On-money additions: what a seized cash book can and cannot prove

An Assessing Officer finds a cash book in a search. The entries are small — too small, he thinks, for a builder of this size. Two employees tell him the figures were written with the last two digits removed. He multiplies the entire book by a hundred, estimates sixteen per cent profit on the result, and assesses six years on that footing.

How much of that survives? In Sohini Developers LLP v. ACIT, decided on 5 June 2026, ITAT Hyderabad answered: the multiplication does not, except for entries the Department can actually prove; the sixteen per cent does; and the reassessment itself does not, for any of the six years.

The order runs to 118 pages and decides three numbered issues. Two of them are jurisdictional, and they are the more consequential half — because since 1 April 2021 a search no longer leads to sections 153A and 153C but into the reassessment machinery, and this order is one of the first sustained attempts to say what that actually requires of an Assessing Officer. The evidentiary half is dealt with first below because it is what most readers arrive for; the reopening analysis follows, and it is the part likely to be cited.

Key points

• An Assessing Officer may not presume that every entry in a seized record was written after truncating digits and multiply the whole record. He may add the digits back only to those entries independently corroborated — by a cash receipt, an estimate slip, a bill, a voucher, a WhatsApp chat — and must take the rest as written.
• Admissions by two employees, retracted by affidavit at the first opportunity, and admissions by eighteen third parties out of some two thousand entries, could not support an inference about the remaining entries: the maker of a statement “can bind himself but he cannot bind others with his statement without there being any further evidence on record”.
• Cross-examination was asked for and, on the Tribunal’s finding, not properly given. Andaman Timber Industries v. CCE (SC, 2015) applied; Swati Bajaj distinguished as a case where no prejudice was pleaded.
• A summons under section 131(1A) issued by the authorised officer after the search had begun, and the seizure founded on it, were held illegal — because that sub-section lets the authorised officer summon only before he takes action under section 132(1)(i) to (v), and clause (i) is the entry and search itself.
• Reassessment for AYs 2017-18 to 2019-20 failed under section 149(1)(b): cash receipts and payments are not an “asset”, and a selective cash record is not “books of account”. The reasons also merely reproduced the Investigation Wing’s figures — “a borrowed satisfaction”.
• For AYs 2020-21 to 2022-23 the notices failed the first proviso to section 148. Explanation 2 deems the existence of information, “cannot be extended to deem the contents of the information”, and is spent once it permits a notice to issue. “Mere factum of search itself cannot be a reason for issuing notice for reassessment.”
• That reading is novel. No High Court has adopted it, ITAT Mumbai and Kolkata have taken the same premise the other way, and the Delhi High Court in Veena Arora (January 2026) upheld a notice on far thinner material.
• The assessee still lost on rate. Having offered 10 per cent and proved nothing, it was held to the Assessing Officer’s 16 per cent — drawn from its own declared margins.

What did ITAT Hyderabad decide in Sohini Developers?

A search under section 132 was carried out on the Vamsiram Builders Group on 6 December 2022. Sohini Developers LLP, a firm in the group engaged in construction and sale of flats and commercial space, was one of the entities covered.

In the course of the search the Department came to know that material belonging to the group was with Shri Sameer Yegge Kadel — named Sameer Egge Kadel in the later paragraphs of the order — a cook at the residence of the group’s managing director, Shri Badvelu Subba Reddy. A summons under section 131 was issued to him on 8 December 2022, requiring him to produce the material at the Investigation Wing’s camp office at 7.15 a.m. that same morning; he produced loose sheets, copies of promissory notes and cheques, and a diary of seventy-five written pages, all of which were seized; two mobile phones he also produced were placed under a prohibitory order and seized only when the search concluded on 8 February 2023. Separately, an accounts manager produced pen drives containing Excel workbooks, which were imaged and seized.

In statements recorded under sections 132(4) and 131 between 6 and 10 December 2022, two employees — the Manager (Accounts) and the Manager (Accounts and Finance) — said the cash entries had been recorded after truncating two zeros. The managing director, confronted with those statements on 10 and 11 December 2022, denied it, and denied authorising the pen drives. On 9 February 2023 both employees filed retracting affidavits before the Investigation Wing, followed by detailed additional affidavits on 17 March and 5 April 2023.

Notice under section 148 issued on 7 December 2023. The firm filed a return admitting additional income computed at 10 per cent of the unaccounted cash receipts. The Assessing Officer rejected the books under section 145(3) so far as those receipts were concerned, added two zeros to every entry, and applied 16 per cent — a rate drawn from the group’s own declared margins, where the average was 19.43 per cent and the median 16.05 per cent. The CIT(A)-11, Hyderabad sustained the additions.

Before the Tribunal — Shri Vijay Pal Rao, Vice President, and Shri Manjunatha G, Accountant Member — the appeals succeeded on jurisdiction for every year, largely succeeded on the multiplication, and failed on the rate.

