SHRI BHUMIKA STRIPS PRIVATE LIMITED,AHMEDABAD vs. THE ITO, WARD-4(1)(1), AHMEDABAD

Sr.No. Name of the party Total sales Doubted & Added by AO Amt.(Rs.) Amt.(Rs.) 1. Kabra and Co. 16,304,932 12,766,045 2. Madhav Marketing 3,844,884 200,000 3. Param Enterprise --- 1,805,278 4. Mahavir Enterprise 685,304 1,055,000 5. Shreeji Steels 388,598 260,000 Total 21,223,718 16,086, Asst Years: 2014-15 to 2016-17 Shri Bhumika Strips Private Limited Vs. ITO 2.1 The Assessing Officer found that the above parties had shown meagre income and have had only salary income and no business income by M/s. Kabra and Company, as well as VAT registration was also cancelled by the Gujarat VAT department. Thereby the Assessing Officer made an addition of Rs. 1,60,86,323/- under section 68 of the Act and also calculated tax under Section 115 BBE of the Act.

1. The Ld. CIT(A) has erred, both in law and on facts, in confirming the action of AO in reopening the case of the assessee under section 147 of the Act.

2. The Ld. CIT(A) has erred, both in law and on facts, in confirming the addition of Rs.1,60,86,323/-under section 68 of the Act in respect of sales duly recorded in the books of accounts.

3. Alternatively and without prejudice, the Ld. CIT(A) ought to have restricted the addition in respect of underlying sales to the extent of profit element embedded therein instead of confirming addition in respect of entire amount of sales.

4. The Ld. CIT(A) has erred, both in law and on facts, in confirming action of AO in applying provisions of section 115BBE of the Act while computing tax on addition under section 68 of the Act in respect of sales duly recorded in the books of accounts.

5. Both, AO & CIT(A), have erred in passing the impugned orders without properly appreciating facts of the case, submissions of the assessee and documentary evidences available on record in the correct perspective. Such an act in in gross violation of principles of natural justice and hence, the impugned order deserve to be quashed.

, 1363 & 1364/Ahd/2025 4 Asst Years: 2014-15 to 2016-17 Shri Bhumika Strips Private Limited Vs. ITO 4. Learned counsel appearing for the Assessee, apart from the grounds of appeal, alternatively argued that the entire sales could not have been taxed since the Assessee has recorded such sales in the audited books of accounts and paid taxes thereon; referring to the voluminous paper book running to 2040 pages filed by the Assessee. Further, such sales and profit have been accepted by the learned AO and he has not rejected the audited books of accounts. In such circumstances, only the profit element embedded in such sales could have been taxed and submitted a note of the net profit as follows:

5. Per contra, the learned Senior D.R. appearing for the Revenue supported the orders passed by the lower authorities and requested to confirm the additions.

, 1363 & 1364/Ahd/2025 5 Asst Years: 2014-15 to 2016-17 Shri Bhumika Strips Private Limited Vs. ITO 6. We have given our thoughtful consideration and perused the materials available on the record. The short controversy in these appeals are as to whether the addition made under section 68 of the Act, in respect of sales which are duly accounted for in the books of accounts and offered to tax, is valid in law. The Assessing Officer has doubted part of sales made to the five parties and disallowed Rs. 1,60,86,323/- as against the total sales of Rs. 2,12,23,718/- made by the Assessee company. The only reason made out by the Assessing Officer was that the VAT registration number of M/s. Kabra and Company was cancelled by the Gujarat VAT department. There is no verification by the Assessing Officer about the date of cancellation of the VAT registration by VAT department. However, based on the information received from the Investigation Wing, the Assessing Officer made addition under section 68 of the Act. The Assessee during the appellate proceedings clarified that M/s. Kabra and Company, wherein the proprietor Kabra Suresh Prabhulal, as Kartha in his HUF capacity, and not in individual capacity. Thus, Assessing Officer wrongly noted that there is only salary income of Kabra Suresh Prabhulal, whereas M/s. Kabra and Company is having GST No. 24AACHK5257R1ZQ under the new GST Regime and active in its business activities and filed latest GST return in April, 2025. Further, M/s. Kabra and Company is having TIN No.2407050114 also. Thus, the Assessing Officer without making proper verification made the additions, which are against the provisions of law.

6.1 Further, the Assessing Officer has not rejected the books of account and accepted part of the sales declared by the Assessee. The net profit declared by the Assessee for the three assessment years is 1363 & 1364/Ahd/2025 6 Asst Years: 2014-15 to 2016-17 Shri Bhumika Strips Private Limited Vs. ITO ranging from 0.6% to 1.26% and the average of the same is worked out to 0.86% and Gross Profits ranging from 8.98% to 9.01% and average Gross Profits works out to 9%.

6.2 It is a well-settled principle of law that only the profit element embedded in the sales value can be brought to tax and not the entire transaction value, as held by the Hon’ble Gujarat High Court in the cases of (i) CIT Vs. President Industries reported in (2002) 258 ITR 654, (ii) CIT Vs. Gurubachan Singh reported in (2008) 302 ITR 63 (Guj.) and (iii) CIT Vs. Samir Synthetics Mill reported in (2010) 326 ITR 410 (Guj.).

& 1364/Ahd/2025 (AY: 2015-16 and 2016-17):- 9. There is no change in the facts of the case except the additions made under section 68 of the Act. For the assessment year 2015-16, the Assessee shown sales of Rs. 123,74,280/-, wherein the Assessing Officer doubted Rs. 58,68,000/-. For the assessment year 2016-17, the Assessee shown sales of Rs. 83,12,692/-, whereas the Assessing Officer doubted the sales of Rs.95,28,910/-. Therefore, we direct the 1363 & 1364/Ahd/2025 7 Asst Years: 2014-15 to 2016-17 Shri Bhumika Strips Private Limited Vs. ITO Jurisdictional Assessing Officer (JAO) to make fresh re-assessment adopting gross profit rate at 9% is reasonable addition for the above two assessment years and pass fresh reassessment orders accordingly by giving opportunity of hearing to the Assessee.