.98%, and the NP ratio stands at 15.15%. Accordingly, the AO, applying the NP ratio of 15.15% on the total turnover of Rs. 22,75,69,739/-, arrived at net profit of Rs. 3,44,76,479/-. As the assessee had already offered a profit of Rs. 1,25,16,336/- , the remaining amount of Rs. 2,19,60,479/- was added to the assessee’s total income.
18. The aggrieved assessee preferred an appeal before the learned CIT(A).
18.1 Before the learned CIT(A), the assessee submitted that the AO wrongly assumed the GP ratio of 21.98%. The assessee submitted that all his purchases are from the government agency only. As per the government record in Form 27D, the cost of goods sold is Rs. 18,73,22,243/0/- only. Applying the cost of goods sold for the total turnover of Rs. 22,75,69,739/-, the GP ratio stands at 17.35%.
18.2 The assessee further submitted that, during the survey, it was explained that the indirect expenses were approximately 9% of the total turnover and agreed by the survey team, but in reality, the indirect expenses are around 11 to 12%. However, the AO ignored this fact and allowed indirect expenses only to the extent of 7% (approx.) only. The VAT expenses of Rs. 18,61,476, as available in the impounded document, were also disallowed by the AO.
18.3 Accordingly, the assessee before the learned CIT(A) filed an income statement along with supporting evidence to substantiate the income offered by him, which is 5.5% of the total turnover. The assessee also placed reliance on several decisions of different benches of ITAT wherein NP ratio of 3 to 5% in the liquor business was accepted as genuine.
19. The learned CIT(A), after considering the facts in their totality, accepted the assessee’s gross profit calculation of Rs. 3,94,82,276/- (22,75,69,739 – 18,80,87,003), being 17.35% of Turnover.
19.1 Regarding the claim of indirect expenses, the learned CIT(A) found that certain indirect expenses aggregated to Rs. 35,53,085/- were not supported by the evidence. These indirect expenses are detailed as under: Coffee Powder Expense 2,23,400
| Coffee Powder Expense | 2,23,400 |
| Flower Oil & Agarabathi Expense | 2,36,235 |
| Daily Batta For the Staff | 2,58,900 |
| Pooja Expenses | 8,750 |
| Building Repair & (Painting & Labour) | 25,300 |
| Discount, Managers Sales Expenses Etc | 28,00,500 |
| Total | 35,53,085 |
19.2 The claim of indirect expenses accepted by the learned CIT(A) by holding that the same are supported by the evidence are a under:
| Expenses – As per Impounded Materials | 84,09,595 |
| VAT – As per Impounded Material | 18,61,476 |
| License Renewal Expenses | 7,22,000 |
| Salary | 53,63,500 |
| Packing Materials Expense | 2,52,411 |
| Printing & Stationary Expense | 78,550 |
| Damage & Breakage (6 Months) | 92,775 |
| Advertisement Expense | 3,09,500 |
| Repaires & Maintenance Charge | 1,41,050 |
| Transportation | 23,61,746 |
| Other Administrative expenses | 6,00,000 |
| Car fuel and repair charges | 1,50,000 |
| Incentive of the Staff | 18,42,500 |
| Depreciation | 10,08,071 |
| Interest | 2,60,603 |
| Total | 2,34,53,777 |
19.3 Accordingly, the learned CIT(A) worked out the assessee’s net profit from liquor business at Rs. 1,60,28,959/- (GP Rs. 3,94,82,736 – Exp Rs. 2,34,53,777). Accordingly, the learned CIT(A) directed the AO to make an addition based on the net profit of Rs. 1,60,28,959/- only.
20. However, the AO, in order giving effect, made an addition of Rs. 70,39,659/-. As such, the AO added the difference between the net profit calculated by the learned CIT(A) and the NP declared by the assessee, which is of Rs. 35,04,574/- and further made an addition of Rs. 35,35,085/- being the sum of indirect expenses not allowed by the learned CIT(A) in the computation of net profit.
21. Being aggrieved by the order of the learned CIT(A), both the assessee and the Revenue are in appeal before us. The assessee is in appeal against the confirmation of the addition to the extent of Rs. 70,39,659/-, whereas the Revenue is in appeal against the deletion of the addition made by the AO in ITA No. 2551/Bang/2025.
