TaxTMI 
TaxTMI 
2026 (4) TMI 411
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....e of Ambica Ashish Trade Link LLP only, against the orders of the Commissioner of Income Tax(Appeal)-11, Ahmedabad (in short "CIT(A)"). All the matters were heard together as the facts involved and the grounds raised by the different assessee are identical and are being disposed of vide this common order for the sake of convenience. We will treat the appeal in the case of Ambica Ashish Trade Link LLP for the A.Y. 2020-21 as the lead case. Before we take up the grounds raised by the assessee and Revenue, it will be relevant to recapitulate the facts of the case. Ambica Ashish Trade Link LLP Brief facts of the case 2. Succinctly, the facts of case are that a search and survey operation was conducted in Ambica Firework Group on 16.11.2023. Ambica Ashish Trade Link LLP is controlled and managed by Shri Ashish Khajanchi and is engaged in seasonal business dealing in fireworks, kites, threads, rakhis, toys etc. In the course of search certain incriminating materials were found from different premises which have been analysed in-depth and discussed at great length in the assessment order. The findings and the conclusion of the AO in respect of the incriminating evidences can be s....
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.... The assessee involved Angadia to receive cash and also for dispersal of cash to various parties, which was duly recorded in Rojmel account. (v) Rojmel account contained details of all accounted and unaccounted cash transactions. The transactions appearing in Rojmel account were most comprehensive record, which was kept in a secret premises. The transactions in Rojmel account were entered in code (by reducing 2 decimal points and were back dated by 10 years). (vi) The AO after painstakingly analysing the seized documents had concluded that Rojmel account encompassed the transactions in the MITI software, FAS software and ABC Tally and was the most comprehensive document and that the reliance on Rojmel account will reveal maximum of the unaccounted transactions. (vii) The AO had digitised the entries in Rojmel account in Tally Prime software in an account named "AATL". Further on analysis of Tally data in AATL, the AO had identified unaccounted sales, unaccounted purchases, unaccounted investment in land, unaccounted investment in jewellery, unaccounted capital withdrawal & introduction and other unaccounted expenses, which have been elaborately discussed ....
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.... the facts and circumstances of the case of the appellant, the Ld. CIT(A) has grossly erred in sustaining the addition of profit element on alleged unaccounted sales and agency-based transactions solely on the basis of Tally data prepared by the Department, which is neither reliable nor independently corroborated, and hence, cannot be made the basis for any addition 4. In law and in the facts and circumstances of the case of the appellant, the Ld. CIT(A) has grossly erred in holding that appellant has earned unaccounted profit @ 5% on alleged unaccounted sales when no such addition is required to be made. The Ld CIT(A) failed to appreciate that loose material found during the course of search does not establish that appellant has in fact carried out such unaccounted sales as alleged by the AO. 5. In law and in the facts and circumstances of the case of the appellant, the Ld. CIT(A) has grossly erred in holding that appellant has earned unaccounted commission @ 2% on agency-based transactions when no such addition is required to be made The Ld. CIT(A) failed to appreciate that loose material found during the course of search does not establish that appellant has in....
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....ware), Rojmel books, cash ledgers, and statements recorded under section 132(4), which clearly established large-scale unaccounted business transactions and substantial profit margins. 3. The Ld. CIT(A) has erred in holding that the estimation of profit @ 20% made by the Assessing Officer was excessive and arbitrary, ignoring the cash-intensive nature of the assessee's business and the unrecorded rotation of capital revealed during search and seizure proceedings. 4. The Ld. CIT(A has erred in reducing the rate of commission on facilitation-based unaccounted cash transactions from 8% to 2%, ignoring the evidences found during the search which clearly indicated that the assessee earned substantial margins on such facilitation activities 5. The Ld. CIT(A) has erred in law in giving partial relief without bringing any comparable industry data or judicial precedent to support the reduced rates adopted, thereby rendering the findings arbitrary, unreasoned, and contrary to the material available on record 6. The Ld. CIT(A) has failed to appreciate that the seized data, corroborated statements, and analysis made by the Assessing Officer were complete....
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....if the assessee had indulged in unaccounted trading or cash sales as a principal, such activity would have manifested in stock mismatch. 5.1 As regarding the transactions in the loose papers/Rojmel account, the Ld. AR submitted that the assessee did not own the goods and the transactions were recorded in Rojmel account only with a motive of workout the percentage of commission income. He contended that the characterization of the transactions as unaccounted sales of the assessee, was not at all justified in the facts of the case. On the issue of estimation of profit, the Ld. AR submitted that since all the transactions undertaken by the assessee was in the nature of agency-based transaction, the Ld. CIT(A) should not have applied profit rate of 5% by treating major part of the transaction as unaccounted sales of the assessee. According to the Ld. AR, all the transactions should have been treated as agency-based transactions. Further, the net profit rate of 2% applied by the Ld. CIT(A) on the agency-based transaction was also too high. Submissions of the Revenue 6. Per contra, Shri Alpesh Parmar, Ld. CIT-DR strongly supported the order of the Assessing Officer. He has pains....
