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Facts
The appeals involved challenges to assessment orders for multiple assessment years (2015-16, 2017-18 to 2019-20). The primary issue revolved around the validity of assessment orders passed under Section 153A, particularly concerning the mandatory prior approval required under Section 153D. The assessee contended that the approval was granted mechanically without proper application of mind.
Held
The Tribunal held that the approval granted under Section 153D of the Income Tax Act was a mandatory statutory requirement and was not meant to be a mechanical exercise. It found that in the present cases, the approval was granted without proper application of mind, thus vitiating the assessment orders. Consequently, the assessment orders were quashed.
Key Issues
Whether the assessment orders passed under Section 153A were sustainable without a proper and judicious approval granted under Section 153D, ensuring due application of mind by the approving authority.
Sections Cited
153A, 153D, 145(3), 143(3), 68, 69C, 115BBE, 69A, 69, 145, 139(1), 143(2), 142(1), 132(1), 136, 193, 228, 196, 195, 142(2A), 151(2), 147, 148, 158BG, 271(1)(c), 153B(2)(b)
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘A’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
PHYSICAL HEARING O R D E R PER RAJ PAL YADAV, VP
The separate orders of ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 29.11.2024 passed to 1255/CHD/2024 & 181,457/CHD/2025 2 in assessment years 2015-16, 2017-18 to 2019-20 are being challenged by way of cross-appeals, except in assessment year 2015-16, where assessee alone is in appeal.
Since common issues are involved, rather we can say that impugned orders are verbatim except difference of quantum of amount in each year, therefore, we deem it appropriate to dispose of all these appeals by this common order. For the facility of reference, we take note of following detail in a tabular form which will exhibit appeal number, assessment year, appellant, date of CIT’s order and date of AO’s order in a more scientific manner, which reads as under :
Sr.No. ITA No. Asstt.Year Appellant Date of Date of AO’s CIT’s order order
1. 1252/CHD/2024 2015-16 Assessee 29.11.2024 08.09.2021 u/s 153A 2. 1253/CHD/2024 2017-18 Assessee -do- -do- 3. 116/CHD/2025 2017-18 Department -do- -do- 4. 1254/CHD/2024 2018-19 Assessee -do- -do- 5. 181/CHD/2025 2018-19 Department -do- -do- 6. 1255/CHD/2024 2019-20 Assessee -do- -do- 7. 457/CHD/2025 2019-20 Department -do- -do- 3. The assessee has taken seven grounds of appeal
in each year, whereas Revenue has taken five, six and seven grounds of appeal in assessment year 2017-18, 2018-29 and 2019-20 respectively. We take note of these grounds raised by the parties, which read as under : to 1255/CHD/2024 & 181,457/CHD/2025 3 : (Assessee's Appeal)
1. That order passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals)-5, Ludhiana is against law and facts on the file in as much as he was not justified to uphold various additions/disallowances made by the Learned Assessing Officer despite the fact that no incriminating material was found for the year under appeal during the course of search conducted on 25.04.2018.
2. That the Learned CIT(A) gravely erred in upholding the validity of the assessment order despite the fact that the approval granted by the Learned Additional Commissioner of Income Tax as statutorily required u/s 153D was merely mechanical and ritualistic without application of mind.
3. That he was not justified to uphold the action of the Learned Assessing Officer in arbitrarily rejecting the books of accounts by invoking the provisions of Section 145(3) of the Income Tax, 1961.
4. That he was further not justified to arbitrarily uphold the addition of Rs. 3,47,132/- by applying an arbitrary G. P. rate on the alleged bogus purchases of Rs. 47,55,239/- made from M/s Goyal Enterprises u/s 68 of the Income Tax Act, 1961.
5. That he was further not justified to uphold the action of the Learned Assessing Officer in arbitrarily estimating the turnover of the appellant at Rs. 46,30,00,000/- as against Rs. 46,28,26,050/- declared in its audited accounts.
6. That he further gravely erred in upholding the action of the Learned Assessing Officer in applying an arbitrary G. P. rate on the estimated turnover by upholding rejection of the books of accounts, thereby working out addition of Rs. 20,38,451/-as against Rs. 50,642/-.
7. That the Assessment Order dated 08.09.2021 passed u/s 153A of the Act by the Learned Assessing Officer is non-est and bad in law in as much as the proceedings have not been conducted in the manner prescribed by the departmental instructions from time to time which are mandatory for compliance by the Learned Authorities particularly with respect to mentioning of Document Identification Number (DIN).
: (Assessee's Appeal) 1. That order passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals)-5, Ludhiana is against law and facts on the file in as much as he was not justified to uphold various additions/ disallowances made by the Learned Assessing Officer despite the fact that no incriminating material was found for the year under appeal during the course of search conducted on 25.04.2018. to 1255/CHD/2024 & 181,457/CHD/2025 4 2. That the Learned CIT(A) gravely erred in upholding the validity of the assessment order despite the fact that the approval granted by the Learned Additional Commissioner of Income Tax as statutorily required u/s 153D was merely mechanical and ritualistic without application of mind.
That he was not justified to uphold the action of the Learned Assessing Officer in arbitrarily rejecting the books of accounts by invoking the provisions of Section 145(3) of the Income Tax, 1961.
4. That he was further not justified to arbitrarily uphold the addition of Rs. 37,20,823/- by applying an arbitrary G. P. rate on the alleged bogus purchases of Rs. 4,51,00,883/- (instead of actual figure of Rs. 4,29,46,144/-) made from M/s Goyal Enterprises u/s 68 of the Income Tax Act, 1961.
That he was further not justified to uphold the action of the Learned Assessing Officer in arbitrarily estimating the turnover of the appellant at Rs. 100.30 crores as against Rs. 100.19 crores declared in its audited accounts.
6. That he further gravely erred in upholding the action of the Learned Assessing Officer in applying an arbitrary G. P. rate on the estimated turnover by upholding rejection of the books of accounts, thereby working out addition of Rs. 1,47,51,957/- as against Rs. 38,492/-.
7. That the Assessment Order dated 08.09.2021 passed u/s 153A of the Act by the Learned Assessing Officer is non-est and bad in law in as much as the proceedings have not been conducted in the manner prescribed by the departmental instructions from time to time which are mandatory for compliance by the Learned Authorities particularly with respect to mentioning of Document Identification Number (DIN).
: (Assessee's Appeal)
1. That order passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals)-5, Ludhiana is against law and facts on the file in as much as he gravely erred in upholding the validity of the assessment order despite the fact that the approval granted by the Learned Additional Commissioner of Income Tax as statutorily required u/s 153D on the mechanical and ritualistic without application of mind.
2. That he was not justified to uphold the action of the Learned Assessing Officer in arbitrarily rejecting the books of accounts by invoking the provisions of Section 145(3) of the Income Tax, 1961.
3. That he was further not justified to arbitrarily uphold the action of the Learned Assessing Officer in arbitrarily adopting G P rate and working out the amount of profit on the alleged unaccounted turnover derived from the loose papers found during the course of search thereby upholding the addition of Rs. 19,77,558/- as against Rs. 25,10,644/- to 1255/CHD/2024 & 181,457/CHD/2025 5 4. That he further gravely erred in upholding the addition made by the Learned Assessing Officer at Rs. 12,48,475/- representing capital requirement for making alleged unaccounted turnover derived from the loose papers found during the course of search.
5. That he further not justified to uphold the action of the Learned Assessing Officer in arbitrarily applying G P rate on the turnover shown in the audited books of accounts thereby upholding the addition of Rs. 55,92,733/-as against RS. 1,11,85,465/- 6. That he further gravely erred in upholding the action of the Learned Assessing Officer considering the amount of Rs. 1,10,80,901/- as alleged capital contribution in the business by resort to provision of section 69 of the Act.
7. That the Assessment Order dated 08.09.2021 passed u/s 153A of the Act by the Learned Assessing Officer is non-est and bad in law in as much as the proceedings have not been conducted in the manner prescribed by the departmental instructions from time to time which are mandatory for compliance by the Learned Authorities particularly with respect to mentioning of Document Identification Number (DIN)
: (Assessee's Appeal) 1. That order passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals)-5, Ludhiana is against law and facts on the file in as much as he was gravely erred in upholding the validity of the assessment order despite the fact that the approval granted by the Learned Additional Commissioner of Income Tax as statutorily required u/s 153D was merely mechanical and ritualistic and without application of mind.
2. That he was not justified to uphold the action of the Learned Assessing Officer in arbitrarily rejecting the books of accounts by invoking the provisions of Section 145(3) of the Income Tax, 1961.
3. That he was further not justified to uphold the action of the Learned Assessing Officer in arbitrarily making an addition of Rs. 1.00 crore being cash allegedly found in excess during the course of search as unexplained money by resort to provisions of Section 69A of the Act and taxed u/s 115BBE.
4. That he was further not justified to uphold the action of the Learned Assessing Officer in arbitrarily making an addition of Rs. 1.00 crore being stock allegedly found in excess during the course of search.