22. The learned AR before us filed a paper book dated 16-06-2025 running from pages 1 to 122 and a paper book dated 29-07-2026 running from pages 1 to 10 and submitted that the addition made by the AO is based mainly on the statement of Shri Krishna Prasad, accountant, recorded during the survey. The said accountant subsequently retracted his statement; in any case, he was associated with M/S Rai Associates and was not maintaining the accounts of the assessee’s liquor business. Therefore, his statement could not serve as the sole basis for estimating the liquor business’s profit. It was further submitted that even in the original statement, the accountant had specifically stated that indirect expenses of around 8% to 9% of sales were not considered in the working. 22.1 The learned AR further submitted that the learned CIT(A) himself did not accept the GP rate of 21.98% adopted by the AO and accepted the assessee’s computation of GP at 17.35%. However, while computing the net profit, the learned CIT(A) did not allow certain indirect expenses aggregating to Rs. 35,53,085/- merely for want of complete supporting evidence. It was submitted that these expenses, including staff batta, repairs, sales discounts, managers’ expenses and other incidental expenses, are normal and necessary for running seven liquor outlets and should be allowed considering the nature and volume of the assessee’s business.
22.2 The learned AR also submitted that the AO, while giving effect to the order of the learned CIT(A), committed a clear error by first adding the difference between the net profit determined by the learned CIT(A) and the profit declared by the assessee and thereafter again adding the indirect expenses separately. This resulted in double addition because the disallowance of those expenses was already reflected in the higher net profit computed by the learned CIT(A).
22.4 Lastly, the learned AR submitted that after allowing the genuine indirect expenses, the assessee’s NP works out to approximately 5.5% of turnover, which is reasonable for liquor business. Reliance was placed on various decisions of different Benches of the Tribunal wherein NP rates ranging from 3% to 5% in liquor business have been accepted. It was also submitted that similar relief was granted by the learned CIT(A) in the subsequent A.Y. 2017-18 and the Revenue accepted the same without filing any appeal. Accordingly, it was prayed that the profit declared by the assessee be accepted and the entire addition be deleted.
23. The learned DR, on the other hand, strongly supported the order of the AO to the extent challenged by the assessee. He submitted that the assessee had not maintained proper books of account for six out of seven liquor outlets and the materials found during the search and survey indicated higher profitability from the liquor business.
23.1 The learned DR further submitted that the learned CIT(A) had already granted substantial relief after considering the assessee’s submissions and supporting documents. The expenses which were supported by evidence were allowed, whereas only those expenses aggregating to Rs.35,53,085/- for which proper supporting evidence was not furnished were rejected. Therefore, according to the learned DR, no further relief was called for and the finding of the learned CIT(A) deserved to be sustained.
23.2 Both the ld. AR and DR before us supported the order of the authorities below to the extent favourable to them.
24. We have heard the rival contentions of both the parties and perused the materials available on record. The dispute before us relates to estimation of profit from the liquor business carried on by the assessee. The assessee was running seven liquor bars and wine outlets at various locations, in addition to a hotel and a commercial complex. The assessee was also a partner in M/s Rai Associates and managing trustee of M/s SNR Educational Trust. During the course of search and simultaneous survey proceedings, certain documents were found and impounded.
24.1 The AO mainly proceeded on the basis of the statement of Shri Krishna Prasad, accountant, recorded during the course of the survey. In his statement, he stated that the margin from the liquor outlets was around 24% to 25% and furnished certain workings of turnover and alleged suppressed profit. At the same time, the accountant stated that the workings did not include indirect expenses, which, according to him, were around 8% to 9% of total sales. On the basis of the materials and statement, the AO ultimately worked out the combined GP ratio at 21.98% and NP ratio at 15.15% and applied the said NP rate to the turnover of Rs. 22,75,69,739/-.
24.2 In our considered view, the approach adopted by the AO cannot be sustained. Firstly, the AO’s conclusion is substantially influenced by the accountant’s statement recorded during the survey proceedings, which he subsequently retracted.
24.3 More importantly, Shri Krishna Prasad was connected with the affairs of M/S Rai Associates and was not connected with the assessee’s liquor business. This can be verified from his reply to question no. 2 while recording his statement, wherein he stated that he is an accountant of the firm M/S Rai Associates. This fact can further be verified from para 4.7 & 4.14 of the Ld. CIT(A) that Shri Krishna Prasad was associated with M/s Rai Associates, not with the assessee’s liquor business outlets.
24.4 Therefore, his statement regarding the actual profitability and expenses of the assessee’s liquor outlets, particularly when subsequently retracted, cannot by itself constitute a reliable basis for estimating the income of the liquor business at such a high rate. This assumes further importance because even in his original statement the accountant had clearly acknowledged that indirect expenses of approximately 8% to 9% of turnover had not been considered in the working.
