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Facts
A survey action was conducted on the assessee, a ready-mix concrete manufacturer, leading to the discovery of unaccounted purchases of river sand. The AO made additions based on these purchases and other discrepancies. The assessee appealed to the CIT(A), which granted partial relief.
Held
The Tribunal determined an appropriate purchase price for river sand to compute unaccounted purchases and directed the AO to apply the previous five years' GP ratio to the adjusted purchases. The addition for sundry creditors was confirmed.
Key Issues
Determination of the appropriate purchase price for unaccounted river sand purchases and confirmation of additions for sundry creditors.
Sections Cited
133A, 148, 147, 144, 143(3), 69
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY & SHRI S. R. RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM:
These three appeals preferred by the assessee are directed against the separate orders of the Learned Commissioner of Income Tax (Appeals)–20, Chennai [hereinafter referred to as the “ld.CIT(A)”], each arising out of the assessment orders passed by the Assistant Commissioner of Income Tax, Central Circle–2, Coimbatore [hereinafter referred to as the “AO”], for the Assessment Years 2016-17, 2017-18 and 2018-19 respectively.
:-2-: ITA. Nos.:1423 to 1425 /Chny/2025
Since the issues involved in all the three assessment years under consideration are identical in nature and the arguments advanced by both the parties are substantially common, all these appeals were heard together and are being disposed of by this consolidated order for the sake of convenience and brevity.
The brief facts of the case are that the assessee is a partnership firm engaged in the business of manufacturing ready-mix concrete involved in execution of civil construction projects. A survey action u/s.133A of the Income- tax Act, 1961 [hereinafter referred to as “the Act”] was carried out at the business premises of the assessee on 21.09.2017, simultaneously with a search operation conducted in the case of one of its partners, Shri S.Shankar Anand. Consequent to the findings emanating from the said survey, the AO reopened the assessments for AYs 2016-17 and 2017-18 by issuance of notices u/s.148 of the Act. The case for the A.Y.2018-19 was selected for compulsory scrutiny assessment.
During the course of the survey proceedings, it was noticed that the assessee had been utilizing both M-sand and river sand in its ready-mix concrete manufacturing activity. Certain folders containing details of purchases of river sand made outside the regular books of account for the AYs 2016-17 to 2018-19 were found and impounded. On verification of the said impounded
:-3-: ITA. Nos.:1423 to 1425 /Chny/2025 material, the AO observed that the assessee had effected unaccounted purchases of river sand to the extent of 4,623 units, 4,805 units and 492 units for the AYs 2016-17, 2017-18 and 2018-19 respectively.
Based on the statement of the Managing Partner recorded during the course of survey, the AO adopted the average rate of river sand at Rs.1,500 per unit and accordingly computed undisclosed business income arising from such unrecorded purchases at Rs.69,34,500/-, Rs.72,07,500/- and Rs.7,38,000/- for the AYs 2016-17, 2017-18 and 2018-19 respectively, which were added to the total income of the assessee.
Further, for the A.Y.2017-18, the AO made an addition of Rs.6,50,000/- on account of unexplained sundry creditors. For the A.Y.2018-19, the AO also noticed a discrepancy between the physical stock and the stock as per books of account amounting to Rs.4,84,938/-, which was treated as unexplained investment u/s.69 of the Act, and corresponding addition was made to the total income.
Accordingly, the assessments for the AYs 2016-17 and 2017-18 were completed u/s.147 r.w.s 144 of the Act vide orders dated 11.03.2022, whereas the assessment for the A.Y.2018-19 was completed u/s.143(3) of the Act vide order dated 25.09.2021.
:-4-: ITA. Nos.:1423 to 1425 /Chny/2025 8. Being aggrieved by the assessment orders passed by the AO, the assessee carried the matter in appeal before the ld.CIT(A). The ld.CIT(A), after considering the submissions of the assessee and examining the material placed on record, was pleased to grant partial relief to the assessee vide separate appellate orders dated 18.03.2025.
The ld.CIT(A) upheld the action of the AO in adopting the average purchase price of river sand at Rs.1,500/- per unit as against the assessee’s claim of Rs.500/- per unit. The ld.CIT(A) observed that the assessee failed to furnish any cogent evidence or documentary proof substantiating the purchase price of Rs.500/- per unit, and therefore, the estimation made by the AO was found to be reasonable and in accordance with facts on record.
