ITAT Deletes GP Addition Based Solely on Unverified Loose Sheets

The Revenue filed appeals against the order of the CIT(A) deleting additions made in the case of the assessee, a company engaged in manufacturing mouth fresheners. The dispute arose from a search conducted on a third-party group (MHS Group), during which certain loose sheets were found from the scooter of an employee of the assessee company.

The Assessing Officer treated the handwritten entries on these loose sheets as evidence of unaccounted sales made by the assessee to entities of the MHS Group. Based on this assumption, the AO rejected the books of account and estimated gross profit at 15% on alleged unaccounted turnover, resulting in additions. However, the assessee contended that the documents contained no identifying details such as names, quantities, rates, delivery details, or payment trail, and were not linked to the assessee. It was further submitted that the employee later clarified that the documents pertained to his personal transactions, which was also accepted in his own assessment.

Main Issue: Whether additions based solely on loose sheets, without corroborative evidence linking them to the assessee, can justify estimation of unaccounted sales and gross profit.

Tribunal Decided: The Tribunal upheld the deletion of additions and dismissed the Revenue’s appeals. It observed that the entire case of the Assessing Officer rested only on loose sheets which lacked essential details and were not recovered from the assessee’s premises. There was no independent evidence such as stock discrepancy, transport records, or cash trail to support the allegation of unaccounted sales.

The Tribunal also noted that identical additions made in the hands of the alleged purchaser had already been deleted and affirmed in earlier proceedings. Further, the person from whose possession the documents were seized had clarified that the entries related to his personal dealings, and this position was accepted by the department itself.

In absence of any corroboration, the Tribunal held that such loose sheets cannot be treated as reliable evidence. Thus, rejection of books and estimation of gross profit was held to be unjustified, and the additions were rightly deleted.

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