AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 1550
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....ment Year 2020-21 to 2023-24 respectively. 2. Brief facts of the case are that, a search and seizure operation conducted u/s 132 of the Income Tax Act, 1961 ('Act' for short) in the case of Al-Hamd Group and Al-Dua Group on 21/03/2023. The Assessee company filed return for the years under consideration in response notice u/s 148 of the Act. Assessment Orders, came to be passed for the respective years under consideration on 28/03/2025 by making various additions. Aggrieved by the assessment orders Assessee preferred Appeals before the Ld. CIT(A). The Ld. CIT(A) partly allowed the Appeals of the Assessee. As against sustaining the additions by the Ld. CIT(A), Assessee preferred above Appeals and as against deletion of the addition by the Ld. CIT(A), the Revenue also filed the respective Appeals. For the sake of convenience Appeals pertaining to Assessment Year 2020-21 was taken up as lead matters and both the parties have made extensive arguments on the respective grounds of Appeal. 3. The grounds of Appeal of the parties for Assessment Year 2020-21 are reproduced as under: - ITA No. 7190/DEL/2025 (A.Y. 2020-21) (Assessee's Appeal) "On the facts and circums....
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.... made by the Assessing Officer. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the assessee had admittedly not recorded sales amounting to Rs. 43,83,83,273/- arising from the sale of offal, hides, tallow, paya, khiri, horns and hooves, bile water and PFS during the year under consideration, and once such unaccounted sales were conclusively established and accepted, the entire receipts were liable to be brought to tax. 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in estimating only the profit element on the unaccounted sales, despite the assessee having failed to furnish any details or evidence of corresponding purchases against such sales during the course of assessment proceedings. 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to consider that in the absence of evidence of unaccounted purchases, it is to be presumed that the purchases corresponding to the unaccounted sales were routed through the regular books of account, in which case the assessee would have already claimed deduction of such purchases, thereby w....
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....1.7% is applied to the aforesaid transaction as discussed supra. In view of above, addition to the tune of Rs. 73,61,614/- (11.7% of 6,29,19,774/-) is hereby made to the total income of the assessee company." The Ld. CIT(A) in the first appeal filed by the Assessee, confirmed the above said addition. 6. The Ld. Counsel for the Assessee submitted that the addition made by the Assessing Officer, which has been and confirmed by CIT(A) is totally erroneous. Further submitted that the AO made the addition on the ground that some of the parties have not filed their Return of Income, however, merely because some of the parties have not filed their ITR that cannot be a ground/ reason for making addition in the case of Assessee. Further submitted that the Ld. AO had details of the PAN of all the parties but not made any enquiry. The assessee made all payments through banking channels only, however, the authorities have committed error making/confirming the additions on the basis that the party has not filed their ITR by drawing adverse inference against the Assessee. Further submitted that there was no justification in making ad-hoc-addition by applying G.P. rate @ 11.70% whe....
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....ccount and the ITR of the Assessee. Therefore, the said addition cannot be sustained on the eyes of law. 10. The Co-ordinate Bench of the Mumbai Tribunal in the case of M/s Everest Food Works Pvt. Ltd. (supra) held as under: "6. The Learned Departmental Representative ("Ld. DR" for short) for the Revenue contended that the assessee had not furnished complete details before the Ld. AO for substantiating that these are genuine purchase transactions made by the assessee company. Further, the Ld. DR stated that some of the companies, though having a huge turnover, have not audited its financials and have also not filed their returns of income. Further, it is also contended that mere submission of ledger confirmation would not be held to be genuine transaction. The Ld. DR relied on the decision of the Hon'ble Bombay High Court in the case of Pr. CIT vs. M/s. Mohommad Haji Adam & Co. (2019) 103 taxmann.com 459 (Bombay) where GP addition on non genuine purchases was justified. The Ld. DR relied on the order of the Ld. AO. 7. The Authorized Representative ("Ld. AR" for short) for the assessee, on the other hand, controverted the said fact and stated that the assess....
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....rties have not filed their returns of income though GST return was filed regularly by the said entities. The Ld. AO proceeded to make an addition/disallowance of Rs. 25,55,69,713/- which is the GP @ 46% on the total alleged transaction of Rs. 55,55,83,331/-. Per contra, the Ld. CIT(A) deleted the impugned addition/disallowance on the following observations which are cited herein under for ease of reference: 5.4.2 The appellant is a leading manufacture of masala and spices. The thrust of the addition done by the AO is the non-filing of income tax returns by the 4 suppliers. The submissions of the appellant with respect to each of the party is as under: (1) Jayapaul Rajesh-It has been submitted that the total purchases taken by the AO at Rs. 2.50.01.21.905/- is incorrect as the actual purchase amount debited in the books of accounts is Rs. 1,60,23,000/- Further supporting documents in the form of Parties Ledger Account, Invoice copies with Goods Receipt Notes, E-way Bills, Transportation Receipts and Bank Statements highlighting payments have been submitted. Further the supplier has been regular in tax compliance and has filed its ITR for AY 2018-19, AY 201....