24.5 We also find merit in the assessee’s contention regarding the gross profit computation. Before the learned CIT(A), the assessee demonstrated that its purchases were from the Government agency and, on the basis of the Government record in Form 27D, worked out the GP rate at 17.35%. The learned CIT(A), after examining the material, accepted the gross profit of Rs. 3,94,82,276/-, being approximately 17.35% of the turnover. Thus, the GP rate of 21.98% adopted by the AO did not survive after the learned CIT(A) ‘s examination.
24.6 The next and more important issue concerns indirect expenses. The assessee had explained before the learned CIT(A) that the indirect expenses were approximately 11% to 12% of turnover, whereas the AO had effectively allowed expenses only to the extent of approximately 7%. The assessee furnished an income statement along with supporting materials and claimed that the actual NP worked out to approximately 5.5% of turnover. It was also specifically pointed out that VAT expenses of Rs. 18,61,476/- appearing in the impounded material itself had initially not been allowed by the AO.
24.7 The learned CIT(A), on examination, accepted indirect expenses aggregating to Rs. 2,34,53,777/-, which included expenses relating to licence renewal, salary, packing material, advertisement, repairs and maintenance, transportation, administrative expenses, staff incentives, depreciation, interest and other expenditure. However, expenses aggregating to Rs. 35,53,085/- towards coffee powder, flower oil and agarbathi, daily batta for staff, pooja expenses, building repairs and painting/labour, and discount/managers’ sales expenses, etc. were not accepted, mainly for want of supporting evidence.
24.8 There is another important aspect which requires consideration. The learned CIT(A), after accepting expenses of Rs. 2,34,53,777/-, computed the net profit at Rs.1,60,28,959/- and directed the AO to make the consequential addition on that basis. However, while giving effect to the order, the AO not only added the difference of Rs. 35,04,574/- between the net profit determined by the learned CIT(A) and the net profit already declared by the assessee, but once again added Rs. 35,35,085/- representing the indirect expenses which had not been accepted by the learned CIT(A).
24.9 This action of the AO is clearly erroneous. Once the learned CIT(A) computed the net profit after excluding the disputed indirect expenses, the effect of non- allowance of those expenses already stood embedded in the enhanced net profit so determined. Therefore, after adding the difference between the net profit determined by the learned CIT(A) and the profit declared by the assessee, there was no justification for again adding the very same indirect expenses separately. Such separate addition amounts to taxing the same amount twice. Therefore, even on the basis of the learned CIT(A)’s own computation, the further addition of the disputed indirect expenses in the order giving effect cannot be sustained.
24.10 We also take note of the submission that for the immediately succeeding A.Y. 2017-18, on substantially similar facts, the learned CIT(A) adopted the same approach in respect of the assessee’s liquor business, and the Revenue accepted the said finding and did not prefer an appeal. Though the principle of res judicata does not strictly apply to income-tax proceedings, consistency assumes importance where the nature of business and material facts remain substantially the same. The Revenue cannot ordinarily accept a particular factual approach in one assessment year and take a materially different position in another year without demonstrating any distinguishing feature. In view of the above, we are of the opinion that the revenue’s appeal in the given facts deserves to be dismissed.
24.11 Moving ahead with respect to the assessee’s appeal regarding the allowances of the indirect expenses not accepted by the learned CIT(A), or to say allowances of profit declared by the assessee.
24.12 Having regard to the peculiar nature of the assessee’s business, we are of the view that outright rejection of these expenses is not justified. The assessee was admittedly operating seven liquor bars and wine outlets at different locations. In a business of this nature, expenditure on staff batta, minor repairs and maintenance, consumable items, and expenses relating to managers and sales, including discounts, is normal and commercially plausible. The absence of complete supporting vouchers for every item may warrant closer scrutiny or, in appropriate cases, a reasonable estimate. However, it cannot automatically lead to the conclusion that the entire expenditure was not incurred, particularly when the existence and scale of the business itself are not disputed.
24.13 The major component of the disputed expenditure is Rs. 28,00,500/- towards “Discount, Managers Sales Expenses Etc”. Considering that the assessee was operating seven liquor outlets and had a turnover of Rs. 22.75 crores, such expenditure cannot be viewed in isolation from the scale and nature of the business. Likewise, expenditure towards daily batta for staff, building repairs, coffee powder, flower oil, agarbathi, and other incidental expenditure is not inherently inconsistent with the assessee’s business activities. The reasonableness of business expenditure has to be examined in the commercial setting in which the business is actually carried on and not merely on the basis of absence of formal vouchers.