What does Explanation 2 to section 148 actually deem?

This is the part of the order with the longest reach, and it is the part most likely to be argued in other benches.

Since 1 April 2021 a search no longer triggers sections 153A and 153C. It triggers the reassessment machinery, and it does so through Explanation 2 to section 148, which provides that where a search is initiated under section 132 on or after that date in the case of the assessee, the Assessing Officer “shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment”. The proviso to section 148A separately removes the show-cause procedure in the same situation.

The Assessing Officer’s case was the straightforward one: there was a search, so Explanation 2(i) applied, so he was deemed to have the information the first proviso to section 148 requires, so he could issue the notice. The Tribunal called that understanding “totally incorrect”, and the reasoning repays reading in full:

Deeming fiction under Explanation 2(i) can only deem that search is information which suggests that income chargeable to tax has escaped assessment. The scope of deemed information under Explanation 2 cannot be extended to deem the contents of the information. Explanation 2 is being enacted to dispense with enquiry U/s 148A procedure.

And, a paragraph earlier:

the role of deeming fiction in Explanation 2 comes to an end after it empowers the AO to issue notice U/s 148. The scope and function of such deeming fiction cannot be extended to operate or modify any other section. It means that this deeming fiction cannot be extended to operate section 147 to confer Jurisdiction on the AO, if such jurisdiction is otherwise absent in the AO.

Unpacked, the argument runs in three steps. Explanation 2 deems the existence of information — that a search is information suggesting escapement. It does not deem what that information says: not the quantum, not the year, not the character of the receipt. Its statutory purpose, on this reading, is a narrow one — to spare the Department the section 148A enquiry in a search case — and that purpose is exhausted once the notice may issue. The jurisdictional conditions of section 147 and the limitation conditions of section 149 are untouched by it and must still be satisfied on their own terms.

The consequence the Tribunal drew is the sentence to put in a submission: “Mere factum of search itself cannot be a reason for issuing notice for reassessment.” Or, at greater length:

the notice under Section 148 cannot be issued automatically to the person searched. The Assessing Officer now needs to apply his mind and while seeking approval under Section 151 from the specified authority, demonstrate that the information obtained/discovered during search suggests that income has escaped assessment under Explanation is for the relevant Assessment year for which notice under Section 148 proposed to be issued. Such demonstration can be possible only when the AO has examined the seized assets/documents, and records in writing that such seized assets/documents are related to the relevant assessment year.

Is the first proviso to section 148 an enabling provision or a condition?

A condition, and the distinction is the hinge of the whole analysis.

The first proviso says that no notice under section 148 shall be issued unless there is information with the Assessing Officer which suggests that income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year, and prior approval has been obtained. The Department reads that, in effect, as a switch: once Explanation 2 supplies the information, the proviso is satisfied and the notice follows.

The Tribunal read it the other way round:

proviso to section 148 provides a negative condition that no notice under section 148 shall be issued unless there is information which suggests that income chargeable to tax has escaped assessment. It is important to point out that this proviso … is not an enabling provision that notice under section 148 has to be issued once there is information within the meaning of Explanation 1/Explanation 2. The proviso on the other hand is a negative condition and thus is a condition precedent and only the starting point. The jurisdictional condition of section 147 i.e. that there should be income escaping assessment for the relevant assessment year, has to still be satisfied before invoking the provision of section 147 / 148.

On the facts, what defeated the three later years was the absence of any year-wise work. The Assessing Officer, the Tribunal found, “harped on the material seized and undisclosed income quantified by the DDIT(Inv), without even any verification as to what is nature of escaped income and whether it pertains to the assessment year in question or not”, and had “not quantified the income escapement in writing the reasons for reopening”. The reasoning given is that quantification is not an idle formality: without knowing the quantum and the year, there is no way to test whether section 149(1) is satisfied at all, so the assumption of jurisdiction cannot be demonstrated.

Two canons were pressed into service, and both need handling with care. The Tribunal invoked CIT v. Jet Airways (I) Ltd. [2011] 331 ITR 236 (Bombay) for the proposition that an Explanation “is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory”. That is a real holding, but it was about Explanation 3 to section 147 — a provision repealed when section 147 was substituted in 2021 — so it is an analogy, not direct authority. It also cited N. Govindaraju v. ITO [2015] 377 ITR 243 (Karnataka) for the orthodox function of an Explanation. That authority should be handled with particular care by anyone relying on this order: the Karnataka High Court deployed the same canon for the Revenue, to hold that an Explanation does not cut down the Assessing Officer’s power, and on the construction of “and also” it took a view opposite to Jet Airways. The canon is sound; the pairing is awkward, and an opponent who reads the reports will say so.

