‘May Impress a Math Student, Not Income Tax Proceedings’: ITAT Deletes AO’s ₹5.39 Cr Addition Based on Two Days’ Bills [Read Order]

The Income Tax Appellate Tribunal ( ITAT ) in Mumbai has strongly condemned the estimation method used by the Income Tax Department, rejecting a ₹5.39 crore addition made by the Assessing Officer (AO).

The tribunal noted that the computation, which was based on bills from just two days, "may impress a student of mathematics but does not make any sense so far as the income tax proceedings are concerned."

The case arose from a survey under Section 133A conducted at the premises of Vividham Sweets on 20 October 2018. During the survey, only two physical cash memos were impounded, one dated 24 October 2018 showing sales of ₹25,467 and another from 25 October 2018 showing ₹68,977.

The AO, assuming 200 bills were issued daily and averaging the value of these two days' bills, extrapolated a daily turnover and projected it for the full year, arriving at an unaccounted cash income of ₹5.39 crore, which he added under Section 69A as unexplained money.

However, the assessee contended that the original firm, Vividham Sweets & Dry Fruits, was dissolved on 31 March 2018, and from 1 April 2018, all business operations were carried on by a new entity, Krishay Enterprises, under the same brand. The sales for the disputed days were duly recorded in Krishay Enterprises’ books and were in fact higher than those noted by the AO: ₹56,141 on 24 October and ₹86,225 on 25 October 2018.

The CIT(A) found the AO’s approach fundamentally flawed, particularly given that monthly sales summaries clearly demonstrated substantial declared turnover, and no attempt was made by the AO to verify these records.

The two member bench of Sanktijit Ray (Judicial member) and Narendra Kumar Billaiya ( Accountant member) concurring with the CIT(A), held that building a year-long unaccounted turnover based solely on two bills when the sales were already declared in the books of the new entity was unjustified.

It observed that “The entire exercise done by the AO may impress a student of mathematics but does not make any sense so far as the income tax proceedings are concerned.”

Dismissing the Revenue’s appeal, the Tribunal stated that such extrapolations, absent proper verification, cannot form the basis for huge additions under income tax law.

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