24.14 We further find force in the assessee’s contention regarding the overall reasonableness of the profit rate. The assessee had specifically relied before the learned CIT(A) on decisions of different Benches of the Tribunal and Hon’ble High Courts such as the decision of Hyderabad ITAT in case of ITO vs. Shri Banda Mallesh in ITA No. 761/Hyd/2015, and decision of Agra ITAT in case of Shivhare Associate Gwalior vs. ACIT Gwalior and decision of Hon’ble Andhra Pradesh High Court in the case of CIT Vs. Mekala Balreddy in ITTA No. 28 & 29/2013, dated 30/07/2013 etc., wherein net profit rates in the range of 3% to 5% from liquor business were considered reasonable. This contention is also recorded in the finding of the learned CIT(A) which is extracted as under:
“The AR of the appellant relied upon the decisions of Hon’ble High Court and the Hon’ble ITAT wherein it was held that in the business of liquor the net profit varies from 3% to 5%. However, considering all the expenses with supported documents the net profit comes to 7.04% which is reasonable enough after considering the above discussed decision of net profit given by the Hon’ble High Court, ITAT and other judicial judgments.”
24.15 For the ready reference the relevant finding of the Hyderabad tribunal in ITO vs. Shri Banda Mallesh is extracted as under:
3. On consideration of the facts on record, we find that the assessee has requested to estimate his income at 1 or 2% of his turnover, while AO has estimated the income at 24% of the cost of goods sold. The assessee had raised an objection before the CIT (A) stating that the AO has erred in resorting to estimation of sales at 124% of the value of stock put to sale during the year and making the addition of Rs.31,33,969 on the basis of such estimated sales and in estimating the value of sales. During the course of the hearing of the appeal, assessee submitted that the AO’s estimation of sales at 124% of the cost of goods is on the higher side and is not practical. It was further submitted that, as held by the Hon’ble High Court of Andhra Pradesh in the case of CIT vs. Mekala Bal Reddy in ITTA No.28 & 29 of 2013, dated 30.07.2013, the reasonable profit rate to be adopted is 5% of the goods put to sale. The CIT (A) has considered this submission of the assessee to hold that the income of the assessee is to be estimated at 5% of Rs.4,75,90,534 i.e. the sale reported by the assessee. We find that the AO has estimated the sales to be at 124% of the cost of goods sold and therefore, has arrived at a figure of Rs. 5,07,24,503 as the turnover of the assessee. The Hon’ble High Court of Andhra Pradesh in the case of CIT vs. Mekala Bal Reddy (Supra) in a similar set of facts has held that the income of the assessee is to be estimated at 5% of the goods put to sale. The assessee has reported an actual sale of Rs.4,75,90,534, whereas the figure of Rs.5,07,24,503 is the estimated turnover at 124% of the cost of goods sold. In both the cases, the issue is of estimation of turnover by adopting different rates of gross profit. The AO has not determined the suppression of sales as alleged in the ground of appeal of the Revenue. It is the case of actual sale plus gross profit @ 5% thereon vs. estimated sale by adopting 24% G.P.on cost of goods sold. Therefore, we do not find any error in the order of the CIT (A) wherein he has directed the AO to estimate the profit at 5% of the sales reported by the assessee which is consonance with the directions of the Hon’ble High Court in similarly placed assessees. In view of the same, we do not see any reason to interfere with the order of the CIT (A) and the Revenue appeal is dismissed.
24.16 In our considered view, profit estimation cannot be made in the abstract. The nature of trade, turnover, operating expenditure and the profit ordinarily obtainable from such business have to be considered together. In the present case, after allowing the aforesaid indirect expenses, the net profit disclosed by the assessee works out to approximately 5.5% of the turnover. In our view, having regard to the nature and scale of the liquor business carried on through seven outlets and the profit rates considered reasonable in similar liquor business cases, a net profit rate of 5.5% cannot be said to be low or unreasonable. On the contrary, it is already on the higher end of the 3% to 5% range referred to before the learned CIT(A).