Firmer ground is Divya Capital One Pvt. Ltd. v. ACIT (Delhi High Court, W.P.(C) 7406/2022, 12 May 2022, (2022) 445 ITR 436), where the Court held that “whether ‘information to suggest’ under amended law or ‘reason to believe’ under erstwhile law the benchmark of ‘escapement of income chargeable to tax’ still remains the primary condition to be satisfied before invoking powers under Section 147 of the Act”; and Smt. Vasanthi Ramdas Pai v. ITO (Karnataka High Court, W.P. No. 8797/2022, 12 February 2024), holding that to say the Assessing Officer may invoke section 147 without any reason “would, apart from being contrary to the aforestated rule of law, also fall foul of Article 14”, escapement being “a sine qua non”.

Why did section 149(1)(b) defeat the three older years?

Because of what the clause requires the escaped income to look like, and because the reasons never said.

Where more than three years have elapsed from the end of the relevant assessment year, a notice cannot issue unless the Assessing Officer has in his possession books, documents or evidence revealing that income escaping assessment, represented in the form of (i) an asset, (ii) expenditure in respect of a transaction or in relation to an event or occasion, or (iii) an entry or entries in the books of account, amounts to or is likely to amount to fifty lakh rupees or more. Categories (ii) and (iii) were added by the Finance Act 2022 with effect from 1 April 2022; before that only an asset would do. The Explanation provides that “asset” includes immovable property being land or building or both, shares and securities, loans and advances, and deposits in a bank account.

The Assessing Officer had rested on the first and third of those categories, and the Tribunal held the seized cash book was neither.

On the asset limb: “these are receipts and payments in cash and no corresponding cash or any other assets were found during the course of search and seizure action representing these entries”; it was not the case of either party that the entries were in respect of the purchase or acquisition of any asset; and “none of the transactions as found in the seized material is representing any asset in existence at the time of the search & seizure action or even at the time of the assessment”. Business receipts from the sale of flats, and the expenditure of running that business, are not an asset.

On the books limb: these were “only the details of selective transaction in cash and not the transactions of other then cash”, maintained for the entire Vamsiram Group rather than entity by entity, and therefore “not in the nature of any accounts much less the books of account”. A selective cash record is not books of account, nor parallel or duplicate books of account, so sub-clause (iii) was not attracted either.

There is a drafting trap in clause (b) worth noticing. “Books of account” appears in it twice, in two different roles — as the source the Assessing Officer must possess (“books of account or other documents or evidence which reveal…”) and, since 2022, as the form the escaped income takes (“an entry or entries in the books of account”). Satisfying the first does nothing for the second. A reason recorded that says the Assessing Officer holds seized books, without saying what form the escaped income takes, has answered only half the provision. That is precisely what happened here: “not a single word is stated by the Assessing Officer either in the reasons recorded for reopening of the assessment or in the assessment order to prima facie show that the income escaped assessment represents an asset and further what kind of an asset”.

The Tribunal then set out what the reasons ought to establish, and the list is the most useful thing in the order for anyone drafting or attacking a search reassessment. Notice under section 148 should issue on concurrent fulfilment of these conditions: that income has escaped assessment; that the fact of escapement is evident from the books, documents or evidence found during the search; that the escaped income pertains to the relevant assessment year; that it is represented by an undisclosed specified asset; that the asset was acquired with the income of the relevant year or years; and that the quantum is fifty lakhs or more in the aggregate for the relevant years. Because satisfaction of those conditions is “a jurisdictional requirement”, it “should be reduced in writing in order to unambiguously demonstrate that he has assumed jurisdiction correctly”, and recorded “with reference to books of accounts, other documents or evidence found during the course of search”.

Separately, and independently, the reasons failed because they were not the Assessing Officer’s own. They reproduced the undisclosed income “as quantified by the ADIT (Inv) Unit-I”. The receipts and payments in the seized material were not attributed to individual group companies, and only the receipts side was taken to conclude that more than fifty lakhs had escaped in each company’s hands — the payments were never netted. No “minimum verification” had been done “regarding the nature of the transaction, the net outcome of the receipt and payment as recorded in the said seized material, apportionment of the amounts of receipts and payments to each of the group companies”. The Tribunal’s conclusion: “a simple case of non-application of mind and a borrowed satisfaction on the part of the Assessing Officer while recording the reasons for reopening”.

The same bench had reached the same conclusion three months earlier in Exel Rubber Pvt. Ltd. v. DCIT (ITA Nos. 1566 and 1571/Hyd/2025, 18 February 2026), where the Assessing Officer had “simply relied upon the information submitted by the ADIT (Inv.)”, and in ACE Tyres (P) Ltd. v. ACIT (ITA Nos. 1084 to 1088 and 1207/Hyd/2025, 24 September 2025), where cash entries in a seized laptop were held to be neither an asset nor books of account for section 149(1)(b).