5. That he was further not justified to uphold the action of the Learned Assessing Officer in making an addition of Rs. 11,00,000/- on account of advance given for purchase of immovable property, the agreement to sell was subsequently cancelled.
That he was further not justified to uphold the action of the Learned Assessing Officer in arbitrarily adopting G. P. rate and working out to 1255/CHD/2024 & 181,457/CHD/2025 6 the amount of profit on the alleged unaccounted turnover derived from the loose papers found during the course of search, thereby upholding the addition of Rs. 21,67,640/- as against Rs. 30,01,168/-.
That the Assessment Order dated 08.09.2021 passed Para u/s 143(3) of the Act by the Learned Assessing Officer is non-est and bad in law in as much as the proceedings have not been conducted in the manner prescribed by the departmental instructions from time to time which are mandatory for compliance by the Learned Authorities particularly with respect to mentioning of Document Identification Number (DIN).
(Revenue’s Appeal) 1. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in reducing the addition of Rs. 4,51,00,883/- on account the bogus purchases made by the assessee with M/s Goyal Enterprises to Rs. 37,20,822/- by applying G.P. rate? 2. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified to applying the gross profit on bogus purchases u/s 68 r.w.s.69C ignoring the judgment of the Hon'ble Supreme Court in the case of N.K. proteins Ltd. Vs. CIT vide SLP (C) No.769 of 2017 dismissing appeal of assessee against decision of Hon'ble Gujarat High Court in Tax Appeal No. 242/2003 wherein it is held that entire bogus purchases are to be taxed? 3. Whether upon facts and circumstances of the case, the Ld. CIT (A) was justified in reducing G.P. rate of 10.9% calculated by AO based on well reasoned findings and seized material to 8.25% without any basis and reasoning? 4. Whether upon facts and circumstances of the case, the Ld. CIT(A) has justified to delete the addition made by the A.O. on account of unexplained investment for the construction of Godown, without considering the facts of the case? 5. The appellant craves leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.
: (Revenue’s Appeal) 1. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in reducing G.P, rate of 11% calculated by AO based on well reasoned findings and seized material to 10.45% without any basis and reasoning? 2. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in reducing the addition on unaccounted business receipts to Rs. to 1255/CHD/2024 & 181,457/CHD/2025 7 19,77,561/- by reducing the GP rate from 11.00% to 10.45% without any basis and reasoning? 3. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in reducing the addition of Rs. 1,11,85,465/- to Rs. 58,94,428/-by reducing the GP rate from 11.00% to 10.45% as suppressed GP rate on disclosed turnover of Rs. 101,65,52,103/- without any basis and reasoning? 4. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in allowing benefit of application of funds totalling to Rs. 78,71,989/- [i.e income arising out of Gross profit on unaccounted business receipts (Rs. 19,77,561/-) and income out of suppressed GP rate (Rs. 58,94,428/-)] against the addition on account of Capital introduced during the year of Rs. 1,23,29,376/- and by ignoring the complete facts of the case that the assessee has failed to prove whether these income has actually been used for the introduction of capital? 5. Whether upon facts and circumstances of the case, the Ld. CIT(A) has justified to delete the addition made by the AO on account of explained investment for the construction of Godown, without considering the facts of the case? 6. The appellant craves leave to acid, amend, modify, vary, omit substitute any of the aforesaid grounds of appeal at any time before the time of hearing of the appeal.
: Revenue’s Appeal 1. Whether upon facts and circumstances of the case, the Ld. C1T (A) was justified in treating the surrendered income of Rs. 1,00,00,000/- on account of excess stock as a normal business income instead of unexplained investment under the deeming provisions of 69 of the I. T. Act, 196.1 and to be taxed as per provisions of section 1 15BBE of the I. T. Act, 1961 by the AO as the assessee has failed to substantiate its claim with evidence, ignoring the facts involved in this case? 2. Whether upon facts and circumstances of the case, the Ld. CIT (A) was justified to restrict the addition from Rs. 1,96,50,000/- to Rs. 1 1.00.000. on account of unexplained investment in property by the AO as the assessee has failed to substantiate its claim with evidence, ignoring the facts involved in this case? 3. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified to reduce the addition of Rs.30,01,168/- to Rs.2 1,67,640/- by applying GP rate of 13.36% as against .14% applied by AO. without any basis ? 4. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in holding that no separate addition on account of undisclosed GP on account of undisclosed sales is required to be made as addition on account of excess stock has been confirmed and to 1255/CHD/2024 & 181,457/CHD/2025 8 ignoring the fact that no evidence has been furnished by the assessee to show that profit: from undisclosed sales is invested in stock? 5. Whether upon facts and circumstances of the case, the CIT(A) was justified in reducing enhancement of GP rate on account of on the disclosed turnover from 1.26% to 0.63% without analysis and by ignoring the complete facts of the case? 6. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified to delete the addition made by the A.O. on account of unexplained investment, for the construction of Godown, without considering the facts of the case? 7. The appellant craves leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.”
BRIEF FACTS : ( A.Y. 2015-16)
The assessee is engaged in manufacture of cattle feed. It has filed its return of income u/s 139(1) of the Income Tax Act, 1961 on 19.10.2015 declaring income at Rs.35,52,220/-. This return was processed u/s 143(1) of the Income Tax Act. According to the AO, the assessee belongs to AFI Group of cases where a search & seizure operation was carried out u/s 132(1) of the Act on 25.04.2018. In order to give logical end to the search proceedings, notice u/s 153A was issued on 23.01.2020 requiring the assessee to file return of income. In response to this notice, assessee has filed the return on 26.02.2020 and it has declared the same amount of income as was declared u/s 139(1) i.e. Rs.35,52,220/-. The AO has issued notice u/s 143(2) on 16.09.2020 and thereafter issued to 1255/CHD/2024 & 181,457/CHD/2025 9 questionnaire u/s 142(1). The AO ultimately passed the assessment order u/s 153A of the Income Tax Act on 08.09.2021.
BRIEF FACTS : ( A.Y. 2017-18) 5. In this year, the original return was filed u/s 139(1) on 06.11.2017, though AO has mentioned that this return was filed u/s 139(4) of the Act. The assessee has declared an income of Rs.77,69,460/- which was processed u/s 143(1) of the Act. The search was carried out u/s 132(1) and notice u/s 153A was issued upon the assessee on 23.01.2020. In response to this notice, assessee has filed the return declaring the same income as was declared u/s 139(1) i.e. Rs.77,69,460/-. This return was filed on 26.02.2020. The AO has issued notices u/s 143(2)/142(1) on 16.09.2020 and 01.02.2021. Thereafter, he has passed the assessment order on 08.09.2021 u/s 153A read with Section 143(3) of the Income Tax Act. He has made various additions whose cognizance we will be taking in subsequent paragraphs. Dissatisfied with the assessment order, assessee carried the matter in appeal wherein substantial additions have been deleted by the ld.CIT (Appeals). to 1255/CHD/2024 & 181,457/CHD/2025 10 BRIEF FACTS : ( A.Y. 2018-19) 6. In this year, original return was filed on 25.10.2018 u/s 139 of the Income Tax Act declaring total income of Rs.2,34,00,840/-. Thereafter, notice u/s 153A was issued upon the assessee subsequent to the search carried out u/s 132(1) and in response to that notice, assessee has filed its return of income on 26.02.2020 declaring same income as was declared u/s 139(1) of the Income Tax Act. Assessment order was passed on 08.09.2021 u/s 153A read with Section 143(3) of the Act.
BRIEF FACTS : ( A.Y. 2019-20) 7. In this year, original return was filed on 31.10.2019 declaring total income at Rs.2,75,59,900/-. As observed earlier, search was carried out upon the assessee on 25.04.2018. Since it is a search year, therefore, on the return of the assessee, notice u/s 143(2) was issued on 10.02.2020. The la AO has passed the assessment order u/s 143(3) of the Income Tax Act on 08.09.2021. On appeal, ld.CIT (Appeals) has partially granted relief to the assessee and therefore, Revenue is also in appeal.