24.17 Thus, when the matter is viewed as a whole, we find that the estimation made by the AO at an NP rate of 15.15% is excessive and does not reflect the true commercial profit of the assessee’s liquor business. The statement heavily relied upon by the AO was subsequently retracted and was made by an accountant connected with M/s Rai Associates rather than the assessee’s liquor business. Even that statement acknowledged the existence of substantial indirect expenses. The GP calculation made by the AO was itself not true and rightly not accepted by the learned CIT(A). Further, the disputed indirect expenses are broadly consistent with the nature and scale of the business, and their complete disallowance would result in an unrealistic estimation of profit.
24.18 Considering the totality of the facts and circumstances, we are of the considered opinion that the net profit of approximately 5.5% declared by the assessee represents a fair and reasonable profit from the liquor business. Accordingly, we hereby direct the AO to accept the same. Consequently, the addition sustained on account of indirect expenses not accepted by the learned CIT(A) are directed to be deleted. Hence, the ground of appeal of the assessee is hereby allowed, whereas the grounds of appeal raised by the Revenue are dismissed.
25. The next issue raised by the assessee through Ground No. 5 of the appeal is that the learned CIT(A) erred in confirming the addition of Rs. 4,60,808/- by treating the same as non-agricultural income.
25.1 At the outset, we find that the learned CIT(A) dismissed this ground by recording that the issue was not pressed before him. Even before us, the learned AR has not advanced any argument or placed any material in support of this ground. Therefore, we find no reason to interfere with the finding of the learned CIT(A). Accordingly, Ground No. 5 raised by the assessee is dismissed.
26. The ground Nos. 6 and 7 of the appeal are either consequential or general grounds that do not require any separate and independent adjudication. Hence, the same are hereby dismissed as infructuous.
27. In the result, the appeal of the assessee is hereby partly allowed.
Coming to Revenue appeals in ITA Nos. 2547 to 2550/Bang/2025 for the A.Ys. 2012-13 to 2015-16.
28. At the outset, we note that there is a delay in filing the present appeals by the Revenue before this Tribunal. The learned CIT(A) passed the impugned orders u/s 250 of the Act on 25.05.2023. Aggrieved by the said orders, the Revenue had originally filed appeals before the Panaji Bench of the Tribunal in ITA Nos. 142 to 147/Pan/2023 within the prescribed time.
28.1 The Panaji Bench, however, dismissed the revenue appeals on the ground that the jurisdiction to hear the appeals vested with the Bangalore Bench of the Tribunal and accordingly directed the Revenue to file the appeals before the appropriate Bench at Bangalore. The order of the Panaji Bench was received by the office of the PCIT, Central, Panaji on 11.09.2025. Thereafter, the Revenue filed the present appeal before the Bangalore Bench on 06.11.2025, resulting in the delay under consideration.
28.2 We have considered the facts and circumstances leading to the delay. It is evident that the Revenue had initially pursued the appellate remedy before the Panaji Bench and the appeals were not dismissed on merits but only for want of territorial jurisdiction. After the Panaji Bench clarified that the jurisdiction vested with the Bangalore Bench, the Revenue filed the present appeals before the appropriate Bench. Thus, the Revenue was pursuing its appellate remedy, though before a wrong Bench, and there is nothing on record to suggest any deliberate inaction or lack of bona fides on its part.
28.3 Considering the above facts, particularly that the original appeals had already been filed before the Panaji Bench and were dismissed only on the issue of jurisdiction with a direction to approach the Bangalore Bench, we are satisfied that there was sufficient cause for the delay in filing the present appeals by the revenue. Accordingly, in the interest of substantial justice, we condone the delay and admit the Revenue’s appeals for adjudication on merits.
29. At the outset, we note that the identical and common facts are involved in the captioned revenue appeals for A.Y. 2012-13 to 2015-16. Hence, for the sake of brevity, we have consolidated these 4 appeals and set out a common finding here underneath.
29.1 The common issue raised by the Revenue across the captioned assessment years is that the learned CIT(A) erred in deleting the additions made by holding no incriminating material found.
30. The relevant facts are that on 1st February 2017, a search proceeding under section 132 of the Act was carried out on M/S Ramkrishna Credit Cooperative Society, in which the respondent assessee was trustee. In connection with the impugned search proceeding, the residential premises of the assessee were also searched. Further, on the same day, i.e. 1st February 2017, survey proceedings u/s 133A of the Act were carried out at the business premises of the partnership i.e. M/s Rai Associates, in which the respondent assessee was a partner. In consequence of the search & survey proceedings, various documents, loose papers etc. belonging to or pertaining to the respondent assessee were found and impounded. Accordingly, assessment or reassessment proceedings under section 153C of the Act were initiated against the respondent assessee for A.Ys. 2012-13 to 2016-17. Finally, the AO passed the assessment orders for the impugned assessment years (A.Y. 2012-13 to 2016-17), making addition on account of suppression of profit in each of the said assessment years as well as other additions to the total income.