How settled is the “information, not contents” reading?

It is not settled, and an article that suggested otherwise would be doing the reader a disservice.

No High Court has adopted it. The formulation that Explanation 2 deems the existence of information but not its contents appears, so far as the reported decisions go, to originate with this bench: it is found in this order and in the companion order in Vamsiram Builders & Developers Pvt. Ltd. v. ACIT pronounced the same day, and nowhere above.

There is contrary Tribunal authority resting on the same premise. ITAT Mumbai in Sonu Pankaj Shakti Sagar Sood v. ACIT (5 May 2026), following ITAT Kolkata in BMS Sales Pvt. Ltd. v. DCIT (2 January 2026), takes the identical starting point — that Explanation 2 deems the existence of information — and draws the opposite conclusion: that because it does so, the Assessing Officer need not possess specific incriminating material at the stage of issuing the notice. The premise is common ground; the second move, “but not the contents”, is where this order stands alone.

And there is a Delhi High Court decision pointing the other way on tenor. In Veena Arora v. CIT (W.P.(C) 22/2026, 5 January 2026) the Court dismissed a challenge to a section 148 notice founded on a single Excel-sheet entry naming the petitioner against a cash figure, observing that section 148 after 1 April 2021 “does not even require recording reason to believe much less possession of information or evidence”. The Tribunal distinguished it — there the petitioner was a person other than the searched person and the Assessing Officer had identified the material, its bearing, and the year — but it is the authority a Departmental Representative will lead with, and the distinction needs to be made rather than assumed.

What the proposition does have is support by analogy from High Court decisions on adjacent provisions, and the closest is a Gujarat one. In Sagar Mukesh Sheth v. ITO (R/Special Civil Application No. 7026 of 2026, 8 May 2026) the Gujarat High Court held that the expressions “relates to” and “pertains to” in clause (iv) of Explanation 2 “cannot be used in vacuum”, that the Revenue must establish a live link with the assessee on the basis of the seized material, and that information which is “absolutely vague and unspecific” does not attract section 148. That is a clause (iv) case — material seized in another person’s case — rather than a clause (i) case, so it is not on all fours; but it is the same instinct, that the deeming clauses of Explanation 2 are not self-executing. To similar effect, on the year-specific character of the threshold, are Mohd Athar Anjum v. ACIT (Delhi High Court, W.P.(C) 4196/2025, 25 April 2025), holding that “the alleged cash transactions in different previous years do not relate to a singular event or occasion and are not represented by an asset” and that the conditions of section 149(1A) were therefore unsatisfied, and Huawei Telecommunications (India) Co. Pvt. Ltd. v. ACIT (Delhi High Court, W.P.(C) 15970/2023 and connected, 30 March 2026), where reassessment for one year was quashed because the Assessing Officer had not specified how the item in question amounted to escaped income in the form of an asset for that year.

So the honest summary for a client is this. The argument is well constructed and it has now succeeded twice before one bench. It is not the law until a High Court says so, the Department has Tribunal authority the other way, and anyone running it should expect Veena Arora across the table.

Can the authorised officer summon a third party during a search?

This is the sharpest point in the order and the one most likely to recur, because summoning a driver, an accountant or a relative mid-search to produce material kept elsewhere is ordinary practice in a group search.

Section 131(1A) confers the summons power on the Principal Director General, Director General, Principal Director, Director, Joint Director, Assistant Director or Deputy Director, or the authorised officer referred to in sub-section (1) of section 132 before he takes action under clauses (i) to (v) of that sub-section, where he has reason to suspect concealment — notwithstanding that no proceedings are pending.

Clause (i) of section 132(1) is the entry and search itself. So for the authorised officer, the section 131(1A) window closes the moment he enters the premises. It is a pre-search intelligence power, not a mid-search one. In this case the summons issued on 8 December 2022, two days after the search began. The Tribunal held that “the summons issued by the authorised officer under Section 131(1A) of the Act during the course of search or after commencement of search and consequent seizure of information from Shri Sameer Egge Kadel and from his possession is illegal”.

Two qualifications, because the point is narrower than it first reads.

First, those limiting words attach only to the authorised officer. The investigation-wing officers named ahead of him in the same sub-section — the Director General, Director, Joint, Assistant and Deputy Directors — are not confined in that way at all. A summons issued by the DDIT (Investigation) during or after a search is not touched by this reasoning. The question in any given file is therefore not “when was the summons issued” but “who issued it, and in what capacity”.

Second, section 131(3) permits an authority to impound and retain books of account or other documents produced before it — and where that authority is an Assessing Officer, Assistant Director or Deputy Director, only on reasons recorded and not beyond fifteen days without approval. It does not permit seizure, and it does not reach money, bullion, jewellery or valuables. Seizure arises only under section 132(1)(iii), on a search. Material produced in answer to a summons is therefore impoundable, not seizable — which is precisely the gap the assessee identified.

