Only Profit Margin on Unrecorded Sales Taxable under Sec. 69A: ITAT Dismissed Revenue's Appeal [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Nagpur Bench, has held that only the profit margin embedded in unrecorded cash sales can be taxed under Section 69A of the Income Tax Act, 1961, and dismissed the revenue's appeal.

The case arose after a search and seizure under Section 132 of the Income Tax Act, 1961, at the assessee’s premises in Visakhapatnam. Investigators found loose papers and note‑pads indicating unrecorded cash sales worth ₹1.21 crore. The Assessing Officer (AO) treated the entire amount as unexplained money under Section 69A, adding it to the company’s taxable income for AY 2022‑23.

The revenue argued that incriminating papers seized during the search clearly showed unrecorded cash sales outside the books. Since the assessee failed to explain the source of these receipts, the AO was right to treat the entire ₹1.21 crore as unexplained money under Section 69A.

The revenue also contended that the CIT(A) wrongly restricted the addition to just the gross‑profit margin of 11.64% by relying on past orders, without independently examining the facts of the current year.

On the other hand, the assessee, Radhika Vegetables Oils, supported the CIT(A)’s decision, stating that the issue had already been settled in earlier years, where the Tribunal ruled that only the profit portion of unrecorded sales is taxable under Section 69A.

They argued that the AO’s addition relied solely on seized loose papers without independent proof that the entire ₹1.21 crore was unexplained money. Since sales imply corresponding costs and expenses, only the 11.64 percent gross‑profit margin should be taxed. The assessee maintained that the CIT(A)’s order was consistent with prior Tribunal rulings, and the Revenue had presented no new facts to justify a different view.

The Tribunal reviewed the arguments of both sides and noted that the same issue had already been decided in the assessee’s favor in earlier years (AY 2019‑20 and AY 2021‑22).

In those cases, the ITAT held that only the profit margin on unrecorded sales should be taxed, not the entire sales amount, since the Assessing Officer had not shown evidence of related purchases or expenses being ignored.

Applying the principle of judicial consistency and citing support from High Court rulings, the Nagpur Bench upheld the CIT(A)’s approach of taxing 11.64% gross profit on the ₹1.21 crore unrecorded sales.

The bench comprising Pawan Singh (Judicial member) and Khettra Mohan Roy(Account member) was dismissed the revenue appeal.

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