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Facts
The case involves appeals by both the Assessee and the Revenue against an order of the CIT(A) for AY 2014-15. The Assessing Officer (AO) made an addition based on information from an Excise Department search of a third party, M/s Trikoot Iron and Steel Ltd., alleging undisclosed sales and capital. The CIT(A) partly allowed the appeal.
Held
The Tribunal held that the AO's addition, solely based on information from the Excise Department search of a third party without independent inquiry, was unsustainable. The Tribunal noted that related excise proceedings were quashed and that a coordinate bench had deleted similar additions in an identical case.
Key Issues
Whether additions made by the AO based solely on information from an external agency's search, without independent verification, can be sustained. Whether the CIT(A) erred in restricting additions or deleting parts of the additions made by the AO.
Sections Cited
143(2), 142(1)
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Income Tax Appellate Tribunal, DELHI
(A.Y. 2014-15) ACIT Vs. Shri Parasnath Alloys P. Ltd. Circle-2 9th KM, Bhopa Road, Room No. 30, Aayakar Muzffarnagar, Bhawan, Meerut Road, Uttar Pradesh Muzaffarnagar, PAN: AAHCS3810L Uttar Pradesh PIN: 251001 Appellant Respondent Assessee by CA S. B. Gupta, Revenue by Sh. Manish Gupta, Sr. DR Date of Hearing 29/05/2025 Date of Pronouncement 20/06/2025 ORDER
PER YOGESH KUMAR, U.S. JM:
The captioned appeals are filed by the Assessee as well as the Revenue aggrieved by the order of the Ld. CIT(A) dated 14/09/2018 passed by the Ld. CIT(A)- Muzaffarnagar pertaining to Assessment Year 2014-15. The Grounds of Appeal of the Assessee as well as the Revenue are as under:-
The grounds of Appeal of the parties are as under:-
(A.Y. 2014-15) (Assessee)
“1. That on the Facts and circumstances of the case, the Assessment order passed by the Ld. CIT(A) is bad in law.
2. That Ld. CIT(A) has erred both in law and on the facts of the case in passing the assessment order pending the final order from excise department.
3. That Ld. CIT(A) has erred both in law and on the facts of the case in relying on documents recovered from premises of third party pertaining to other parties and using the same as corroborative evidence against the assessee.
4. That Ld. CIT(A) has erred both in law and on facts in applying an ad hoc G.P rate of 4.57% on the total sales. However, the assessee as well as other companies in same trade have much lower rate of G.P. during last three year and also addition is made without rejecting the books of accounts.
5. That Ld. CIT(A) has erred both in law and on the facts of the case in making an addition of Rs. 47,30,986/-on account of undisclosed investment undisclosed sale in alleged 6. That the impugned appellate order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence.
7. The appellant craves leave to amend, delete or add any grounds of appeal before or during the course of hearing of the appeal.”
(A.Y. 2014-15) (Revenue) “1. The CIT(A), Muzaffarnagar has erred in law and on facts in applying the GP rate of current year i.e 4.57% of similar concern (M/s Bhageshwari Paper Pvt. Ltd.) on unaccounted sales of Rs. 5,91,37,325/- ignoring the fact that the GP rate of year under consideration i.e (-) 5.38% was low in comparison to GP of previous years & accordingly the AO has applied average GP of last three years of similar concern i.e 6.31% on unaccounted sales.
2. The CIT(A), Muzaffarnagar has erred in law and on facts in restricting the addition made on account of undisclosed capital in circulation from Rs. 1,18,27,465/- to Rs. 47,30,986/- without any basis.
3. The CIT(A), Muzaffarnagar has erred in law and on facts in deleting the addition of Rs. 15,00,000/-ignoring the fact that the assessee has received an amount of Rs. 15,00,000/- and the same has not been recorded in the books of account.
The CIT(A), Muzaffarnagar has erred in law and on facts in accepting the current year GP i.e. (-)5.38% of the assessee ignoring the fact that the GP rate of year under consideration was low.
5. The CIT(A), Muzaffarnagar has erred in law and on facts in deleting total additions of Rs. 3,56,648/- { Rs. 1,00,000/- ( freight), Rs. 5,648/- ( repairs), Rs. 1,50,000/- (wages), Rs. 1,00,000/- (other expenses) made on account of unverifiable expenses ignoring the facts that the books of accounts & supporting documents in respect of expenses claimed by the assessee were not properly maintained.”
Brief facts of the case are that, the Assessee filed return of income declaring loss of Rs. 4,82,379/-. The case of the Assessee was selected for scrutiny through CASS and statutory notices wereissued u/s 143(2)/142(1) of the Income Tax Act, 1961 ('Act' for short) along with detailed questionnaire to the Assessee. During the course of the assessment proceedings, it was found by the A.O. that a search was conducted by the Excise Department on 04/07/2013 in the case of M/s Trikoot Iron and Steel Ltd. and in the premises of the Assessee, wherein some documents/loose papers were found and seized by the Central Excise Department, those documents seized led to the unearthing of undisclosed sales by the Assessee to M/s Trikoot Ltd. A show cause notice has been issued to the Assessee as to why the GP rate at 6.31% may not be applied to the amount of Rs. 5,91,37,325/- ,which has not been disclosed in the books of accounts for the year.
The Assessee replied to the show cause notice. However, the Ld. A.O. by rejecting the reply of the Assessee made addition of Rs. 4,34,34,284/- as against loss return shown by the Assessee at Rs. 4,82,379/-.
4. Aggrieved by the assessment order dated 20/12/2016, the Assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 14/09/2018, partly allowed the Appeal by deleting certain additions. As against the deletion of the additions, the department of Revenue has preferred the Appeal and as against sustaining the additions the Assessee preferred the Appeal.