Is that a rule about admissible evidence, or something narrower?

Narrower, and the distinction decides whether the finding survives scrutiny.

The Revenue relied on Pooran Mal v. Director of Inspection (1974) 93 ITR 505 (SC) and Dr. Pratap Singh v. Director of Enforcement (1985) 155 ITR 166 (SC) for the proposition that illegality in a search does not make the material inadmissible. Both cases say that, and both are good law: relevancy is the test of admissibility, and India has no constitutional exclusionary rule. Had the Tribunal held the seized material simply inadmissible, it would have been in difficulty.

It did not — though the Tribunal never returned to either authority after recording the Departmental Representative’s reliance on them, so what follows is how the finding is best defended rather than how it was reasoned. What it held was that because the seizure was not a valid seizure under section 132, the Assessing Officer could not enter through the search gateway at all — “the reliance placed by the A.O. on the material found from the possession of Shri Sameer Egge Kadel cannot be used in the reassessment proceedings in the case of the assessee consequent to search without following due procedure provided under Section 148A of the Act”, and “if a particular thing is to be done in a particular manner, then it has to be done in that manner and in no other manner”, The Telangana High Court in Kankanala Ravindra Reddy v. ITO (2023) 295 Taxman 652 is cited for that maxim alone; that case concerned faceless allocation of section 148 notices and says nothing about section 131 or section 132.

That is a finding about jurisdiction, not about evidence, and the statutory architecture supports it. Explanation 2 to section 148 and the proviso to section 148A are not identical — only Explanation 2 covers a survey under section 133A, and only the section 148A proviso covers information under the section 135A scheme — but their search and requisition limbs correspond exactly. A search on or after 1 April 2021 both supplies the deemed information and removes the show-cause requirement. If there was no valid seizure, neither limb is attracted, section 148A revives in full, and a notice issued without its procedure is bad. The comparable jurisdictional line is Ajit Jain v. Union of India [2000] 242 ITR 302 (Delhi), affirmed in [2003] 260 ITR 80 (SC), where an invalid authorisation meant the search chapter never applied at all — a question Pooran Mal never addressed.

What was wrong with multiplying the cash book by 100?

Everything except the parts that were proved.

The Assessing Officer’s theory rested on three legs: the admissions of two employees, the statements of eighteen third parties, and a handful of estimate slips and loose sheets. The Tribunal took them in turn.

The employees had retracted, at the first opportunity, by detailed affidavit. The Tribunal thought the original statements looked unsupported on their own terms — the employees had volunteered truncation “even without any question from the investigation team at the time of search” — and that they “must have given the statements under confusion state of mind”. Against them stood the managing director’s contemporaneous denial, which as the key person of the group carried “greater evidentiary value”.

The eighteen third parties were the more instructive failure. They were asked, the Tribunal found, “stereotype questions”, and some confirmed that they had been paid more than the cash book recorded. But the cash book ran to some two thousand entries. “The selective approach adopted by the Assessing Officer by cherry-picking 18 entries that too with reference to the outside service providers to drawn an adverse inference against the assessee, lacks credence and confidence, because from the admission of 18 parties it cannot be presumed that the remaining several thousand entries appearing in the [cash] book are also recorded after reducing last two zeros.” On cross-examination the Tribunal’s language is careful: the Assessing Officer “has not provided or denied the opportunity of cross examination of the 18 parties when the appellant has specifically asked” for it, and what was absent was a “proper opportunity”. Counsel for the assessee had himself accepted that “although certain opportunities were provided, the cross-examination was incomplete and ineffective”. On that footing Andaman Timber was engaged. And as a matter of principle, “the maker of the statement can bind himself but he cannot bind others with his statement without there being any further evidence on record”.

Then the absence of what should have been there. If receipts had really been understated by a factor of a hundred, “there would have been at least some corroborative evidence in the form of actual receipts, sale deeds, bank deposits, confirmations or statements from customers establishing collection of on-money over and above the figures recorded in the seized material”. None was found. Nor had the digital material been examined: “The A.O. proceeded on pure assumptions and presumptions without carrying out any scientific or forensic examination of the digital material seized during the course of search. No expert opinion was obtained to establish manipulation or coding pattern in the excel sheets or diaries.”

The direction that follows is calibrated rather than absolute, and it is the part to quote in a submission. Where the Assessing Officer has corroboration for a particular entry, “then the AO can very well compute cash receipts by adding two ‘zeros’”. Where he does not, “there is no scope for the AO to extrapolate and add two ‘zeros’ to remaining several hundred entries of cash receipts recorded in cash book without any further evidence”. The Assessing Officer was directed to restrict the addition of two zeros to entries fully supported by corroborative evidence and to take the rest as recorded.

