TaxTMI 
TaxTMI 
2025 (10) TMI 845
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....d in the circumstances of the case and in law, the Ld. CIT(A) is right in restricting NP rate from 25% to 18% by considering an expense categorized as "Discount' to the tune of Rs. 153,35,21,146/- extracted from the Pen Drive seized during the course of search action without verifying its allowability and examining the genuineness of nature and scope of such discounts? (iii) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is right in allowing the expenses by referring two seized documents containing a completely different value of same expense categorized under the head "Discount" without bringing any corroborative evidences on records and without justifying the nature and scope of these discounts? (iv) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is right in not appreciating the facts that the creditworthiness of the persons from whom unsecured loan of Rs. 16,00,000/- received was not proved as their accounts have been credit by some other parties prior to advancing such loan to the assessee? (v) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(....
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.... Net profit Rate; (ii) Deletion of addition of Unsecured loans for Rs. 16 Lacs; (iii) Deletion of addition of Agricultural income. The issues in assessee's cross-objections are - (i) Estimation of Net profit Rate; (ii) Addition of Unsecured loans for Rs.10 Lacs; (iii) Mechanical approval u/s 153D. The Ld. AR has not pressed for remaining grounds in the appeal and accordingly, these ground stands dismissed as not pressed. 1.4 The Ld. CIT-DR advanced arguments and supported the assessment order of Ld. AO. The Ld. AR, on the other hand, controverted the arguments of Ld. CIT-DR and pleaded for acceptance of additional income as offered by the assessee in its revised return of income. The Ld. AR also advanced arguments on legal grounds. The written submissions have been filed along with paper-book and case laws which have duly been considered while adjudicating the issues. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Assessment Proceedings 2.1 The impugned assessment has been framed pursuant to search action by the department on assessee-group u/s 132 on 05-04-2018. During search, certain incriminating documents were found....
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....M/s Jay Krishna & Co. where paper / dummy concerns. The data found contained aggregate of sales made and expenses incurred by various concerns of the group which were engaged in mining activities. The sworn statement was also recorded from Shri Nirmal Roy who was working as Manager in the accounts department of Majha Group. He was controlling and managing the accounted as well as alleged unaccounted sales generated through mining activities of various concerns of the group. His statement corroborated the statement of Shri Naresh Chand with regard to extracted financial of M/s GM & Co. and M/s Jay Krishna & Co. During post search proceedings, summons was issued to Shri Rajinder Singh (principal person of the group) requiring him to furnish the nature, ledger account and mode of expenses incurred and debited in the receipt and expenditure account of M/s GM & Co. Though the assessee claimed to have allowed discount to its customers on sales and denied making unaccounted sales but the same largely remained unsubstantiated. The position remained the same for rehabilitation charges stated to be recovered in cash from the customers. Finally, Ld. AO quantified quantum of alleged unaccounte....
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....ete bills and vouchers for receipts and expenses as shown in the books of accounts found maintained in the name of M/s GM & Co. The substantial expenses were shown in cash which were not fully vouched and not verifiable. The violation of Sec. 40A(3) and 40(a)(ia) were also noted. Accordingly, the trading results as shown by the assessee were rejected u/s 145(3) and Ld. AO proceeded to estimate the income of the assessee on sales attributable to him. 2.6 The assessee, while estimating profit rate of 14.05%, considered two comparable entities having mean profit rate of 13.40%. As against this, Ld. AO considered three comparable entities having mean profit rate of 23.21% which has been tabulated on Page-59 of the assessment order. Considering the fact that various discrepancies were noted in audited books of account as well as in the books of accounts found maintained in the name of M/s GM & Co. and large expenses were incurred in cash which were not verifiable / not completely vouched, Ld. AO rejected assessee's offer of revised profit rate and eventually applied net profit rate of 25% on the gross receipts which resulted into an addition of Rs. 218.26 Lacs in the hands of the....