31. The aggrieved assessee preferred an appeal before the learned CIT(A) against the respective assessment orders.
32. The assessee before the learned CIT(A) submitted that at the time of search (i.e. 1st February 2017), the assessments for A.Ys. 2012-13 to 2015-16 were already completed as the time-limit to notice under section 143(2) of the Act had already expired. Hence, the A.Ys. 2012-13 to 2015-16 falls under the category of unabated assessment years. The assessee contended that unabated/completed assessments cannot be disturbed in the absence of incriminating material being found during the search for such unabated assessment years. The assessee claimed that no incriminating material was found in the search proceedings in relation to A.Ys. 2012- 13 to 2015-16. Therefore, the addition made by the AO in the absence of incriminating material cannot be sustained.
32.1 The learned CIT(A), after considering the facts in totality and various case laws, including the ratio laid down by the Hon’ble Supreme Court in the case of Abhisar Buildwell Pvt Ltd reported 149 taxmann.com 399, accepted the argument. Hence, the learned CIT(A) deleted the addition made by the AO in the A.Ys. 2012-13 to 2015-16 on the legal ground.
33. Being aggrieved by the order of the learned CIT(A), the revenue is in appeal before us.
34. The learned DR before us submitted that materials relating to suppression of profit were found from the residential and business premises (Firm- M/S Rai Associates) of the assessee. The learned DR argued that the materials found and inventoried during the search and survey proceedings were related to A.Y. 2016-17 only, but their ramifications extended to the assessment years 2012-13 to 2015-16 as well. It was also contended that during the search, the assessee and his accountant had, vide sworn statements, admitted to having suppressed income across A.Ys. 2011- 12 to 2017-18. Accordingly, the learned DR contended that the learned CIT(A) erred in deleting the addition and quashing the entire assessment for A.Y. 2012-13 to 2015- 16 by holding the same was an unabated assessment and in the absence of incriminating materials.
35. On the other hand, the Ld. AR before us reiterated that A.Ys. 2012-13 to 2015- 16 were unabated assessment years on the date of search. No incriminating material pertaining to these years was found during the search. In fact, the Revenue itself has admitted in the Grounds of Appeal that the materials found during the search pertained to A.Y. 2016-17 only. Therefore, such materials cannot be extrapolated to the earlier assessment years merely on assumptions. The Ld. AR further submitted that the statement recorded during the search, without any corroborating incriminating material, cannot form the sole basis for making additions in completed assessments. Accordingly, relying upon the judgment of the Hon’ble Supreme Court in Abhisar Buildwell (P.) Ltd., the Ld. AR submitted that the order of the learned CIT(A) deserves to be upheld.
36. We have heard the rival contentions of both the parties and perused the materials available on record. The common issue arising in these Revenue appeals for A.Ys. 2012-13 to 2015-16 is whether the additions made in the proceedings u/s 153C of the Act could be sustained in the given facts and circumstances. It is undisputed that the search u/s 132 of the Act was conducted on 01.02.2017 on a third party, and proceedings u/s 153C of the Act were thereafter initiated against the assessee for A.Ys. 2012-13 to 2016-17. The AO made additions, inter alia, on account of alleged suppression of profit and other additions.
36.1 It is also not in dispute that, as on the date of search, the assessments for A.Ys. 2012-13 to 2015-16 had already attained finality, since the time available for issuance of notice u/s 143(2) of the Act had expired. These assessment years were, therefore, unabated assessment years. The assessee before the learned CIT(A) submitted that no incriminating material pertaining to any of these assessment years was found during the course of search. The learned CIT(A), following, inter alia, the judgment of the Hon’ble Supreme Court in the case of Abhisar Buildwell (P.) Ltd.” PCIT v. Abhisar Buildwell (P.) Ltd. [2023] 149 taxmann.com 399 (SC), accepted the contention and deleted the additions.