When may an Assessing Officer extrapolate at all?

It would be convenient to read this order as holding that extrapolation is impermissible. It does not, and a submission built on that reading will be met with authority the other way.

Extrapolation has Supreme Court sanction. In Commissioner of Sales Tax v. H.M. Esufali H.M. Abdulali [1973] 90 ITR 271 (SC) the Court upheld the projection of nineteen days’ suppressed sales across a year, the Court holding that “so long as the estimate made by him is not arbitrary and has nexus with facts discovered, the same cannot be questioned”. The Bombay High Court applied the same approach in Prakash K. Kankariya v. JCIT (2015).

The Tribunals have been drawing the line by asking whether the rate being extrapolated is itself derived from seized evidence. Two recent Ahmedabad decisions are worth knowing, because they run the other way from the general impression:

• In Ginger Properties Pvt. Ltd. v. ACIT (ITAT Ahmedabad, 5 March 2025), extrapolation of on-money across four years was upheld — the assessee had itself extrapolated on-money on its regular method and had admitted the practice was standard, and so could not resile from it. Only the rate was trimmed.
• In DCIT v. Laxmanbhai Haribhai Vekariya (ITAT Ahmedabad, 29 April 2026), extrapolation was upheld in principle but the Assessing Officer’s flat 50 per cent was rejected for want of rationale, while the CIT(A)’s method — deriving separate percentages for residential units and shops from the actual seized evidence and applying those to unverified transactions — was described as scientific and evidence-based.

Set against those, the line refusing extrapolation is equally real: Mani Square Ltd. v. ACIT [2020] 83 ITR (T) 241 (Kolkata) held that “the theory of extrapolation could not be applied on mere theoretical or hypothetical basis in the absence of any incriminating and corroborative evidence or material brought on record by the A.O.”, and the older Bombay and Delhi decisions — CIT v. Dr. M.K.E. Memon [2001] 248 ITR 310, CIT v. C.J. Shah & Co. [2000] 246 ITR 671, CIT v. Anand Kumar Deepak Kumar [2007] 294 ITR 497 — are to the same effect.

The reconciliation is not difficult, and it is the proposition to argue rather than a blanket denial: extrapolation is permissible where the multiplier has a rational nexus with evidence actually found, and impermissible where it is a theoretical multiplier applied to entries about which nothing is known. In Sohini Developers the Department had no evidence-derived multiplier at all — it had a factor of one hundred taken from two retracted statements. In Laxmanbhai Vekariya it had percentages computed from the seized documents themselves. That is the difference, and it is the difference a written submission should be built around.

For an Ahmedabad matter this is not an academic point. The bench that decided Ginger Properties and Laxmanbhai Vekariya is the bench that will hear the next on-money appeal, and the argument that lands there is not “extrapolation is bad” but “this multiplier is not derived from anything found”.

Does the section 292C presumption help the Department here?

It is worth noticing what the Department did not have, because the point was argued and never answered.

Sections 132(4A) and 292C provide that where books, documents or valuables are found in the possession or control of any person in the course of a search, it may be presumed that they belong to that person, that their contents are true, and that the handwriting and signature are his. Three features matter. The presumption is permissive, not mandatory. It is rebuttable. And it runs only against “such person” — the person from whose possession or control the material came.

In this case the diary and the loose sheets were produced by a cook, and the pen drives came from an employee. Neither is the assessee. On the face of the provisions the presumption could not be carried across to the firm at all, and whatever the Department proved about the material in the cook’s hands, it had to prove the firm’s connection to the contents independently.

The assessee argued the narrower version of the point — that the presumption “is only a rebuttable presumption and the same cannot be extended to presume that all figures recorded in the seized material represent figures after truncating two zeros” — and the Tribunal decided the appeal without recording a finding on it. The wider point, that the presumption does not reach a third party at all, remains available.

Why did the assessee still lose on the profit rate?

Because it offered a number it could not support, and offering a number is not the same as proving one.

The firm had returned additional income at 10 per cent of the unaccounted cash receipts. The Assessing Officer took 16 per cent, derived from the financial results of the assessee and other group entities in earlier years — an average net margin of 19.43 per cent and a median of 16.05 per cent. The Tribunal found “the assessee has failed to file any evidence to justify 10% profit adopted on total unaccounted cash receipts”, noted that the firm and the company had themselves declared around 15 per cent on average — a figure the order nowhere reconciles with the 19.43 per cent and 16.05 per cent recorded earlier — and added the reasoning that does the real work: “in unaccounted receipts normally the profit percentage is little higher side when compared to the profit declared by the assessee on declared transactions, because general administrative and other overhead expenses are mostly recorded in the regular business transactions.”