8. As far as construction/interpretation and scope of to 1255/CHD/2024 & 181,457/CHD/2025 11 Section 153A is concerned, it is no more in res-integra. However, we deem it appropriate to bear in mind the scope of this Section as explained by the Hon'ble Supreme Court in the case of Abhisar Buildwell Pvt. Ltd. 454 ITR 212 before embarking upon an enquiry on the facts of the present case because originally, there were two schools of thoughts propounded by different High Courts, namely Hon'ble Delhi High Court in the case of Kabul Chawla 380 ITR 573, Hon'ble Gujrat High Court in the case of Saumya Construction 387 ITR 521 and Hon'ble Bombay High Court in the case of Continental Warehousing Corporation 374 ITR 645. They were of the view that income in consequent to the search u/s 153A is to be assessed on the basis of seized material found during the course of search whereas Hon'ble Karnataka High Court in the case of Canara Housing and Kerala High Court did not concur with the view taken by rest of the High Courts in the country. The dispute ultimately travelled to the Hon'ble Supreme Court in the case of PCIT Vs Ab Abhisar Buildwell Pvt. Ltd. reported in 149 taxman.com 399 wherein Hon'ble Supreme Court has concurred with the view taken by the Hon'ble Delhi High Court in the case of Kabul Chawla and Hon'ble Gujrat High to 1255/CHD/2024 & 181,457/CHD/2025 12 Court in the case of Saumya Construction. The conclusions drawn by the Hon'ble Supreme Court in paragraph No. 12 read as under :
"12. If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other .material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under Section 153 A of the Act is linked with the search and requisition under Sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed' unabated assessments shall abate. "
9. A perusal of the grounds of appeal taken by both the sides would reveal that Ground No. 1 in assessee's appeal for assessment year 2015-16 and 2017-18 are general in nature which do not call for recording of any finding. However, in Ground No.2 in assessment year 2015-16, 2017-18 and Ground No.1 in 2018-19 and 2019-20, to 1255/CHD/2024 & 181,457/CHD/2025 13 assessee has pleaded that assessment orders are not sustainable because approval granted by the ld. Addl. CIT u/s 153D was merely mechanical and ritualistic without any application of mind. Since this is a jurisdictional ground raised by the assessee in all the years, therefore, we deem it appropriate to take this ground first.
9.1 The ld. counsel for the assessee while impugning the orders of the ld.CIT (Appeals) as well as of the AO contended that in the scheme of block assessment contemplated u/s 153A, if AO is below the rank of Joint Commissioner, then he has to take mandatory approval u/s 153D before passing the final assessment. This approval is not an administrative order, rather it is a statutory approval which ld. Addl. CIT ought to have decided after due application of mind. He drew our attention towards the letter of the AO dated 18.08.2021 vide which he sought an approval of 42 assessment orders of different assessees in different assessment years. The copy of this letter is available on page 15 and 16 of the Paper Book. We deem it appropriate to take note of this letter, which reads as under : to 1255/CHD/2024 & 181,457/CHD/2025 15 9.2 The approval granted by the Addl. CIT is also available on page 17. The scanned copy of this approval reads as under:
ITA Nos.1252 to 1255/CHD/2024 & 181,457/CHD/2025 17 9.3 He submitted that though ld. Addl. Commissioner had made an observation that he has gone through the papers i.e. Appraisal Report, conclusion of investigation etc. and thereafter approved these orders. However, no such documents have been referred by the AO in her forwarding letter. She has only sent draft assessment orders relating to AFI Group. He pointed out that after draft orders of assessee group for six years are looked into, then they themselves are more than 500 pages because one assessment order is running into roughly more than 80 pages and these assessment orders were referred. If all the documents are to be included, then it will be more than 2000 pages. What to talk of other assessment orders of other assessees which have been to 1255/CHD/2024 & 181,457/CHD/2025 18 referred simultaneously and a joint approval has been granted by the ld. Addl Commissioner. He also submitted that during this very period, large number of other approvals have been granted by the ld. Addl CIT in the month of September. The ld. Addl. CIT has also granted approval to more than 100 assessments. He made reference to the order of ITAT where identical aspect was considered and a reference of large number of assessment orders were by a common order. Thus, according to the ld. counsel for the assessee, the approval was not in consonance with the statutory requirements, hence the assessment orders are not sustainable. In support of his contention, he relied upon following decisions, whose copies have been placed in the Paper Book :
SNo Particulars A. Approval granted by the competent authority u/s 153D of the Act without application of mind.
Judgement passed by Hon'ble Supreme Court in the case of Additional Commissioner of Income-tax v. Serajuddin and Co. [2024] 163 taxmann.com 118 (SC) 2. Judgement passed by Hon'ble High Court of Orrisa in the case of Additional Commissioner of Income-tax vs. Serajuddin and Co. [2023] 454 ITR 312 (Orrisa) 3. Judgement passed by Hon'ble Supreme Court in the case of Principal Commissioner of Income Tax v. Anuj Bansal [2024] 466 ITR 254 (SC) 4. Judgement passed by Hon'ble High Court of Delhi in the case of Principal Commissioner of Income Tax (Central)-2 v. Anuj Bansal [2024] 466 ITR 251 (Delhi) 5. Judgement passed by Hon'ble High Court of Delhi in the case of Principal Commissioner of Income v. MDLR Hotels (P.) Ltd [2024] 166 taxmann.com 327 (Delhi) 6. Judgement passed by Hon'ble High Court of Delhi in the case of Principal Commissioner of Income-tax v. Shiv Kumar Nayyar [2024] 163 taxmann.com 9 (Delhi) 7. Judgement passed by Hon'ble High Court of Allahabad in the case of Principal Commissioner of Income-tax v. Sapna Gupta [2023] 147 taxmann.com 288 (Allahabad)
ITA Nos.1252 to 1255/CHD/2024 & 181,457/CHD/2025 19 8. Judgement passed by the Hon'ble High Court of Allahabad in the case of Principal Commissioner of Income-tax Vs. Siddarth Gupta [2023] 450 ITR534 (Allahabad) 9. Judgement passed by the Hon'ble High Court of Allahabad in the case of Principal Commissioner of Income-tax Vs. Subodh Agarwal [2023] 149 taxmann.com 373 (Allahabad) 10. Order passed by the Hon'ble ITAT Mumbai Bench-F in the case of Smt. Shreelekha Damani Vs. Deputy Commissioner of Income-tax (OSD-1), CR-7, Mumbai [2017] 88 taxmann.com 383 (Mumbai) 11. Order passed by the Hon'ble ITAT Mumbai Bench-F in the case of Vrushali Sanjay Shinde v. Deputy Commissioner of Income-tax [2023] 107 ITR(T) 274 12. Order passed by the Hon'ble ITAT Pune Bench-B in the case of SMW Ispat (P.) Ltd. Vs. Additional Commissioner of Income-tax [2024] 112 ITR(T) 224 (Pune - Trib.) 13. Judgement passed by the Hon'ble ITAT Chandigarh Bench-B in the case of S.P Singla Constructions Private Limited Vs. The DCIT, CC-1, Chandigarh TO 145/CHD/2024 14. Judgement passed by the Hon'ble ITAT Delhi Bench-E in the case of Mainee Steel Works Pvt. Ltd. Vs. The DCIT, CC-II, Gurgaon ITA Nos.3371 to 3377/Del/2024 Application of section 115BBE on amount of excess cash found and offered for B. taxation 15. Judgement passed by the Hon'ble ITAT Amritsar Bench in the case of Tejpal Singh Vs. The DCIT [2024] 158 taxmann.com 679 16. Judgement passed by the Hon'ble ITAT Chandigarh Bench-A in the case of Shri. Krishan Kumar Vs. The DCIT [2024] 162 taxmann.com 518
The ld. CIT DR, on the other hand contended that in some of the cases relied upon by the ld. counsel for the assessee, the facts are distinguishable because in those cases, approval was granted on the same day and therefore, Courts have construed that these approvals were granted by not looking into the facts and circumstances, therefore, these decisions are specific to those facts. In the present case, AO has sent the letter on 18.08.2021 and approval was granted on 03.09.2021. Thus, there was sufficient time to the ld. Addl. CIT to go through the details. He also took us through the to 1255/CHD/2024 & 181,457/CHD/2025 20 order of approval passed by the ld. Addl. CIT available on page No. 17 of the Paper Book (extracted supra).
We have duly considered the rival contentions and gone through the record carefully. The Hon'ble Orissa delivered the judgement on this issue in the case of ACIT Vs Serajuddin & Co. and is reported in 454 ITR 312, 292 taxman 566. This judgement has been upheld by the Hon'ble Supreme Court and the judgement of Hon'ble Supreme Court is reported in 299 taxman 448. In this judgement, Hon'ble Orissa High Court had taken into consideration the scheme of 153D and what are the necessary requirements. The line of arguments raised by the Revenue before the Hon'ble High Court has been briefly noticed in paragraph No.8 of the judgement, which read as under :
Mr. T.K. Satapathy, learned Senior Standing Counsel for the Revenue made the following submissions: (i) In the present case, prior approval had in fact been taken by the AO from the Additional CIT and there was no illegality in that regard. (ii) The approval of the superior officer was distinct from the assessment order. It was a mere administrative order and not open to challenge before a court of law. In other words, it was submitted that the approval granted by the Additional CIT was not justiciable and could not form the basis for challenging the assessment order. (iii) What could only be challenged is want of sanction. Reliance was placed on the decision of the ITAT. Mumbai in Pratibha Pipes & Structurals Ltd. v. Dy. CIT [IT Appeal No. 3874 (Mum.) of 2015, dated 10-4-2019].