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....documents in the form of Ledger Account, Invoice copies & Goods Receipt Notes, E-way Bills & Transportation Receipts and Bank Statements highlighting payments have been filed. The appellant has also submitted Income Tax Portal screenshot confirming that MRG Enterprises is not a "Specified Person" under Sections 206AB & 206CCA implying that the supplier has duly filed the return of income for the AY 2021-22 and hence the very pretext on which the disallowance has been made is not correct. The appellant has also submitted that the input tax credit claimed against these purchases already stand allowed proving that the supplier is regularly filing its GST returns. 5.4.3 While non filing of income tax return by a supplier is a reason to further investigate the transaction, this reason alone is not sufficient to disallow the expenses and treat the same as non genuine. The appellant in the instant case has filed ample documentary evidence to not only support the purchase but also to justify its transportation and delivery. The factual matrix is that the expenses being disallowed are purchase of raw material which is quintessential and proportionate to the manufacturing output bei....
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....finding on the veracity of the documentary evidences furnished by the assessee nor has she stated that these parties are alleged to be accommodation entry providers engaged in providing bogus purchase bills which is the modus operandi of a regular accommodation entry provider. Pertinently, we also find no observation as to whether any enquiry was conducted in these companies as to their existence or whether or not there is any business transaction carried out by these companies has not been examined by the Ld. AO. The purported bogus purchases are said to have been backed by bills and vouchers along with the books of accounts of the assessee duly audited where the said transactions have been recorded, corroborates the fact that the assessee has proved the transaction to be genuine. There is no iota of doubt that the Ld. AO has failed to establish that the parties through whom the assessee has purchased are accommodation entry providers neither by any documentary evidences nor by circumstantial evidences where the Ld. AO has not faulted with the supporting documents filed by the assessee to substantiate its case and we also reiterate the fact that no inquiry was carried out by the R....
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....tent of 16%, the Assessee has raised Ground No 6 in ITA No. 7190/Del/2025 and as against the deletion, revenue field Appeal in ITA No. 590/Del/2026. 14. The Ld. Counsel for the Assessee vehemently submitted that the GP rate @ 16% applied by the Ld. CIT(A) is erroneous and in any case, the same is highly excessive and submitted that instead of applying GP rate, A.O. should have applied NP rate. Further submitted that the GP rate applied by the Ld. CIT(A) is higher than GP rate declared by the Assessee in the Audited Books of Account and in the ITR which have been accepted by the A.O. The Ld. Counsel has also submitted a Chart of GP/NP rate declared by the Assessee in the books of accounts and ITR which is reproduced as under: - Assessment Year GP declared by Assessee NP declared by Assessee 2020-2021 7.15% 1.45% 2021-22 10.21% 3.39% 2022-23 10.82% 3.08% 2023-24 9.82% 3.03% 15. The Ld. Counsel further submitted that the Ld. CIT(A) should have applied only NP ratio, because, as per the seized material itself, there were evidence found of not only direct expenses by way of purchase, but also the indirect expenses such as salary and oth....
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....n box expenses. As far as the "green box" expenses are concerned, the assessee had relied on the books relied on by the revenue to assess the income, to urge that these constituted expenses entitled to deduction. The AO held these expenses to be excessive. The assessee argues that once the revenue seeks to draw a presumption, by relying on Section 132 (4A) of the Act that presumption has to be given full effect. In other words, if the correctness of the contents of books and other materials is to be presumed, such a deemed state of affairs would have to be assumed in respect of all entries in the books, and not merely the entries of income (or receipts). 15. Section 132 (4A) reads as follows: "(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed- (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) tha....
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.... or are in the handwriting of that particular person. Raising of such presumption has been enacted by the Legislature to enable the assessing authority to make a provisional adjudication within the time frame prescribed under Section 132. Otherwise it may not be possible to do so. The object of introduction of Section 132 is to prevent the evasion of tax, i.e., to unearth the hidden or undisclosed income or property and bring it to assessment. It is not merely an information of undisclosed income but also to seize money, bullion etc. representing the undisclosed income and to retain them for the purposes of realization of taxes, penalties etc. Search and seizure is a serious invasion in the privacy of the person. Section 132 which is a complete code by itself provides that the money, bullion or the books of account etc. should not be retained unnecessarily and that the provisional assessment made under Section 132 for the purpose of retention of the books is passed within a specified time in accordance with law. It provides that the books of account, money and bullion which are not required are not retained unnecessarily thereby causing harassment to the person concerned. In order ....