36.2 The legal position in this regard is now settled by the Hon’ble Supreme Court in Abhisar Buildwell (P.) Ltd. The Hon’ble Supreme Court has held that in respect of completed or unabated assessments, no addition can be made in the assessment u/s 153A/C of the Act in the absence of incriminating material found during the course of search. In other words, a completed assessment cannot be reopened and disturbed merely because a search has subsequently taken place. The jurisdiction to make an addition for an unabated year must have its foundation in incriminating material unearthed during the search. The same principle applies to proceedings u/s 153C of the Act concerning the other person. The relevant observation of the Hon’ble Supreme Court reads as under:
14. In view of the above and for the reasons stated above, it is concluded as under:
(i) that in case of search under section 132 or requisition under section 132A, the AO assumes the jurisdiction for block assessment under section 153A;
(ii) all pending assessments/reassessments shall stand abated;
(iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and
(iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A of the Act, 1961. However, the completed/unabated assessments can be re- opened by the AO in exercise of powers under sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved.
36.3 In the present case, there is an important factual aspect which, in our considered view, goes to the root of the Revenue’s appeals. The Revenue itself has admitted that the materials found and inventoried during the search and survey proceedings pertained to A.Y. 2016-17 only. This position is evident from the stand of the Revenue wherein the learned DR submitted that the material found during the search and survey proceedings related to A.Y. 2016-17 only, but according to the Revenue, its ramifications extended to A.Ys. 2012-13 to 2015-16 also. More importantly, this factual position is also admitted by the Revenue in Ground No. 2 raised in its appeals for each of A.Ys. 2012-13 to 2015-16.
36.4 Once the Revenue itself accepts that the materials found during the search pertains to A.Y. 2016-17, in our considered view, such material cannot, merely on the basis of an assumption that its “ramifications” extend to earlier years also. The material found in relation to A.Y. 2016-17 cannot be treated as incriminating material for A.Ys. 2012-13 to 2015-16. There is a clear distinction between materials which actually pertains to a particular assessment year, and an inference drawn from such material for some other assessment year. In the case of an unabated assessment, the requirement is of incriminating material relating to that assessment year. Material pertaining to one assessment year cannot automatically be extrapolated backwards to several earlier years without any independent incriminating material pertaining to those earlier years. The contention of the Revenue, if accepted, would virtually render the requirement of incriminating material for each unabated assessment year meaningless. For example, if evidence of suppression of profit is found for one particular year, it cannot by itself lead to a presumption that similar suppression must necessarily have taken place in all preceding years. Such a conclusion may be a matter of suspicion or estimation, but suspicion or estimation cannot substitute incriminating material for the purpose of disturbing an unabated assessment u/s 153C of the Act. There must be some tangible material discovered during the search having a bearing upon the determination of total income of the particular unabated assessment year sought to be disturbed.
36.5 In the present case, nothing has been brought before us to show that any document, loose paper, books of account or other incriminating material pertaining specifically to A.Ys. 2012-13, 2013-14, 2014-15 or 2015-16 was found during the course of search. On the contrary, the Revenue’s own case is that the seized material pertains to A.Y. 2016-17.
36.6 The next contention of the Revenue is that during the course of search the assessee and his accountant, in their sworn statements, admitted suppression of income for A.Ys. 2011-12 to 2017-18. In our considered view, this contention also does not improve the case of the Revenue in the absence of any corroborating incriminating material pertaining to the assessment years under consideration. A statement recorded during the course of search is undoubtedly an important piece of evidence and cannot be simply ignored. However, a statement or admission, standing alone, cannot serve as a substitute for incriminating material when the law requires the existence of such material to disturb an unabated assessment. An admission must be appreciated in light of the surrounding facts and supporting evidence. The Revenue must demonstrate some material nexus between the admission and the undisclosed income sought to be assessed for each particular year.
36.7 The instructions issued by the CBDT in its letter F. No. 286/2/2003-IT(Inv.II) dated 10.03.2003, specifically discouraged the practice of obtaining confessions of undisclosed income during search and survey proceedings without supporting evidence and emphasised that the focus of search should be on collection of credible evidence of undisclosed income. The Income Tax Department’s Search and Seizure Manual itself refers to this instruction and states that the authorised officer should not attempt to obtain a confession of undisclosed income and, where a voluntary disclosure is made, efforts should be made to gather supporting evidence. The same principle was reiterated by the CBDT in its communication dated 18.12.2014, wherein the field authorities were again advised to focus on gathering evidence rather than obtaining confessions regarding undisclosed income during search and survey proceedings. The purpose behind these instructions is clear. Tax liability should be determined on the basis of credible evidence and material and not merely on the basis of an uncorroborated confession or admission made during search proceedings.