to 1255/CHD/2024 & 181,457/CHD/2025 21 (iv) There was no requirement for any hearing to be given to the Assessee by the supervisory officer prior to giving approval although Clause-9 of the Manual of Office Procedure stipulates it. This, therefore, cannot be said to be mandatory. Reliance was placed on the decisions of the Karnataka High Court in Gopal S. Pandit v. CIT [20181 96 taxmann.com 233/257 Taxman 300 and Rishabchand Bhansali v. Dy. CIT 120041 136 Taxman 579/267 ITR 577 and of the Madras High Court in Sakthivel Bankers v. Asstt. CIT [20021 124 Taxman 227/255 ITR 144 which were all in the context of Section 158 BG of the Act. (v) The mere irregularity in granting approval in the context of Section 158BG of the Act was held not to be fatal to the assessment order. Reliance was placed on the orders of the Kolkata ITAT in Shaw Wallace & Co. Ltd. v. Asstt. CIT [ 19991 68 ITD 148 and of the Delhi ITAT in Kailash Moudgil v. Dy. CIT [20001 72 ITD 97 (SB). Reliance was also placed on the decision of the Karnataka High Court in Gayathh Textiles v. CIT [2000] 111 Taxman 123 where it was held that for the purpose of section 271(l)(c) of the Act, the failure to obtain prior permission from the IAC for imposing penalty was only a procedural error and not fatal to the order of penalty. (vi) Since the entire documents were already available to the Additional CIT in the file sent for approval, there was no need for exchange of the said documents prior to the grant of formal approval under section 153D of the Act. (vii) Lastly, it was submitted that even if there had been a violation of the principles of natural justice, unless prejudice were shown by the Assessee, no interference with the assessment orders was warranted. Reliance was placed on the decisions in Dharampal Satyapal Ltd. v. Dy. CCE [2015]_58 taxmann.com 90/51 GST 197 (SO/8 SCC 519: Managing Director, ECIL v. B. Karunakar [1993] 4 SCC 727; Haryana Financial Corporation v. Kailash Chandra Ahuja [2008] 9 SCC 31; State Bank o f Patiala v. S.K. Sharma [1996] 3 SCC 364; P.D. Agrawal v. State Bank o f India [2006] 8 SCC 776 and State o f U.P. v. Sudhir Kumar Singh [Civil Appeal No. 3498 of 2020, dated 16-10-2020] It was then submitted that where initiation was valid but completion was not correct, the order may not be invalid but only irregular because the intervening irregularity is a curable one. Reliance was placed on the decision of the Kerala High Court in (CGG) Panicker v. CIT [19991 237 ITR 443 and CIT v. N. Krishnan [1999] 235 ITR 386. It was submitted that mere technicality should not defeat justice.”
11.1 The Hon'ble Court, thereafter made reference to Section 153D and the CBDT Circular dated 12.03.2008 which has explained the requirement of Section 153D of the Act. The to 1255/CHD/2024 & 181,457/CHD/2025 22 discussion made by the Hon'ble Court in this regard from paragraph No. 15 onwards reads as under :
A plain reading of section 153D itself makes it abundantly clear that the legislative intent was to be obtaining of "prior approval" by the AO when he is below the rank of a Joint Commissioner, before he passes an assessment order or reassessment order under section 153A(l)(b) or 153B(2)(b) of the Act.
That such an approval of a superior officer cannot be a mechanical exercise has been emphasized in several decisions. Illustratively, in the context of section 142 (2-A) which empowers an AO to direct a special audit. The obtaining of the prior approval was held to be mandatory. The Supreme Court in Rajesh Kumar (supra) observed as under: "58. An order of approval is also not to be mechanically granted. The same should be done having regard to the materials on record. The explanation given by the assessee, if any, would be a relevant factor. The approving authority was required to go through it. He could have arrived at a different opinion. He in a situation of this nature could have corrected the assessing officer if he was found to have adopted a wrong approach or posed a wrong question unto himself. He could have been asked to complete the process of the assessment within the specified time so as to save the Revenue from suffering any loss. The same purpose might have been achieved upon production of some materials for understanding the books of accounts and/ or the entries made therein. While exercising its power, the assessing officer has to form an opinion. It is final so far he is concerned albeit subject to approval of the Chief Commissioner or the Commissioner, as the case may be. It is only at that stage he is required to consider the matter and not at a subsequent stage, viz., after the approval is given."
It is therefore not correct on the part of the Revenue to contend that the approval itself is not justiciable. Where the approval is granted mechanically, it would vitiate the assessment order itself. In Sahara India (Firm) (supra), the Supreme Court explained as under: "8. There is no gainsaying that recourse to the said provision cannot be had by the Assessing Officer merely to shift his responsibility of scrutinizing the accounts of an assessee and pass on the buck to the special auditor. Similarly, the requirement of previous approval of the Chief Commissioner or the Commissioner in terms of the said provision being an inbuilt protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the Section is not turned into an empty ritual. Needless to emphasise that before granting approval, the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the Assessing Officer. The approval must reflect the application of mind to the facts of the case." to 1255/CHD/2024 & 181,457/CHD/2025 23 18. The contention of the Revenue in those cases that the non- compliance of the said requirement does not entail civil consequences was negatived. Reiterating the view expressed in Rajesh Kumar (supra), the Court in Sahara India (Firm) (supra) held as under: "29. In Rajesh Kumar (2007) 2 SCC 181 it has been held that in view of section 136 of the Act, proceedings before an Assessing Officer are deemed to be judicial proceedings. Section 136 of the Act, stipulates that any proceeding before an Income-tax Authority shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 of Indian Penal Code, 1860 and also for the purpose of section 196 of I.P.C. and every Income-tax Authority is a court for the purpose of section 195 of Code of Criminal Procedure, 1973. Though having regard to the language of the provision, we have some reservations on the said view expressed in Rajesh Kumar's case (supra), but having held that when civil consequences ensue, no distinction between quasi judicial and administrative order survives, we deem it unnecessary to dilate on the scope of section 136 of the Act. It is the civil consequence which obliterates the distinction between quasi judicial and administrative function. Moreover, with the growth of the administrative law, the old distinction between a judicial act and an administrative act has withered away. Therefore, it hardly needs reiteration that even a purely administrative order which entails civil consequences, must be consistent with the rules of natural justice. (Also see: Maneka Gandhi v. Union of India [1978] 1 SCC 248 and S.L. Kapoor v. Jagmohan [1980] 4 SCC 379).
30. As already noted above, the expression "civil consequences" encompasses infraction of not merely property or personal rights but of civil liberties, material deprivations and non-pecuniary damages. Anything which affects a citizen in his civil life comes under its wide umbrella. Accordingly, we reject the argument and hold that since an order under section 142 (2A) does entail civil consequences, the rule audi alteram partem is required to be observed."
19. To the same effect, are the decisions of the Delhi High Court in Yum! Restaurants Asia Pte. Ltd. (supra)which dealt with the requirement under section 151 (2) of the Act for initiating proceedings under section 147 read with 148 of the Act. It was observed as under: "11. The purpose of section 151 of the Act is to introduce a supervisory check over the work of the AO, particularly, in the context of reopening of assessment. The law expects the AO to exercise the power under section 147 of the Act to reopen an assessment only after due application of mind. If for some reason, there is an error that creeps into this exercise by the AO, then the law expects the superior officer to be able to correct that error. This explains why section 151 (1) requires an officer of the rank of the Joint Commissioner to oversee the decision of the AO where the return originally filed was assessed under Section 143 (3) of the Act. Further, where the reopening of an assessment is sought to be made after the expiry of four years from the end of the relevant AY, a further check by the further superior officer is contemplated."
The non-compliance of the requirement was held to have vitiated the notice for reopening of the assessment. Likewise, in Synfonia Tradelinks (P.) Ltd. (supra) the to 1255/CHD/2024 & 181,457/CHD/2025 24 Delhi High Court disapproved of the rubber stamping by the superior officer of the reasons furnished by the AO for issuance of the sanction.
21. It is seen that in the present case, the AO wrote the following letter seeking approval of the Additional CIT: GOVERNMENT OF INDIA OFFICE OF THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(2), BHUBANESWAR No. ACIT/C-l(2)//Approval/2010-ll/5293 Dated, Bhubaneswar, the 27/29th December, 2010 To The Addl. Commissioner of Income-tax, Range-1, Bhubaneswar. Sub: Approval of draft orders u/s 153D of the I.T. Act 1961 in the case of M/s. Serajuddin & Co. 19A, British India Street, Kolkata (in Serajuddin Group of Cases)- matter regarding. Sir, >Enclosed herewith kindly find the draft orders u/s 153A of the I.T Act, 1961 along with assessment records in the case of M/s Serajuddin & Co., 19A, British India Street, Kolkata for kind perusal and necessary approval u/s.l53D.