That last sentence is the one to answer before it is put. Where overheads sit in the disclosed books, the margin on undisclosed turnover is arithmetically higher, and a bare assertion of 10 per cent invites the Department’s own declared figures to be used against the assessee. A rate offered in a return filed under section 148 is a position that will have to be proved — with project costings, comparable margins, or a reconciliation showing which expenses the undisclosed receipts actually bore.

There is a related point the order did not need to reach. Section 145(3) permits a best-judgment assessment where the Assessing Officer is not satisfied about the correctness or completeness of “the accounts”. The section contains no language of severance, and the rejection here of the books “in so far as the unaccounted cash receipts are concerned” has no textual footing; nor does adding gross receipts while rejecting the books that produced them. Where unrecorded receipts are found, what is taxable is the profit embedded in them: CIT v. President Industries (2002) 258 ITR 654 (Gujarat).

Why does it matter that the merits were decided at all?

Because they should not have needed deciding, and the fact that they were has consequences for the assessee that winning usually does not.

Paragraph 34 quashes the notices under section 148 and the consequent assessment orders for AYs 2017-18 to 2019-20. Paragraph 47 quashes the assessment orders for AYs 2020-21 to 2022-23. Between them, nothing survived for any of the six years. The Tribunal then took up its third issue — the addition “towards estimation of 16% profit on unaccounted receipts quantified as per the seized cash book” — and decided it, allowing the assessee the multiplication point and refusing it the rate, recording the result as “partly allowed”.

Compare the course ITAT Delhi took in Rakesh Sharma (19 August 2026), where section 153C assessments were quashed on limitation and the order records that “all remaining pleadings between the parties on merits stand rendered academic” — the subject of a separate note on this site. The two are not on all fours: there the merits pleadings were the Revenue’s appeals, which fell away as infructuous once the assessee’s cross objections succeeded on limitation, and the assessee had no quantum grounds of its own left to press. Here the assessee pressed its quantum grounds and they were decided. But the contrast is instructive, because the choice was available.

For the assessee here the difference is not cosmetic. Findings given after the assessment has fallen away are unnecessary to the decision, but they are on the file and they will be used. The Department will cite the 16 per cent finding against other entities of the Vamsiram Group and in years not before this bench — though that cuts both ways, and the findings on extrapolation, retraction, the managing director’s statement and cross-examination are equally on the file and equally available to those entities. And if the Revenue takes the jurisdictional holding to the High Court and succeeds, the rate has already been fixed at the figure the Department wanted, with the assessee’s 10 per cent already rejected for want of evidence — the merits appeal has, in substance, been lost in advance.

Where a jurisdictional ground is likely to succeed, there is therefore a real question whether to press the merits at all, or to ask expressly that they be left open. This assessee’s counsel did precisely that with two other grounds: the challenges to the approval under section 151 and under section 148B were, on his own application, “kept open to be decided at the appropriate forum and at appropriate time”. The same request was not made on quantum.

What does this mean in practice?

The order is unusually rich in documents that had to exist before any of it could be argued. Five of them are worth listing, and most are in the Department’s custody and have to be asked for:

• The panchnama and the authorisation, fixing who the authorised officer was and when the search began. The section 131(1A) point is unavailable without the date the search commenced and the date the summons issued, and it collapses if the summons came from the investigation wing rather than the authorised officer.
• The summons and the seizure memo for material produced by a third party. Whether it was impounded under section 131(3) with reasons recorded, or seized, is the whole of the argument.
• The reasons recorded, read against section 149(1)(b) category by category, and read twice. First: did the Assessing Officer say what form the escaped income takes — asset, expenditure, or entry in the books — and what kind of asset? Second: did he quantify it for this year, for this entity, or did he copy a figure across from the Investigation Wing’s appraisal for the group? The second question is what produced the finding of borrowed satisfaction here, and it is answerable from the face of the document.
• The section 151 approval, and what was put before the specified authority. On this order’s reasoning the demonstration that the information relates to the relevant year has to be made at the approval stage, which means the proposal is where the year-wise link either exists or does not.
• The retraction affidavits, with the dates and the reasons in them. A retraction filed promptly and explained is a different document from one filed after the assessment has begun, and the Tribunal here relied expressly on “the timing of the statements filed by the employees and the detailed affidavits filed by them in support of their retraction”.

On the merits, two drafting points follow from the analysis above. Ask for cross-examination in writing, identify the deponents by name, and say what the statement is used for — Swati Bajaj turns on prejudice not having been pleaded, and the way to keep that distinction alive is to plead it. And meet the estimate on its own ground: where an extrapolation is challenged, the argument that travels is not that extrapolation is impermissible but that this multiplier is not derived from anything found.

Finally, the grounds should be sequenced with the last section of this note in mind. A jurisdictional ground that succeeds disposes of the year; a merits ground argued alongside it may be decided anyway, and if it is decided badly the finding outlives the victory.