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....the search, it ought to have relied on other materials. Having once drawn the presumption that the contents of the documents (of the assessee) taken into possession during the search were true, the revenue could not have, consistently with that presumption, proceeded to require the assessee to produce materials in support of the expenditure entries. Such an inconsistent approach in respect of the contents of the same book appears to have been founded only on suspicion that they were not genuine. However, suspicion ITA-1620 & 1622/2010 Page 15 cannot replace proof. Moreover, the full effect of the presumption should be given effect to, whenever the statute directs a particular non- existent state of affairs to be assumed. (Ref State of Bombay v. Pandurang Vinayak, AIR 1953 SC 244; Karnataka State Road Transport v B.A. Jayaram & Ors, AIR 1984 SC 790). In these circumstances, the effect of the presumption (which bade the revenue, when it chose to invoke it, to presume that the "contents of such books of account and other documents are true..". Therefore, in the absence of any materials, in the form of documents, the revenue could not have denied the benefit of any expenses which would....
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....not erroneous in reaching such conclusion". 21. Further, in the case of India Seed House Vs. Assistant Commissioner of Income Tax 2000 (1) TMI 146-ITAT Delhi, wherein it was held as under: - "The Tribunal found as an admitted fact that unaccounted sales totalling Rs. 4,22,14,428 existed for the relevant block period. The Assessing Officer applied a gross profit (g.p.) rate of 7% on those sales, relying on admissions recorded during search and post-search enquiries. The assessee, after receiving copies of seized documents and statements, sought deduction of revenue expenses (seed cleaning, warehousing, packing etc.) shown in the seized annexures. The Tribunal majority held that admissions are substantive but not conclusive and that, where seized material itself demonstrates deductible expenses relating to the unaccounted sales, those expenses must be considered. On the material before it the Tribunal concluded that allowing the claimed adjustment of expenses recorded in the seized papers reduced the appropriate net profit rate to 1.5%, a rate consistent with the assessee's historical net profit disclosure. The AO was therefore directed to recompute the net profit on ....
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....ceives Rs. 300/- to Rs. 500/- per size of vehicle. He further stated that an amount of Rs. 1600/- is also charged in cash from the driver of vehicle which are loaded with skins and hides. It was also admitted by him that such amount collected is handed over to Hazi Zaheer, promoter of this group on weekly basis. It was further noted from perusal of financials of the assessee company that such amount has not been recorded in the books of accounts of the assessee. Further, incrimination material found and seized in this regard as well as excerpts of the statement of the aforesaid persons including Hazi Zaheer was confronted to the assessee vide this office notice u/s 142(1) dated 17.12.2024(supra). During the year under consideration the assessee received an amount of Rs. 87,34,454/-as entry fee which were not recorded in the books of account. Calculation of the said amount is already given the relevant para of notice u/s 142(1) dated 17.12.2024. Therefore, vide this office notices u/s 142(1), the assessee was asked to submit complete day wise ledger account of entry fees collected by the company for each AYrs separately. The assessee was also asked to show whether said income has be....
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....ighly excessive and the same is based on extrapolation. Considering that fact the AO has extrapolated the figures of 3 to 4 months to the whole year and also considering the overall facts and circumstances, we sustain the addition to an extent of 25% of the amount added by the A.O. Accordingly, the Ground No. 7 of the Assessee is partly allowed. ITA No. 7191/Del/2025 to ITA No. 7193/Del/2025 (Assessee's Appeals) and ITA No. 590/Del/2026 to ITA No. 591/Del/2025, 705/Del/2026 and 706/Del/2026 (Revenue's Appeal), pertaining to A.Y 2021-22, to 2023-24. 26. The Ld. Counsel for the Assessee submitted that the Assessee wishes not to press legal issues raised in Assessee's Ground No. 1 to 4for Assessment Year 2021-22 and 2022-23 and Ground No. 1 & 2 for Assessment Year 2023-24 of the Assessee's Appeals. Accordingly, the submission made by the Assessee's Representative is taken on record and the Ground No. 1 to 4 for Assessment Year 2021-22 and 2022-23 and Ground No. 1 & 2 for Assessment Year 2023-24 of the Assessee's Appeals are dismissed as not pressed. 27. The Ground No. 5 of the Assessee for Assessment Year 2021-22 and 2022-23 and Ground No. 3 of Assessment Year 2023-24 of ....
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....d entry fees. 33. We have already decided the similar issue while deciding the Appeal for Assessment Year 2020-21, wherein the Bench considering that fact that the AO has extrapolated the figures of 3 to 4 months to the whole year and also considering the overall facts and circumstances, sustained the addition to the extent of 25% of the amount added by the A.O. 34. Facts being identical, the aforesaid decision of the Tribunal would apply mutatis mutandis to the facts of the present case also. Accordingly, the Ground No. 7 of the Assessee for Assessment Year 2021-22, 2022-23 and Ground No. 5 of the Assessee for Assessment Year 2023-24 are partly allowed by sustaining the addition to the extent of 25% of the amount added by the A.O. 35. Ground No.8 of the Assessee in Assessment Year 2021-22, 2022-23 and Ground No. 6 in Assessment Year 2023-24 are regarding addition made on account of unexplained expenditure u/s 69C r.w. Section 115BBE of the Act. The Ld. A.O. held that the Assessee company is paying fees for documentation clearance to various embassies in respect of exports sales made by it. Ld. A.O. while making the addition observed that the expenses are not recorded in t....