No. Name of the Assessee Section under which order passed. Assessment year 1. M/s. Serajuddin & Co., 19A, u/s 153A/143(3)/144/145(3) British India 2003-04 Street, Kolkata. 2. -do- -do- 2004-05 3. -do- do- 2005-06 4. -DO- -DO- 2006-07 5. -DO- -DO- 2007-08 6. -DO- -DO- 2008-09 7. -DO- U/s.l43(3)/144/153B(B)/145( 3) 2009-10
The above cases will be barred by limitation on 31-12-2010. Encl: As above Yours faithfully, Sd/- Asst. Commissioner of Income-tax, Circle-1(2), Bhubaneswar of the Tribunal itself Government of India OFFICE OF THE ADDL. COMMISSIONER OF INCOME TAX, 3 Floor, Range-1, Bhubaneswar No. Addl. CIT/R-l/BBSR/SD/2010-11/5350 Dated, Bhubaneswar, the 30th December, 2010 To The Assistant Commissioner of Income Tax, Circle-1(2), Bhubaneswar. Sub: Approval u/s 153D-in the case of M/s Serajuddin & Co., 19A, British India Street, Kolkata-Matter regarding. to 1255/CHD/2024 & 181,457/CHD/2025 25 Ref: Draft Orders u/s 153A/143(3)/144 for the A.Y. 2003-04 to 2008-09 u/s.l43(3)/153B (b)/144 of the A.Y.2009-10 in the case of above mentioned assessee. Please refer to the above The draft orders u/s 153A/143(3)/144 for the A.Y 2003-04 to 2008-09 and u/s. 143(3)/153B(b)/144 for the A.Y. 2009-10 submitted by you in the above case for the following assessment years are hereby approved:
Assessment Year Income Determined (Rs) 2003-04 11,66,22,771 2004-05 36,46,80,016 2005-06 65,70,12,805 2006-07 60,02,65,791 2007-08 130,03,13,307 2008-09 274,68,87,069 2009-10 301,17,05,952 You are requested to serve these orders expeditiously on the assessee, submit a copy of final order to this office for record. Sd/- Addl. Commissioner of Income Tax, Range-1, Bhubaneswar 22. As rightly pointed out by learned counsel for the Assessee there is not even a token mention of the draft orders having been perused by the Additional CIT. The letter simply grants an approval. In other words, even the bare minimum requirement of the approving authority having to indicate what the thought process involved was is missing in the aforementioned approval order. While elaborate reasons need not be given, there has to be some indication that the approving authority has examined the draft orders and finds that it meets the requirement of the law. As explained in the above cases, the mere repeating of the words of the statute, or mere "rubber stamping" of the letter seeking sanction by using similar words like 'see' or 'approved' will not satisfy the requirement of the law. This is where the Technical Manual of Office Procedure becomes important. Although, it was in the context of section 158BG of the Act, it would equally apply to section 153D of the Act. There are three or four requirements that are mandated therein, (i) the AO should submit the draft assessment order "well in time". Here it was submitted just two days prior to the deadline thereby putting the approving authority under great pressure and not giving him sufficient time to apply his mind; (ii) the final approval must be in writing; (in) The fact that approval has been obtained, should be mentioned in the body of the assessment order.
23. In the present case, it is an admitted position that the assessment orders are totally silent about the AO having written to the Additional CIT seeking his approval or of the Additional CIT having granted such approval. Interestingly, the assessment orders were passed on 30th December 2010 without mentioning the above fact. These two orders were therefore not in compliance with the requirement spelt out in para 9 of the Manual of Official Procedure. to 1255/CHD/2024 & 181,457/CHD/2025 26 24. The above manual is meant as a guideline to the AOs. Since it was issued by the CBDT, the powers for issuing such guidelines can be traced to Section 119 of the Act. It has been held in a series of judgments that the instructions under section 119 of the Act are certainly binding on the Department. In Commissioner of Customs v. Indian Oil Corporation Ltd. 2004 taxmann.com 1061 (SCV2004 (165) E.L.T. 257 (SC) the Supreme Court observed as under: "Despite the categorical language of the clarification by the Constitution Bench, the issue was again sought to be raised before a Bench of three Judges in Central Board of Central Excise, Vadodara v. Dhiren Chemicals Industries: 2002 (1.43) ELT 19 where the view of the Constitution Bench regarding the binding nature of circulars issued under section 37B of the Central Excise Act, 1944 was reiterated after it was drawn to the attention of the Court by the Revenue that there were in fact circulars issued by the Central Board of Excise and Customs which gave a different interpretation to the phrase as interpreted by the Constitution Bench. The same view has also been taken in Simplex Castings Ltd. v. Commissioner of Customs, Vishakhapatnam 2003 (5) SCC 528. The principles laid down by all these decisions are: (1) Although a circular is not binding on a Court or an assessee, it is not open to the Revenue to raise the contention that is contrary to a binding circular by the Board. When a circular remains in operation, the Revenue is bound by it and cannot be allowed to plead that it is not valid nor that it is contrary to the terms of the statute. (2) Despite the decision of this Court, the Department cannot be permitted to take a stand contrary to the instructions issued by the Board. (3) A show cause notice and demand contrary to existing circulars of the Board are ab initio bad (4) It is not open to the Revenue to advance an argument or file an appeal contrary to the circulars."
25. For all of the aforementioned reasons, the Court finds that the ITAT has correctly set out the legal position while holding that the requirement of prior approval of the superior officer before an order of assessment or re-assessment is passed pursuant to a search operation is a mandatory requirement of Section 153D of the Act and that such approval is not meant to be given mechanically. The Court also concurs with the finding of the ITAT that in the present cases such approval was granted mechanically without application of mind by the Additional CIT resulting in vitiating the assessment orders themselves.
26. The question of law framed is therefore answered in the affirmative i.e., in favour of the Assessee and against the Department.
27. The appeals are accordingly dismissed, but in the circumstances, with no order as to costs.”
11.2 Similarly, Hon'ble Delhi High Court has also considered this issue in the case of PCIT Vs Anju Bansal 466 ITR 251 wherein Hon'ble Court has observed that approval was granted without examining the assessment record or the to 1255/CHD/2024 & 181,457/CHD/2025 27 search material. The observation of the Hon'ble Delhi High Court from paragraph No. 13 deserves to be noticed here :
13. In another words, it was emphasised that the approval was granted without examining the assessment record or the search material. The relevant observations made in this behalf by the Tribunal in the impugned order are extracted hereafter:
"17.1 However, in the present case, we have no hesitation in stating that there is complete non-application of mind by the Learned Addl. CIT before granting the approval. Had there been application of mind, he would not have approved the draft assessment order, where the returned income of Rs 87,20,580/-. Similarly, when the total assessed income as per the AO comes to Rs. 16,69,42,560/-, the Addl. CIT could not have approved the assessed income at Rs. 1,65,07,560/- had he applied his mind The addition of Rs. 15,04,35,000/- made by the AO in the instant case is completely out of the scene it the final assessed income shows volumes. 17.2 Even the factual situation is much worse than the facts decided by the Tribunal in the case of Sanja; Duggal (supra). In that case, at least the assessment folders were sent whereas in the instant case, a appears from the letter of the Assessing Officer seeking approval, he has sent only the draft assessment order without any assessment records what to say about the search material. As mentioned earlier, there are infirmities in the figures of original return of income as well as total assessed income and the Add CIT while giving his approval has not applied his mind to the figures mentioned by the AO. Therefore approval given in the instant case by the Addl. CIT, in our opinion, is not valid in the eyes of law. W therefore, hold that approval given u/s 153D has been granted in a mechanical manner and without application of mind and thus it is invalid and bad in law and consequently vitiated the assessment order for want of valid approval u/s 153D of the Act. In view of the above discussion, we hold that the order passed u/s 153A r.w.s. 43(3) has to be quashed, thus ordered accordingly. The ground raised by the Assessee is accordingly allowed". [Emphasis is ours)
14. In this appeal, we are required to examine whether any substantial question of law arises for o consideration.
15. Having regard to the findings returned by the Tribunal, which are findings of fact, in our view, no substantial question of law arises for our consideration. The Tribunal was right that there was absence application of mind by the ACIT in granting approval under Section 153D. It is not an exercise dealing with a immaterial matter which could be corrected by taking recourse to Section 292B of the Act.
16. We are not inclined to interdict the order of the Tribunal. to 1255/CHD/2024 & 181,457/CHD/2025 28 11.3 The Hon'ble Allahabad High Court has rendered his decision on this issue in the case of Pr. CIT Vs Sapna Gupta reported in 147 taxman.com 288. In paragraph No. 13 of the judgement, Hon'ble High Court has observed that this approval is not only to be granted after application of independent mind to the material on record but this approval has to be granted for each assessment year in respect of each assessee separately. We deem it appropriate to take note of this observation from paragraph No. 13, which reads as under:
“13. It was held therein that if an approval has been granted by the Approving Authority in a mechanical manner without application of mind then the very purpose of obtaining approval under section 153D of the Act and mandate of the enactment by the legislature will be defeated. For granting approval under section 153D of the Act, the Approving Authority shall have to apply independent mind to the material on record for "each assessment year" in respect of "each assessee" separately. The words 'each assessment year' used in Section 153D and 153A have been considered to hold that effective and proper meaning has to be given so that underlying legislative intent as per scheme of assessment of Section 153A to 153D is fulfilled. It was held that the "approval" as contemplated under 153D of the Act, requires the approving authority, i.e. Joint Commissioner to verify the issues raised by the Assessing Officer in the draft assessment order and apply his mind to ascertain as to whether the required procedure has been followed by the Assessing Officer or not in framing the assessment. The approval, thus, cannot be a mechanical exercise of power.”