With regard to the addition made by the AO towards unaccounted business income arising from unaccounted purchases, the ld.CIT(A) held that the entire quantum of such unaccounted purchases could not be treated as income of the assessee. The ld.CIT(A) observed that only the profit element embedded therein was liable to be brought to tax. Accordingly, the ld.CIT(A) directed the AO to estimate the said profit by applying the average gross profit (GP) ratio of the preceding five assessment years.
Furthermore, the ld. CIT(A) confirmed the addition of Rs.6,50,000/- made by the AO on account of sundry creditors pertaining to the A.Y.2017-18. As far
:-5-: ITA. Nos.:1423 to 1425 /Chny/2025 as the addition of Rs.4,84,938/- made by the AO on account of unexplained investment in stocks, we note that no ground of appeal has been raised before the ld.CIT(A). Hence, the ld.CIT(A) did not adjudicate the said issue.
12. Thus, the ld.CIT(A) gave partial relief to the assessee vide separate orders dated 18.03.2025 passed for the impugned assessment years.
Aggrieved of the above orders of the ld.CIT(A), the assessee is in appeal before us raising various grounds of appeal on the impugned issues.
The ld.AR appearing on behalf of the assessee submitted that the cost of river sand, as evidenced by the latest purchase invoice available on record, was Rs.309/- per unit. It was therefore contended that the same could not be estimated at Rs.1,500/- per unit as adopted by the AO, which is very unreasonable. The ld.AR further submitted that, in the absence of any contrary material brought on record by the Revenue, the actual purchase price of Rs.309/- per unit ought to be adopted for the purpose of determining the quantum of unaccounted purchases, and consequently, for applying the GP ratio in accordance with the directions issued by the ld.CIT(A).
Per contra, the ld.DR supported the order of the AO and ld.CIT(A) and submitted that the average price of Rs.1,500/- per unit was agreed by the :-6-: ITA. Nos.:1423 to 1425 /Chny/2025 partner of the assessee firm at the time of survey and accordingly prayed for confirming the order of the ld.CIT(A).
We have considered the rival contentions, perused the material available on record, and examined the orders of the lower authorities. The sole issue that arises for our consideration in the present appeals is the determination of the appropriate purchase price per unit of river sand purchased by the assessee, which remained unaccounted for in the books of account.
The AO has adopted a purchase price of Rs.1,500/- per unit. This determination, as noted in the assessment order, is based solely on the sworn statement of one of the partners of the assessee and is not supported by any corroborative documentary material. The ld.CIT(A) confirmed the action of the AO, observing that the assessee had failed to substantiate the contention that the purchase price could have been lower, by way of credible documentary evidence.
We have noted the contention of the assessee that the purchase price
per unit is Rs. 309/-, which is the price applicable when river sand is purchased directly from the Government. However, it is equally evident that this price cannot be treated as applicable to purchases made from licensed dealers. In the instant case, it is an admitted position that the assessee procured the river sand from license holders during the impugned assessment years. In view of
:-7-: ITA. Nos.:1423 to 1425 /Chny/2025 this, we are of the considered opinion that the price of Rs. 309/- per unit, as claimed by the assessee, cannot be adopted.
At the same time, we observe that there is no material on record to substantiate the AO’s adoption of Rs. 1,500/- per unit as the actual purchase price incurred by the assessee. In such circumstances, in order to meet the ends of justice, we deem it appropriate to adopt a reasonable estimate. After considering the parties’ contentions and the available material and peculiar facts of the present case, we estimate the purchase price at Rs.770/- per unit, which represents a simple average of Rs.1,500/-, Rs. 309/-, and an intermediate price of Rs. 500/-, as a fair and equitable measure.
Accordingly, we direct the AO to adopt the purchase price of river sand at Rs.770/- per unit while computing the quantum of unaccounted purchases for the AYs 2016-17, 2017-18 and 2018-19. Further, while concurring with the directions of the ld.CIT(A), the AO shall apply the preceding five years’ gross profit ratio to the adjusted purchases in order to arrive at the undisclosed business income of the assessee for the respective assessment years. In view of the above, the grounds of appeal raised by the assessee on this issue are partly allowed.
Turning to the second issue regarding the addition of Rs.6,50,000/- on account of sundry creditors, which was sustained by the ld.CIT(A) for the :-8-: ITA. Nos.:1423 to 1425 /Chny/2025 AY.2017-18, we have examined the records and the submissions of the parties. We do not find any infirmity in the order of the ld.CIT(A) that would warrant our interference. Accordingly, the addition on account of sundry creditors stands confirmed, and the grounds of appeal raised by the assessee on this issue are dismissed.
In the result, all the three appeals of the assessee are partly allowed.
Order pronounced in the open court on 15th October, 2025 at Chennai.