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....ooks were found to be incorrect and incomplete and such books did not represent true state of affairs of business activities being undertaken by such entities. The books were manipulated substantially and therefore, rightly rejected u/s 145(3). 3.3 While estimating additional income, the assessee adopted two comparable entities viz. LSC Infratech Ltd. and ASI Industries Ltd. having mean profit of 13.40%. However, M/s LSC Infratech did not carry out any crushing activity and therefore, it was not a comparable entity. Similarly, M/s ASI Industries Ltd. was engaged in mining of Kota stones by using diamond cutting tool for cutting and shaping natural stones and therefore, it could also not be held to be a comparable entity. The Ld. AO had adopted three comparable entities having mean profit rate of 23.21%. These were M/s Pokarana Ltd., M/s Gujarat Mineral Development Corp. Ltd and M/s Fortune Stone Ltd. However, M/s Pokarana Ltd. was dealing in different products line and moreover, it had 60% export turnover and therefore, not comparable entity. M/s Gujarat Mineral Development Corp. was owned by State Govt. and its maximum revenue was from mining and sales of lignite and therefore,....
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....s. The same has led to revenue's appeal as well as assessee's cross- objection before us. 3.6 On the issue of agricultural income, the approach of Ld. AO was held to be adhoc and mechanical in nature and therefore, the disallowance of agricultural income of Rs. 9.47 Lacs was deleted. 3.7 On the issue of unsecured loans additions u/s 68, the assessee stated that it had duly discharged its primary onus of explaining the nature and source of unsecured loans as received from the lenders by furnishing PAN details, Copy of ITRs, financial statements, bank statement and confirmation from the lenders. The Ld. CIT(A) tabulated the documents furnished by the assessee in para 11.3 of the impugned order. The assessee had furnished satisfactory document with respect to M/s Guru Nanak Stone Crusher and therefore, the addition of Rs. 1 Lacs was deleted. With respect to loan of Rs.5 Lacs from Smt. Mandeep Kaur, the explanation was rejected on the ground that there was immediate cash deposit before advancing such amount to the assessee. Similarly, there was cash deposit of Rs. 5 Lacs in the account of Shri Rajbeer Singh before advancing the same to the assessee. Therefore, out of Rs. ....
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....nsali (267 ITR 577) to support the conclusion. Finally, this legal ground as urged by the assessee was rejected. 3.9 In yet another legal ground, the assessee pleaded that in the absence of incriminating material no such addition could have been made. The same was rejected on the ground that that the addition was made on the basis of incriminating document found and seized during the course of search at centralized premises of the assessee. Moreover, the search happened on 05-04-2018 and due date to file return of income for this year had not expired. Therefore, this plea was also rejected. Finally, the appeal was partly allowed. Aggrieved, the assessee as well as revenue is in further appeal before us. Our Findings and Adjudication 4. From the facts, it emerges that the assessee-group having nine entities is engaged in mining activities. These nine entities are holding separate mining licenses from state government and are preparing separate books of accounts reporting separate profits. However, consolidated financial data was being maintained for all these nine entities. The assessee-group was subjected to search action on 05-04- 2018 wherein various loose papers as well....
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.... conditions, could not be sustained in law. The assessee initially reflected NP rate of 5.85% which has later been substantially enhanced to 14.05% despite the fact that the assessee is having much lower profit as per seized document. 6. It has been stated by Ld. AR that to estimate the NP rates, Ld. CIT(A) has made computations from combined seized material which include Profit & Loss Account as found in the pen-drive in the name of M/s GM & Co. and mining details as noted in the loose papers. However, there is no entity-wise bifurcation of financial data separately for each of the nine entities. The prime grievance of the assessee is that even by considering the seized material as found during the search, the profit rate would only be 1.47% and not 17.16% as computed by Ld. CIT(A). As against this, the assessee has already declared substantially higher profit rate of more than 14% to put a quietus to the issue. As per Ld. AR, the Ld. CIT(A) erred in not allowing actual expenses such as Mining fees paid to Government, VAT paid, new mining point setup expenses as noted in the seized material as well as Labour welfare expenses, environment protection expenses etc. as recorded in ....