The Ld. Counsel for the Assessee vehemently submitted that the sole basis for the addition made by the A.O. was the information shared by Central Excise Department consequent to search conducted upon on M/s Trikoot Iron and Steel Pvt. Ltd. Muzaffarnagar, however, A.O. without making any independent enquiry with either Trikoot or from Excise Department or any other person, made additionsin the hands of the Assessee. The Ld. Counsel further submitted that the Hon’ble Custom, Excise and Service Tax Appellate Tribunal (CESTAT) vide order dated 09/09/2024 in Excise Appeal No. 55779/2023 (M/s Trikoot Iron and Steel Ltd. vs. Additional Directorate General of GST Intelligence), allowed the Appeal of the Appellant therein. Thus, the very basis of the addition made by the A.O. in the present case, which the show cause notice issued on account of sales outside books of accounts and investment of undisclosed capital stands wiped out, therefore, the addition made by the A.O. in the hands of the Assessee will not sustain. The Ld. Counsel further submitted that in an identical situation in the case of Shree Bhageshwari Papers Pvt. Ltd. the Co-ordinate Bench of the Tribunal has deleted the addition. Thus, the Ld. Assessee's Representative sought for allowing the Appeal.
Per contra, the ld. Ld. Departmental Representative relying on the orders of the Lower Authorities, sought for allowing the Appeal.
We have heard both the parties and perused the material available on record. The Co-ordinate Bench of the Tribunal while dealing with the similar issue,deleted the addition in the case of Bhageshwari Papers Pvt. Ltd (supra) in following manners:-
“10. We have carefully considered the rival submissions and perused the material available on record. The estimated additions made arising from undisclosed sales outside books of accounts and estimated additions towards undisclosed capital employed on such undisclosed sales is in controversy. It is the case of the assessee that the entire basis of additions towards undisclosed sales and consequent additions towards undisclosed investment is certain print out taken by the Central Excise Department from the hard disk and pen drive recovered from the premises of Trikoot in a search carried out by the Central Excise Department. However, the panchnama prepared at the premises of Trikoot does not bear any reference to recovery of hard disk and pen drive. Consequently, adverse opinion towards undisclosed sales made by the assessee to Trikoot flowing from such pen drive etc. is neither admissible as evidence nor it can be examined for this purpose as held in appellate order passed by Excise Tribunal. It is further a case of the assessee that consequent upon search in the case of Trikoot, a search was carried out at the premises of the assessee as well. However, Central Excise Department could not recover any adverse material from the premises of the assessee either.
The AO in the instant case has also not brought any material on record adverse to the assessee. The sole basis of estimated addition is a show cause notice issued by the Central Excise Department, the aforesaid proceedings against the third party (Trikoot) by Central Excise Department has been quashed and therefore, no firm basis exists any longer against the assessee. Thus we find substantial force in the plea of the assessee for reversal of the additions on this score.
As emerges from the assessment order, the AO has entertained adverse inference based on ‘show cause notice’ issued by the Director of DG of Central Excise Intelligence on Trikoot and reference to some loose papers therein. As pointed out on behalf of the assessee, the appellate authority of Central Excise Department has quashed the proceedings against Trikoot. The relevant paras of the judgement are reproduced hereunder:- 18. “Thus, we find that according to the Tribunal the assessing officer had merely relied upon information received from the Sales Tax Department, Government of Maharashtra without carrying out any independent enquiry. Tribunal had recorded as finding that assessing officer had failed to show that the purchased materials were bogus and held that there was no justification to doubt genuineness of the purchases made by the respondent-assessee.
We are in agreement with the views expressed by the Tribunal. Merely on suspicion based on information received from another authority, the assessing officer ought not to have made the additions without carrying out independent enquiry and without affording due opportunity to the respondent-assessee to controvert the statements made by the sellers before the other authority. Accordingly, we do not find any good ground to entertain this question for consideration as well.
Consequently, we find no merit in the appeal preferred by the Revenue. Appeal is dismissed.”
Significantly, the AO has also not made any independent enquiry in the course of search to assert the additions. No independent material to corroborate the allegation of unrecorded
sales is available on record. The ratio of judgement referred in the case of PCIT vsSapoorjiPallonji& Co. Ltd. (supra) would thus squarely apply. The Hon’ble Bombay High Court in that case observed that the AO had merely relied upon the information received from the Sales Tax Department, Government of Maharasthra without carrying out any independent enquiry.”
It is also noticed that the Ld. A.O. issued a show cause notice on the sole basis of the notice issued by the Central Excise Department to the Assessee pursuant to the search conducted by the central ExciseDepartment on the premises of M/s Trikoot Iron and Steel Ltd. The Ld. A.O. made the addition pursuant to the said search and based on the material found during the search conducted by the Excise Department on M/s Trikoot Iron and Steel Ltd. The Hon’ble CESTAT in Excise Appeal No. 55779/2023, vide order dated 09/09/2024 quashed the additions made in the hands of M/s Trikoot Iron and Steel Ltd. by allowing the Appeal. Further, Hon’ble CESTAT has also allowed Assessee’s Appeal in Excise Appeal No. 50759/2022 vide order dated 08/05/2025, wherein deleted the demand of duty and imposition of penalty.
Considering the above facts and circumstances, we are of the opinion that the Ld. A.O. erred in making the additions in the hands of the Assessee and we find no reason to sustain the addition made by the A.O. which deserves to be deleted. In the result, the appeal of the Assessee is allowed and the impugned assessment order and the order of the Ld. CIT(A) are hereby set aside. In the result, Appeal of the is allowed.
Since, we have allowed the Appeal of the Assessee by deleting the addition made by the A.O. holding that the additions made in the hands of the Assessee is erroneous, the captioned Appeal of the Department has become in-fructuous. dismissed.