A perusal of the above observation of Hon'ble Allahabad High Court would reveal that Hon'ble Court has emphasized that approving authority should consider independent material of to 1255/CHD/2024 & 181,457/CHD/2025 29 each assessment year qua each assessee, however, in the case in hand, ld. Addl. CIT granted approval by way of a common order qua 7 assessees and in 42 assessment orders, therefore, this approval is not sustainable in view of the authoritative pronouncement of Hon'ble Allahabad High Court which has been subsequently followed by other Hon'ble High Courts in the judgements extracted supra.
11.4 The ITAT Delhi in the case of Seth Realtors & 2693/Del/2017 has considered the entire scheme of search assessment alongwith necessity of approval. It has taken into consideration the observation of the ld. CIT DR before us. We deem it appropriate to take note of the findings of ITAT, Delhi in this connection, which read as under :
"8. We find as per the scheme of the Act, for framing search assessments, the Ld. AO can pass the search assessment order u/s 153A or u/s 153C of the Act only after obtaining prior approval of the draft assessment order and the conclusions reached thereon from the Id. JCIT, in terms of section 153D of the Act. This is a mandatory requirement of law. The said approval granting proceedings by the Id. JCIT is a quasi judicial proceeding requiring application of mind by the Id. JCIT judiciously. In order to ensure smooth implementation of the aforesaid provisions, in consonance with the true spirit of the scheme of the Act, it is the bounden duty of the Ld. AO to seek to place the draft assessment order together with copies of the seized documents before the Id. JCIT well in time much before the due date of completion of search assessment. The Id. JCIT is supposed to examine the seized documents, questionnaires raised by the Ld. AO on the assessee seeking explanation of contents in the seized documents, replies filed by the assessee in response to the questionnaires issued by the Ld. AO and the conclusions drawn by the Ld. AO vis- a-vis the said seized documents after considering the reply of the assessee. All these functions, as stated earlier, are to be performed by the Id. JCIT in a judicious way after due application of mind. Even though as vehemently argued by the Ld. CIT-DR, the to 1255/CHD/2024 & 181,457/CHD/2025 30 Id. JCIT is involved with the search assessment proceedings right from the time of receipt of appraisal report from the Investigation Wing, still, the Id. JCIT, while granting the approval u/s I53D of the Act has to independently apply his mind dehors the conclusions drawn either by the Investigation Wing in the appraisal report or by the Ld. AO in the draft assessment order. The copy of the appraisal report submitted by the Investigation Wing to the Ld. AO and Id. JCIT are merely guidance to the Ld. AO and are purely internal correspondences on which the assessee does not have any access. Moreover, the Act mandates the Ld. AO to frame the assessment after getting prior approval from Id. JCIT u/s 15 3D of the Act. The Id. JCIT getting involved in the search assessment proceedings right from inception does not have any support from the provisions of the Act as no where the Act mandates so. The scheme of the Act mandates due application of mind by the Ld. AO to examine the seized documents independently dehors the appraisal report of the Investigation Wing and seek explanation/clarifications from the assessee on the contents of the seized documents. When the scheme of the Act provides for a leeway to both the Ld. AO as well as the Id. JCIT to even ignore the conclusions drawn in the appraisal report by the Investigation Wing and take a different stand in the assessment proceedings, the fact of Id. JCIT getting involved in the search assessment proceedings right from the receipt of copy of appraisal report, as argued by the Ld. CIT DR, has no substance. In other words, irrespective of the conclusions drawn in the appraisal report by the Investigation Wing, both the Ld. AO and the Id. JCIT are supposed to independently apply their mind in a judicious way before drawing any conclusions on the contents of the seized documents while framing the search assessments. As far as the argument of the Ld. CIT DR that the details were normally filed by the assessee at the last moment is concerned, the Id. AO has got every right to reject the said replies if not filed within the stipulated time. It is not the case of the revenue that the details were filed by the assessee in the instant case at the last moment. Even if it is so, as stated above, it is the prerogative of the Id. AO to accept the said letter containing details or reject the same as it was not filed within the stipulated time. On the contrary, if the Id. AO himself grants time to the assessee to furnish the details till the last moment, then no fault could be attributed to the assessee. In such circumstances, the only irresistible conclusion that could be drawn is that the Id. AO is not serious about the statutory deadlines provided in the Act. In our considered opinion, if the arguments of the Ld. CIT DR are to be appreciated that the Id. JCIT need not apply his mind while granting approval of the draft assessment orders u/s 153D of the Act as it is not provided in section 153D of the Act, then it would make the entire approval proceedings contemplated u/s 153D of the Act otiose. The law provides only the Ld. AO to frame the assessment, but. certain checks and balances are provided in the Act by conferring powers on the Id. JCIT to grant judicious approval u/s 153D of the Act to the draft assessment orders placed by the Id. AO.
Let us now examine whether in the aforesaid background of the scheme of the Act, whether the approval in terms of section 153D of the Act has been granted by the Id. JCIT in a judicious way after due application of mind or not, in the instant case. We have gone through the approval granted by the Id. 140-Chd- 2024 & Others - S.P. Singla Constructions 20 JCIT on 27.03.2015 u/s 153D of to 1255/CHD/2024 & 181,457/CHD/2025 31 the Act. The said approval letter clearly states that a letter dated 27.03.2015 was filed by the Ld. AO before the Id. JCIT seeking approval of draft assessment order u/s 153D of the Act. The Id. JCIT has accorded approval for the said draft assessment order on the very same day i.e. on 27.03.2015 for various assessment years for 232 files on a single day. In any event, whether is it humanly possible for an approving authority like the Id. JCIT to grant judicious approval u/s 153D of the Act for all the assessment years on a single day is the subject matter of dispute before us. Further, we find that similar issue has been addressed by the Hon'ble Jurisdictional High Court in the case of PCITvs. Anju Bansal in ITA 368/2023 order dated 13.07.2023 wherein, under similar circumstances, the Hon'ble Delhi High Court categorically held that statutory approval given by a quasi judicial authority without due application of mind as contemplated in section 153D of the Act would be fatal to the entire search assessment proceedings. The relevant operative part of the said order is reproduced below:- "12. This aspect was brought to the fore by the Tribunal in the impugned order. The Tribunal, thus, concluded there was a complete lack of application of mind, inasmuch as the ACIT, who granted approval, failed to notice the said error. 12.1 More particularly, the Tribunal notes that all that was looked at by the ACIT, was the draft assessment order.
In another words, it was emphasised that the approval was granted without examining the assessment record or the search material. The relevant observations made in this behalf by the Tribunal in the impugned order are extracted hereafter: " 17.1 However, in the present case, we have no hesitation in stating thai there is complete non-application of mind by the Learned Addl. CIT before granting the approval. Had there been application of mind, he would not have approved the draft assessment order, where the returned income of Rs.87,20,580/-, Similarly, when the total assessed income as per the AO comes to Rs. 16,69,42,560,'-, the Addl. CIT could not have approved the assessed income at Rs. 1,65,07,560 -had he applied his mind. The addition ofRs. 15,04,35,000/- made by the AO in the instant case is completely out of the scene in the final assessed income shows volumes. 17.2 Even the factual situation is much worse than the facts decided by the Tribunal in the case of Sanjay Duggal (supra). In that case, at least the assessment folders were sent whereas in the instant case, as appears from the letter of the Assessing Officer seeking approval, he has sent only the draft assessment order without any assessment records what to say about the search material. As mentioned earlier, there are infirmities in the figures of original return of income as well as total assessed and the Addl. CIT while giving his approval has not applied his mind to the figures mentioned by the AO. Therefore, approval given in. the instant case by the Addl. CIT, in our opinion, is not valid in the eyes of law. We, therefore, hold that approval given u/s 153D has been granted in a mechanical manner and without application of mind and to 1255/CHD/2024 & 181,457/CHD/2025 32 thus it is invalid and bad in law and consequently vitiated the assessment order for want of valid approval u/s 153D of the Act. In view of the above discussion, we hold that the order passed u/s 153A r.w.s. 143(3) has to be quashed, thus ordered accordingly. The ground raised
by the Assessee is accordingly allowed". [Emphasis is ours]
14. In this appeal, we are required to examine whether any substantial question of law arises for our consideration.
15. Having regard to the findings returned by the Tribunal, which are findings of fact, in our view, no substantial question of law arises for our consideration. The Tribunal was right that there was absence of application of mind by the ACIT in granting approval under Section 153D. It is not an exercise dealing with a immaterial matter which could be corrected by taking recourse to Section 292BoftheAct.
16. We are not inclined to interdict the order of the Tribunal."
10. The Id. AR also placed on record the recent decision of Hon'ble Jurisdictional High Court in the case of PCIT vs Shiv Kumar Nayyar reported in 163taxmann.com9 (Del) wherein it was held that where order of approval u/s 153D of the Act for relevant assessment year was granted by Additional Commissioner who had granted approval for 43 cases on a single day without perusing the draft assessment, orders at all and without an independent application of mind, impugned assessment order was rightly declared to be illegal by Tribunal."