36.8 Thus, even if the statements of the assessee and his accountant contained an admission regarding suppression of income over a number of years, such a general admission, without any corresponding incriminating material relating to A.Ys. 2012-13 to 2015-16, cannot provide a legal foundation for disturbing the completed assessments of these years. The Revenue was required to establish the alleged suppression for these years through incriminating materials discovered during the search. No such material has been demonstrated before us.
36.9 In view of the above discussion and respectfully following the ratio laid down by the Hon’ble Supreme Court in Abhisar Buildwell (P.) Ltd., we find no infirmity in the conclusion reached by the learned CIT(A). The assessments for A.Ys. 2012-13 to 2015- 16 being unabated assessments could not have been disturbed in proceedings u/s 153C of the Act in the absence of incriminating material pertaining to the respective assessment years. The incriminating material admittedly pertaining to A.Y. 2016-17 cannot be extrapolated to the earlier unabated assessment years, nor can the additions for those years be sustained solely on the basis of an admission made in the statement recorded during search without corroborating incriminating materials. Accordingly, we uphold the findings of the learned CIT(A). Thus, the grounds of appeal raised by the Revenue for all these assessment years being A.Y. 2012-13 to 2015-16 are hereby dismissed.
37. In the result, all the appeals filed by the Revenue for A.Ys. 2012-13 to 2015-16 are hereby dismissed.
Coming to the Revenue appeal in ITA No. 2551/Bang/2025 for the A.Y. 2016-17.
38. At the outset, we note that the grounds of appeal raised by the revenue in the appeal filed for A.Y. 2016-17 have been adjudicated along with the assessee’s grounds of appeal in ITA No. 820/Bang/2025 for the A.Y. 2016-17. The assessee’s grounds of appeal for the A.Y. 2016-17 have been adjudicated by us vide paragraph No. 24 of this order, wherein we have decided the issue in favour of the assessee and against the revenue. Hence, the grounds of appeal raised by the Revenue are hereby dismissed.
39. In the result, the appeal of the revenue is hereby dismissed.
Coming to ITA No. 821/Bang/2025, an appeal filed by the assessee for the AY 2017-18.
40. At the outset, we note that the assessee has filed the present appeal with a delay. Since the facts, explanation offered by the assessee and the reasons for the delay are identical to those considered by us while adjudicating the petition for condonation of delay in ITA No. 820/Bang/2026, our findings recorded therein shall apply mutatis mutandis to the present appeal as well. Accordingly, for the reasons stated in paragraph No. 4-5 of this order, the delay in filing the present appeal is condoned and the appeal is admitted for adjudication on merits.
41. The assessee in the memo of appeal has raised 08 grounds of appeal which we, for the sake of brevity and convenience, are not inclined to reproduce here.
42. At the outset, we note that ground No. 8 raised by the assessee is general in nature & does not call for any specific adjudication. Hence, the same is dismissed as general.
43. Ground Nos. 1 to 5 raised by the assessee pertain to addition made for Rs. 1,91,64,882/- on account of undisclosed sales of Rs. 21,90,27,233/- despite no incriminating material being found during the search.
43.1 At the outset, we note that the issues raised by the assessee in its grounds of appeal for the AY 2017-18 are identical to the issue raised by the assessee in ITA No. 820/Bang/2025 for the assessment year 2016-17. Therefore, the findings given in ITA No. 820/Bang/2025 shall also be applicable for the assessment year 2017-18. The assessee’s appeal for A.Y. 2016-17 has been decided by us vide paragraph No. 24 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever the findings are for the assessment year 2016-17 shall also be applied for the assessment year 2017-18. Hence, the grounds of appeal filed by the assessee are hereby allowed.
44. Ground No. 6 raised by the assessee pertains to the addition on account of agricultural income.
44.1 At the outset, we find that the learned CIT(A) dismissed this ground on the ground that the issue was not pressed before him. Even before us, the learned AR has not advanced any argument or placed any material in support of this ground. Therefore, we find no reason to interfere with the finding of the learned CIT(A). Accordingly, Ground No. 6 raised by the assessee is dismissed.
45. Ground No. 7 relates to interest u/s 234A, 234B and 234C of the Act. We note that these issues being consequential and mandatory in nature, the AO is directed to recompute the interest, if any, while giving effect to this order. Accordingly, this ground of the assessee is disposed of as consequential.
46. In the result, the appeal of the assessee is partly allowed.
47. In the combined result, the assessee’s appeals in ITA Nos. 820-821/Bang/2025, are partly allowed and all the appeals of the Revenue are hereby dismissed.
Order pronounced in court on 31st day of August 2026