Which regime governs a search today?

This one fell in a window that has now closed, which is worth stating plainly because the three regimes are still being confused.

Sections 153A, 153B and 153C do not apply to a search initiated on or after 1 April 2021 — the cut-off sits in the opening words of section 153A and in section 153C(3), both inserted by the Finance Act 2021. A search between 1 April 2021 and 31 August 2024, like this one on 6 December 2022, is dealt with under the reassessment machinery: sections 147, 148, 148A and 149, with Explanation 2 to section 148 supplying the deemed information and the proviso to section 148A removing the show-cause step. A search initiated on or after 1 September 2024 falls under the revived block assessment scheme in Chapter XIV-B, sections 158B to 158BI, substituted by the Finance (No. 2) Act 2024; and a search from 1 April 2026 under sections 292 to 301 of the Income-tax Act, 2025.

So the section 149(1)(b) reasoning in this order has a defined life: it governs searches over a three-and-a-half year window, and those assessments are now largely framed and in appeal. The evidentiary reasoning has no such limit. What a seized record proves, what a retracted statement is worth, when a third party’s admission can be carried across to somebody else, and when an estimate may be extrapolated are questions that survive every change of chapter — and on the evidence of this order, they are still where these matters are won.

Provisions cited are the Income-tax Act, 1961 as in force for a search initiated on 6 December 2022 and notices issued on 7 December 2023, read in September 2026. See also the site’s pages on section 132, statements under section 132(4), search and reassessment, section 148A, section 145(3) and the block assessment scheme. Statutory text: section 131, section 148, section 148A, section 149, section 145, section 292C. Judgments: Sohini Developers LLP v. ACIT, ITA Nos. 792 to 797/Hyd/2026 (ITAT Hyderabad), 5 June 2026; Andaman Timber Industries v. CCE (SC), 2 September 2015; Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC), decided 22 September 1971; CST v. H.M. Esufali H.M. Abdulali [1973] 90 ITR 271 (SC); Pooran Mal v. Director of Inspection (1974) 93 ITR 505 (SC); Dr. Pratap Singh v. Director of Enforcement (1985) 155 ITR 166 (SC); Ajit Jain v. Union of India [2000] 242 ITR 302 (Delhi), affirmed [2003] 260 ITR 80 (SC); Kankanala Ravindra Reddy v. ITO (2023) 295 Taxman 652 (Telangana); PCIT v. Swati Bajaj [2022] 139 taxmann.com 352 (Calcutta); Moti Lal Padampat Udyog Ltd. v. CIT (Allahabad High Court), 26 October 2006, reported at 293 ITR 565, the page the order itself gives, though some digests print 656; CIT v. President Industries (2002) 258 ITR 654 (Gujarat); Mani Square Ltd. v. ACIT [2020] 83 ITR (T) 241 (Kolkata); Ginger Properties Pvt. Ltd. v. ACIT (ITAT Ahmedabad), 5 March 2025; DCIT v. Laxmanbhai Haribhai Vekariya (ITAT Ahmedabad), 29 April 2026. On reopening: CIT v. Jet Airways (I) Ltd. [2011] 331 ITR 236 (Bombay), 12 April 2010; N. Govindaraju v. ITO [2015] 377 ITR 243 (Karnataka); Divya Capital One Pvt. Ltd. v. ACIT, W.P.(C) 7406/2022 (Delhi), 12 May 2022, (2022) 445 ITR 436; Smt. Vasanthi Ramdas Pai v. ITO, W.P. No. 8797/2022 (Karnataka), 12 February 2024; Sagar Mukesh Sheth v. ITO, R/Special Civil Application No. 7026 of 2026 (Gujarat), 8 May 2026; Mohd Athar Anjum v. ACIT, W.P.(C) 4196/2025 (Delhi), 25 April 2025; Huawei Telecommunications (India) Co. Pvt. Ltd. v. ACIT, W.P.(C) 15970/2023 and connected (Delhi), 30 March 2026; Veena Arora v. CIT, W.P.(C) 22/2026 (Delhi), 5 January 2026; ACE Tyres (P) Ltd. v. ACIT, ITA Nos. 1084 to 1088 and 1207/Hyd/2025 (ITAT Hyderabad), 24 September 2025; Exel Rubber Pvt. Ltd. v. DCIT, ITA Nos. 1566 and 1571/Hyd/2025 (ITAT Hyderabad), 18 February 2026; Sonu Pankaj Shakti Sagar Sood v. ACIT (ITAT Mumbai), 5 May 2026; BMS Sales Pvt. Ltd. v. DCIT (ITAT Kolkata), 2 January 2026. Read the order (PDF, 118 pages).

This note is general commentary on the law as at 16 September 2026 and is not advice on any matter. The position in a particular case depends on its own facts.