In the light of the above, if we appreciate the order of Addl. CIT dated 03.09.2021 extracted supra, vide which approval was granted u/s 153D, it would reveal that he has not discussed any aspect, any seized material and this order does not exhibit the reasons which have operated in the mind of Addl. CIT to approve the assessments, however he made a reference about Appraisal Report, conclusions of the investigations. It is pertinent to note that in the forwarding to 1255/CHD/2024 & 181,457/CHD/2025 33 letter, these materials are not discernible. Moreover, he has approved 42 assessment orders by this common approval letter. It, nowhere reflects which of the facts pertaining to each assessee was considered by him. Therefore, it is only a mechanical manner, rather we may observe that a pre-drafted proforma is being used where names of the assessees are fed in. Hence, in view of the jurisprudence propounded across the country by all Hon'ble High Courts, we are of the view that the approval has not been granted according to the scheme as contemplated by the legislature. Hence, the assessment orders are not sustainable. Accordingly, this ground of appeal is allowed in all the years and assessment orders are quashed.
Assessee's Appeal : ( A.Y. 2015-16)
13. There is one more jurisdictional ground in assessment year 2015-16 i.e. Ground No. 7 wherein assessee has pleaded that no incriminating material was found qua assessment year 2015-16 and therefore, assessment order is not sustainable u/s 153A of the Income Tax Act.
With the assistance of the ld. Representative, we have gone through the record carefully. If assessment order is to 1255/CHD/2024 & 181,457/CHD/2025 34 being perused, then it would reveal that ld. AO has made reference to Annexure A-1 containing 45 pages. He reproduced the scanned copy of one page of this annexure at page No. 3 of the assessment order. The AO has observed that in this page, it is reflected that assessee has received cash from Goyal Enterprises of Rs.5 lacs. The AO has drawn the inference that total turnover of the assessee in this year is Rs.46,24,22,650/-. It has debited expenditure of Rs.42,27,36,919/-. Out of these total purchases, it has made purchases of Rs.47,55,239/- from Goyal Enterprises. Since whereabouts of Goyal Enterprises are not known, therefore, it is to be construed that purchases from this concern are bogus one. The AO, armed with this information, rejected the book results of the assessee u/s 145 of the Income Tax Act and estimated the turnover as well as profit earned by the assessee. The case of the assessee, on the other hand is that page No. 1 of Annexure-1 scanned at page 3 of the assessment order is dated 15.03.2018. Thus, it does not relate to accounting period relevant to assessment year 2015-16.
14.1 The ld. CIT DR, on the other hand submitted that the AO has made analysis of the pages and found that assessee has been issuing cheques to Goyal Enterprises but instead of to 1255/CHD/2024 & 181,457/CHD/2025 35 purchasing the goods, it has been receiving back the amount in cash whose details are being noticed at page No. 4 of the assessment order in assessment year 2015-16 and 2017-18.
15. We have duly considered the rival contentions and gone through the record carefully. It is pertinent to note that assessee has filed its return of income u/s 139(1) on 19.10.2015. The time limit to issue notice u/s 143(2) is before the date of search, hence the assessment order passed u/s 143(1) i.e. processment of the return of the assessee has attained finality. This return was not selected for scrutiny. The assessment proceedings u/s 153A could be taken up if some incriminating material pertaining to this accounting year was found on the basis of which inference could be drawn. There is no information discovered during the search qua this A.Y. There is no incriminating material found qua this A.Y. in the search. Therefore, we allow Ground No. 7 also and quash the assessment order on this ground in assessment year 2015-16. The issue is squarely covered by the decision of the Hon'ble Supreme Court in the case of Abhisar Buildwel (supra). to 1255/CHD/2024 & 181,457/CHD/2025 36 16. As far as other grounds of appeal in assessment year 2015-16 are concerned, we find that whole case of the AO is based on Annexure A-1, whose one of the page has been extracted by the AO on page No. 3 of the assessment order. A perusal of all these pages would reveal that there are different notings available. On the left side of the page, ‘CIH’ is being mentioned on the head of the page. It has been inferred by the AO that CIH referred to ‘cash-in-hand’. The AO, thereafter, further inferred that this would show that assessee has received cash from Goyal Enterprises and therefore, it is to be further assumed that assessee has not made purchases from this concern. The amount received from Goyal Enterprises debited qua the cost of purchases is to be disallowed to the assessee and added back.
17. On due consideration of the above facts, we are of the view that purchases of the assessee from Goyal Enterprises in assessment year 2015-16 are roughly 1.2% of the total purchases. The total purchases are of Rs.42.27 Cr and the turnover is 46.24 Cr. If Section 145 is being perused, then sub-clause (2) of this Section would contemplate that if AO is unable to deduce true income of an assessee from the accounts, then he would reject the accounts and estimate the to 1255/CHD/2024 & 181,457/CHD/2025 37 income of the assessee. We are at a loss to appreciate the observations of the AO that if some irregularity is fund qua 1% of purchases, then how total books of account could be rejected. He has not highlighted any other defects in the assessment order as to why books are not reliable. If 1% of purchases are doubtful, then profit element embedded in those purchases could be added to the income of assessee because sales are not disputed. The other aspect is that only on the basis of Annexure A-1, it cannot be absolutely inferred that assessee has received cash and the purchases are bogus. The AO has observed that on verification, whereabouts of Goyal Enterprises on the address given are not discernable. In this regard, we observe that assessee has made the payments through Account Payee Cheques. Goyal Enterprises must be having a bank account, the details of payments are duly reflected in the audited accounts of the assessee. Cheques have been cleared. Now it was for the AO to collect information from the bank to verify whereabouts of Goyal Enterprises which were enquired after 3-4 years of conducting the transaction.
The second aspect is that AO has not made any reference to statement recorded u/s 132(4) qua alleged seized material.
ITA Nos.1252 to 1255/CHD/2024 & 181,457/CHD/2025 38 It is pertinent to note that whenever any material exhibiting some transaction is being discovered during the course of search, then such noting ought to be put to the author for explaining the transactions mentioned therein, but no such thing has been discussed by the AO in the assessment order. He himself inferred that entry, “Goyal ENT 5 lacs” would mean that assessee has received back the cash from Goyal Enterprises. To our mind, it is only an inference drawn by the AO without processing any other corroborative material. He has not even tried to understand what is the meaning of other entries available on this page. He just picked up a single entry and assumed as if assessee has received the money in cash. Therefore, on this basis, addition is not sustainable in the hands of the assessee on account of disallowance of purchases debited by the assessee in its books. The books of account could not be rejected for such a small defect, if any. Let us assume it correct for the sake of argument, then it is to be appreciated that the Department has conducted the search, it should have collected other corroborative material qua Annexure A-1. Accordingly, no addition on account of disallowance of bogus purchases or an estimated turnover basis could be made to the income of the assessee. All the to 1255/CHD/2024 & 181,457/CHD/2025 39 additions made by the AO in assessment year 2015-16 are deleted.
Appeal of the assessee is allowed for assessment year 2015-16.
A.Y.2017-18 :ASSESSEE'S APPEAL AS WELL AS REVENUE’S APPEAL
20. Now we take assessment year 2017-18. In order to appreciate the facts discussed by the AO, we deem it appropriate to take note of the following finding on page No. 31 of the assessment order :
2.21 Accordingly, in view of the facts discussed in detail in the foregoing paras, the transactions with M/s Goyal Enterprises being bogus/ sham transactions, the amounts of Rs.47,55,239/- and Rs.4,51,00,883/- are bogus purchases for AY 2015-16 & AY 2017-18 respectively and the credits outstanding for the AY 2016-17, 2018-19 and 2019-20 amounting to Rs.21,54,739/-, Rs.4,24,36,147/- and Rs.1,97,86,147/- respectively are found to be bogus credits. Since additions on account of these bogus purchases amounting to Rs.47,55,239/- and Rs.4,51,00,883/- is being made for A.Y. 2015-16 and A.Y. 2017-18 respectively, hence, no additions are being made for AY 2016-17, 2018-19 and 2019-20 respectively, on account of these bogus creditors. 2.22 In light of this discussion provisions of Section 145(3) of the IT Act, 1961 are being invoked and books of accounts and trading results are hereby rejected for the reasons mentioned in previous Paras. Accordingly, the amounts of Rs.47,55,239/- and Rs.4,51,00,883/- are being treated as bogus purchases for AY 2015-16 & AY 2017-18 respectively: Thus, addition on account of these bogus purchases amounting to Rs.47,55,239/- and Rs.4,51,00,883/- is to be made for A.Y. 2015-16 and A.Y. 2017-18 respectively. Accordingly, addition of Rs.4,51,00,883/- u/s 68 r.w.s 69C of the IT Act, 1961 on account of bogus purchases is being made and is to taxed as per the provisions of Section 115BBE of the IT Act, 1961. Penalty proceedings u/s 271AAC of the IT Act, 1961 have been initiated separately. (Addition: Rs.4,51,00,883/-) to 1255/CHD/2024 & 181,457/CHD/2025 40 3. As per the audited books of accounts, the assessee has shown gross turnover of Rs.100,19,44,293/- on which gross profit of Rs.6,41,87,625/- has been reported giving the GP rate of 6.41%. As per the statement of P&L, the assessee has shown gross purchases of Rs.90,53,99,589/- out of which, the purchases of Rs.4,51,00,883/- stated to be made from M/s Goyal Enterprises has already been found bogus. This leads to the conclusion that the assessee has suppressed its gross profit from the turnover through artificially increasing the (bogus) purchases.
