Sankalp Recreation Pvt. Ltd. Vs ACIT (ITAT Ahmedabad)
The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has ruled that in search-related assessments, only the net profit element of unaccounted receipts should be taxed, not the entire gross amount. In the case of Sankalp Recreation Pvt. Ltd. vs. ACIT, the tribunal also set aside the disallowance of delayed Provident Fund (PF) and Employee State Insurance (ESIC) contributions for several years, citing a lack of incriminating material found during the search.
The case stemmed from a search operation under Section 132 of the Income Tax Act at the premises of Sankalp Recreation, a hospitality business. The Assessing Officer (AO) made significant additions to the company’s income for multiple assessment years under Section 153A, which governs assessments in search cases. These additions were based on diaries and loose papers revealing unaccounted cash receipts of ₹13.36 crore and payments of ₹12.48 crore.
The company challenged the validity of these assessments, arguing that for completed or “unabated” assessment years (where no prior proceeding was pending), additions could only be made if based on incriminating material discovered during the search. The AO had rejected the company’s books of accounts and taxed the entire unaccounted cash receipts as income, while separately disallowing the unaccounted expenditures under Section 69C as unexplained.