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....refore, strongly supported the order of the Assessing Officer. Our findings: 7. We have carefully considered the rival submissions and also gone through the materials and evidences brought on record. According to the assessee, the documents found in the course of search in the form of loose papers, Rojmel, MITI account, FAS account, ABC, Tally software etc. had no evidentiary value and were dumb documents. It is found that the AO had elaborately discussed the evidences found in the course of search in the assessment order which runs into hundreds of pages. There is no dispute to the fact that these documents pertain to the assessee. Further, the assessee has not pointed out any defect/mistake in the analysis of the documents as made by the AO in the assessment order. Merely because the information found in the course of search was not complete, the documents do not lose their evidentiary value. The AO had not only corroborated the entries appearing in the various seized documents with each other, but also reconstructed the account of the assessee in AATL software based on which various unaccounted transactions of the assessee viz. unaccounted sales, unaccounted purchases, una....
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....anufacturers [to whom M/s Ambica Ashish Tradelink LLP has to pay amount). Such entries are made both on Avak side and Javak side These types of transactions are also not entered in the audited books of accounts of M/s Ambica Ashish Tradelink LLP and hence are unaccounted... (j) The transactions in Rojmel also reveal that Shri Ashish J Khajanchi has agents at Sivakasi, Tamil Nadu. Shri Khajanchi use to transfer payment to these agents through angadia. These agents were responsible for managing of cash related to M/s Ambica Ashish Tradelink LLP at Sivakasi. Such management being payment to suppliers/manufacturers, payment to transporters, storage of goods etc. One of the main agent of M/s Ambica Ashish Tradelink LLP at Sivakasi is Shri Suresh Ramanı. Some of the sample entries of Shri Suresh Ramani in Rojmel dated 13.06.2023 which have been inventoried as Page no. 205 to 207 of Annexure A-127 are as under..... (k) Further, on analysis of Rojmel it has been seen that the Rojmel contains transactions of various natures viz. Unaccounted Sales, Unaccounted purchases, unaccounted expenses, Unaccounted Investment in Land, Unaccounted investment in jewellery, Unaccoun....
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....s under: FY Asstt.Year Total Under Reported cash sales Facilitation based unaccounted cash sale transactions Remaining underreported cash sales 2019-20 2020-21 55,36,68,535, 17,36,14,597 38,00,53,938 2020-21 2021-21 35,55,73,035 17,47,73,545 18,07,99,490 2021-22 2022-23 61,78,07,862 22,74,33,953 39,03,73,909 2022-23 2023-24 85,13,61,613 22,05,26,701 63,08,34,912 2023-24 2024-25 23,97,70,929 8,39,06,945 15,58,63,984 11. Now, the assessee has contended that the entire under reported cash sales were on account of facilitation-based transactions only. On a careful examination of the seized loose papers / Rojmel, it is evident that a number of entries therein reflect simultaneous or near simultaneous recording of receipts and corresponding payments, often on the very same date, which pattern is inherently consistent with the assessee's claim that the Rojmel was maintained as an aide memoire to track transactions facilitated between distinct buyers and suppliers. The AO also, in the show cause notice as well as in the body of the assessment order, has acknowledged that there exist multiple in....
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....stock or shortage of stock. The contention of the assessee is that had the assessee been engaged in large scale purchase and sale of goods on its own account, involving actual physical receipt and delivery of goods and corresponding receipt of sale consideration, such unaccounted trading would have inevitably left a footprint in the form of stock mismatch, either as excess stock (from unaccounted purchases) or shortage of stock (from unaccounted sales). According to assessee it didn't physically receive, hold or deliver the goods, and consequently, the cash entries in the Rojmel did not represent actual receipt of sale consideration by the assessee but were rather in the nature of tracking noting for transactions occurring directly between third party buyers and suppliers. This factual position is broadly consistent with the facilitation / intermediary model and is not easily reconcilable with a trading model. Further that the Revenue has not been able to recover or bring on record any corroborative evidence such as purchase bills, sale invoices, transport challans, delivery receipts, lorry receipts, godown records or any other documentation which would establish that the assessee ....