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....ndigarh Tribunal in the case of SP Singla Constructions Pvt. Ltd (ITA No.140-145/Chd/2024 dated 17-01-2025) wherein, on similar facts, the assessment was quashed and additions were set aside. Similar reliance has been placed on the decision of Delhi Tribunal in the case of Sushen Mohan Gupta (ITA 2999/Del/2024 dated 20-05-2025) quashing assessment on similar grounds. 8. The Ld. AR has tabulated the comparative figures as per Income Tax Returns, seized material as per orders of lower authorities as under :- COMPARATIVE FIGURES ASS PER ITR, SEIZED MATERIALS, AO ORDER AND CIT(a) FOR AY 2018-19 IN CASE OF ALL 9 MINING ENTITIES No ENTITY Gross Mining sales considered by CIT(A) and A.O. on basis of Seized material (PG 95 of CIT(A) Order. Net sales (after discount) as per seized material (PG 46 of PBK 2) Mining sales as per audited P&L A/C ( Refer Audited P&L at Pages 65 to 77) Profit as per P&L A/C (Refer Audited P&L at Pages 65 to 77) Profit offered for tax by assessee before A.O. (Refer PG 95 of CIT(A) order) Profit determined by AO (25% of Gross Mining Sales 1 Northern Royalty Co 367,814,720 109,107,210 109,107,210 12,226,154 54,979,8....
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....ith profit calculated by CIT(A) for mining entities as under: - PARTICULARS AMOUNT Remarks PROFIT DETERMINED BY CIT(A) ORDER 39,61,88,233 As per page 105-106 of CITA Order LESS: EXPENSES RECORDED AS PER SEIZED PAPER AT PG 46 OF PBK-2 BUT NOT ALLOWED BY CIT(A) VAT (NET OF CREDITS) (2,31,20,138) As per seized material refer page 46 of PBK-2, VAT expense of Rs. 4.94 cr was recorded in debit side while VAT & GST Recovered of Rs. 2.63 cr was recorded on credit side. CIT(A) has ignored both the items while computing profit while VAT being actual business expense deserved to be allowed. NEW POINT EXPENSES (1,54,45,530) As per seized material at ps 46, new point expenses of Rs. 1,04,00,000/- New point investment and Rs. 50,45,300/- New point Jaidhari was recorded as expense. CIT(A) has wrongly considered these expenses as Capital expense on pg 108 of his order whereas these related to expenditure on setting up new mining point and thus was a revenue expenditure and not a capital expenditure LESS: EXPENSES RECORDED IN ACTUAL BOOKS OF ACCOUNTS OF MINING ENTITIES BUT ONLY ALLOWED PARTIALLY BY CIT(A) MINING IN....
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.... Income 371,552 371,552 As per audited books of accounts of all 9 entities Total Gross Receipts 3,074,341,183 3,074,341,183 Less: (-) Discount 1,533,521,146 1,533,521,146 As per pg 46 of PBK Annual contract money (payable to the Govt, of Haryana for mining rights) 706,950,000 987,418,722 As per audited books of accounts of all 9 entities Salary account 64,590,764 64,590,764 As per pg 45 of PBK Wages 40,844,566 40,844,566 As per pg 45 of PBK Diesel 44,394,113 44,394,113 As per pg 45 of PBK Diwali expenses 4,370,100 4,370,100 As per pg 45 of PBK Land compensation 110,803,555 110,803,555 As per pg 45 of PBK less Rs 76 lakhs disallowed by CITA Land on rent 24,116,384 24,116,384 As per pg 45 of PBK Other expense 20,000,000 20,000,000 As per pg 45 of PBK Misc. expenses 62,870,938 62,870,938 As per pg 45 of PBK Bank charges 373,976 373,976 As per pg 45 of PBK Crossing contract expenses 840,500 840,500 As per pg 45 of PBK Generator expenses 1,632,000 1,632,000 As per pg 45 of ....
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.... under identical business conditions, could not be sustained in law. In other orders, we delete the impugned addition of Rs. 86.27 Lacs as sustained in the impugned order and allow the corresponding grounds of assessee's cross-objection. The revenue's ground of appeal stands dismissed. 12. On the issue of agricultural income as discarded by Ld. AO, it could be seen that the estimation of Rs. 50,000/- per acre is without any supporting document on record. It is undisputed fact that the assessee was having sufficient land holding to earn the agricultural income so disclosed by the assessee. The claim of the assessee stood substantiated by copies of "J" forms and copies of Khasra and Khatauni. Therefore, the approach of Ld. CIT(A) in discarding the estimation made by Ld. AO could not be faulted with. The grounds raised by the revenue stand dismissed. 13. On issue of unsecured loans as taken by the assessee from three parties, it could be seen that the assessee had furnished sufficient documents with respect to M/s Guru Nanak Stone Crusher as required in terms of Sec.68. With respect to loan as taken from Smt. Mandeep Kaur and Shri Rajbeer Singh, the assessee duly filed c....