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....was considered by the AO to justify the estimation of profits as made by him. 14. It is true that the profit of unaccounted transactions will be at higher margin, but such margin has to be worked out on the basis of certain yardstick. It is found that the Ld. CIT(A) had considered the net profit disclosed by the assessee on the accounted sales which varied from 0.81% to 2.33% (with average of 1.70%) for the assessment years 2020- 21 to 2023-24. The turnover for the earlier years did not contain any agency-based turnover. The assessee had also supplied the financials by of one of its competitors, M/s. Madhav Pyro LLP (an unrelated 3rd party) before the Ld. CIT(A) and the net profit disclosed by the said concern was 1.37% in AY 2023-24 and 0.70% in AY 2024-25. Similarly, the net profit percentage of Bahucharkrupa Trading Co. (sister concern) varied from 0.46% to 3.40% (average 1.67%) and in the case of Ambica Trading Co. (also sister concern) this percentage varied from 2.16% to 3.47% (average of 2.83%). In the case of M/s. Ambica Tradelink, the NP was found to be was around 1% of turnover. On the basis of these comparative data, the Ld. CIT(A) had estimated NP of the assessee at ....
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....ed transactions, the Ld. CIT(A) had estimated net profit of 2% for the reason that the assessee would have earned certainly more than its disclosed net profit margin. As already discussed earlier, for the agency-based facilitation transactions, there was no comparable data. For executing agency based transactions the role of the assessee is like a middleman as the goods are sent directly by the manufacture to the buyer and the payment is made in reverse manner. The assessee earns only commission on such transactions. The risk involved in such transactions is much less for the assessee. Therefore, the premise that assessee would have earned commission income in such transactions at a rate higher than its own net profit margin, is found to be fallacious. Rather, the assessee would have agreed for a commission margin of less than its own profit margin for such transactions, considering the lesser effort and risk involved in facilitation-based transactions. Therefore, we deem it proper to reduce the estimation of net profit for facilitation-based transactions to 1.5%. The AO should work out the profit of the undisclosed facilitation-based transactions of the assessee by applying the ne....
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....on of cash through such discounts. The evidences in the form of handwritten slips, handwritten daybook (Rojmel), FAS software, MITI software and Tally software were identical to those as discussed earlier in the case of Ambica Ashish Trade Link LLP. In the present case MITI software database contained holistic data in respect of ascertaining the quantum of unaccounted transactions. After analyzing the acronyms used in MITI software and the method of quantification, the AO identified unaccounted sales, unaccounted purchases, unaccounted expenses, unaccounted capital and unaccounted investments. In the present case, MITI account was a consolidated parallel book of both ATC and BTC, and it was not possible to segregate the cash receipts or cash payments in MITI account entity wise. The other difference in the accounting pattern of this sub-group was that MITI software was used as a basis for calculation of unaccounted transactions in the present group as compared to Rojmel account in the Ashish Khajanchi sub-group, as MITI software comprised of transactions of larger period. 20. On the basis of comparison of "Net cash receipt as per MITI account of sales" and the "Net cash receipts....
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.... by the AO was reduced to 5% by the Ld. CIT(A) in the first appeal. 22. The assessee is now in second appeal before us. The grounds taken by the assessee in this appeal are as under: 1. In law and in the facts and circumstances of the case of the appellant, the order passed by the Ld. AO is bad in law and deserves to be quashed. 2. In law and in the facts and circumstances of the case of the appellant, the Ld. CIT(A) has grossly erred in holding that appellant has earned unaccounted profit 5% on alleged unaccounted sales when no such addition is required to be made. The Ld. CIT(A) failed to appreciate that loose material found during the course of search does not establish that appellant has in fact carried out such unaccounted sales as alleged by the AO. 3. Without prejudice to the above, in law and in the facts and circumstances of the case of the appellant, the Ld. CIT(A) has grossly erred in estimating/confirming the net profit on alleged unaccounted sales @5%, which is nearly three times the average net profit reflected in both the appellant's and its competitor's books of account, which is without any basis and there is no justification f....
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....s. Madhav Pyro LLP and that of M/s. Ambica Ashish Trade Link LLP. After taking into account these comparative net profit data, the Ld. CIT(A) had estimated the net profit of 5% in respect of unaccounted cash transactions of the assessee, to be applied in all the years. According to Ld. CIT(A), the net profit of 5% adopted by him was substantially higher than the average net profit of 2.83% of the assessee in respect of its disclosed transactions. 26. As already discussed earlier, the unaccounted cash receipts & payments appearing in MITI account was common for ATC & BTC and it was not feasible to apportion the unaccounted sales between the two concerns on any rational basis. Therefore, the AO had apportioned the profit arising out of the unaccounted cash sales at the rate of 50% each to ATC & BTC. Considering the common nature of cash sales transactions in the present case, it will be reasonable to consider the weighted average of net profit disclosed by ATC & BTC in respect of their disclosed transactions. The weighted average of the net profits of the two concerns will be a better yardstick to consider in the present case. As per the finding given by the Ld. CIT(A), the averag....