The AO was of the view that a credit entry qua the name of Goyal Enterprises is standing in the books of the assessee. Since books are rejected and it is held in assessment year 2015-16 that purchases made from Goyal Enterprises are treated as bogus, therefore, this credit entry is to be assessed as unexplained credit u/s 68 read with Section 69C of the Act.
With the assistance of the ld. Representative, we have gone through the record carefully. It emerges out from the record that assessee has shown sales of Rs.1,00,19,44,293/-. It has made purchases of Rs.90,53,99,589/-. The assessee has shown purchases of Rs.4,51,00,883/- from Goyal Enterprises. The AO was of the view that this purchase from Goyal Enterprises is bogus on the basis of his finding recorded in assessment year 2015-16. The findings in all assessment years are common as discernible from extracted portion above. The AO has rejected the book results on the basis of this information and thereafter estimated the turnover and also to 1255/CHD/2024 & 181,457/CHD/2025 41 disallowed the purchases to the extent of Rs.4,51,00,883/-. The assessee has shown GP at 6.41% of the turnover shown in the audited accounts. The AO has enhanced this GP ratio to 10.90% and estimated the profit. He further made addition of Rs.38,492/- on account of certain difference while reconciling of these figures.
On appeal, ld.CIT (Appeals), in principle, upheld the conclusions of the AO for treating the purchases from Goyal Enterprises as bogus but observed that assessee has shown sales, that means there must be purchases. Otherwise, sale figures could not be achieved. For example, assessee has debited purchases from ‘A’ and shown sales of 100 but the purchases from ‘A’ at 10 are found to be bogus. If that is to be treated as bogus, then sale of 100 could not be achieved. Therefore, these purchases must have been made out of books from ‘B’ or ‘C’. In this modus-operandi, whatever extra profit earned by the assessee, is to be estimated. In this way, ld.CIT (Appeals) has restricted the addition to the extent of Rs.37,20,822/- on the alleged bogus purchases of Rs.4,51,00,883/-. The ld.CIT (Appeals) further reduced the GP rate as calculated by the AO. The GP rate adopted by the CIT (Appeals) is at 8.25% against 10.9% adopted by the AO. to 1255/CHD/2024 & 181,457/CHD/2025 42 These changes are being challenged by the Revenue in its appeal.
On due consideration of the above facts and circumstances, we are of the view that purchases debited from Goyal Enterprises is only 4.5% of the total purchases made by the assessee. This irregularity is not of such a nature on the basis of which audited accounts could be brushed aside. Secondly, we find that evidence in the shape of Annexure A-1 is not conclusive. It required further corroboration as observed by us in assessment year 2015-16. On the basis of this document, it cannot be conclusively held that purchases from Goyal Enterprises are bogus. The AO has assumed lots of circumstances and drawn wrong inferences. Therefore, following our finding in assessment year 2015-16, we are of the view that no disallowance out of alleged bogus purchases is to be made. The books are not deserved to be rejected in this manner. Accordingly, we delete all the additions made by the AO on hypothetical calculations as well as we uphold the deletion of additions made by the CIT (Appeals). The GP addition sustained by the CIT (Appeals) is also not sustainable because this GP addition is being sustained by the CIT to 1255/CHD/2024 & 181,457/CHD/2025 43 (Appeals) by assuming that purchases from Goyal Enterprises are bogus.
We have held in assessment year 2015-16 as well as in this year that evidence possessed by the Revenue is too fragile on the basis of which it cannot be inferred that assessee has received these amounts in cash. It has made payment through Account Payee Cheque and thereafter procured the goods from it. It has submitted details to that effect but no further investigation was made by the Revenue. Accordingly, appeal of the assessee in 2017-18 is allowed whereas appeal of the Revenue is dismissed.
A.Y.2018-19 :ASSESSEE'S APPEAL AS WELL AS REVENUE’S APPEAL
In Ground No.1, grievance of the assessee is that approval granted u/s 153D is mechanical and not in consonance with the scheme of the Act. We have already allowed this ground and quashed the assessment on that ground.
GROUND NO. 2
In this ground, grievance of the assessee is that AO has erred in rejecting the book results of the assessee u/s 145(3) to 1255/CHD/2024 & 181,457/CHD/2025 44 of the Act. We have considered this issue in assessment year 2015-16 and held that AO was unable to pin-point any specific defect. He has referred material which is less than 1% of the total sales made by the assessee and if there was some irregularity, then total book results cannot be rejected, hence following our finding in assessment year 2015-16, this ground is allowed.
GROUND NO. 3
The ld. AO has erred in making an estimated addition at 11% of alleged unaccounted sales. The brief facts of this issue are that AO has worked out certain unaccounted sales on the basis of jottings available in Annexure A-1. Thereafter, he has applied a GP at 11% on such sales and worked out an addition of Rs.25,10,644/-. The ld.CIT (Appeals) has reduced the GP to 10.45% as against 11% adopted by the AO. According to the assessee, it is a loose paper. It has tried its best to reconcile the figures on these loose papers vis-à-vis audited books of account.
With the assistance of the ld. Representative, we have gone through the record carefully. We find that Annexure A-1 is running into 89 pages wherein certain jottings are also to 1255/CHD/2024 & 181,457/CHD/2025 45 available on this page. Entries on these jottings are to be explained by the assessee. It has failed to reconcile them. Therefore, we are of the view that ld.CIT (Appeals) has rightly appreciated the controversy and has worked out that assessee must have certain sales out of books because assessee has offered unexplained income of more than Rs.2 Cr and offered such income for taxation during assessment year 2018-19 and 2019-20.
Considering these aspects, we are of the view that AO has rightly worked out the alleged unaccounted sales, however, GP estimated by the AO at 11% is upheld to the extent of 10.45% by the ld.CIT (Appeals). We do not find any error in the order of ld.CIT (Appeals) qua reduction in GP rate. This ground of appeal is, accordingly, rejected.
GROUND NO. 4
In this ground, the grievance of the assessee is that AO has erred in making addition of Rs.12,48,475/- which has been confirmed by the CIT (Appeals). The issue in this ground is that assessee has achieved certain unrecorded sales and for achieving such unrecorded sales, it must have used seed capital which must have been circulated for achieving a to 1255/CHD/2024 & 181,457/CHD/2025 46 turnover of Rs.2.28 Cr. Thus, this estimated addition has rightly been made by the ld. AO and CIT (Appeals) has rightly confirmed it. We do not find any merit in this ground of appeal. It is rejected.
GROUND NO. 5
In this ground, grievance of the assessee is that ld.CIT (Appeals) has erred in upholding the application of enhanced GP on the recorded sales.
With the assistance of the ld. Representative, we have gone through the record carefully. We have already recorded that there was no valid reason for the AO to reject the book results of the assessee by applying Section 145(3) of the Act. The lapses referred by the AO are such small in term of percentage that on that basis, book results cannot be rejected. If some out of books income is earned, that can be added separately. Therefore, it is not justifiable to enhance the turnover as well as apply higher rate of GP on that enhanced turnover qua the recorded sales. GP disclosed by the assessee in the books be directed to be accepted. The order of CIT (Appeals) to this extent is modified. This ground is allowed. to 1255/CHD/2024 & 181,457/CHD/2025 47 GROUND NO. 6
The ld.CIT (Appeals) has erred in confirming the addition of Rs.1,10,80,901/- which was added by the AO on account of unexplained capital contribution in the business of the assessee.
The brief facts of the case are that during the course of search, certain loose papers were found which are inventorized in Annexure A-1 referred above. The AO, on the basis of these loose papers has worked out that there are cash receipts and payments, both mentioned in this page. Therefore, he made out that assessee has introduced capital in cash. The peak of all these receipts has been worked out at Rs.85 lacs. On page No. 45 of Annexure-1 extracted on page 3, there is a cash in hand of Rs.38,29,375/-. According to the AO, source of this cash-in-hand has also not been explained by the assessee. Thus, total of the peak balance available in these pages as well as opening cash-in-hand of Rs.38,29,376/- has been worked out to Rs.1,23,29,376/-. The AO has given credit of Rs.12,48,475/- which has been added on account of capital requirement in achieving unaccounted sales, the addition of which we have confirmed while dealing to 1255/CHD/2024 & 181,457/CHD/2025 48 with Ground No. 4. He reduced this amount and worked out the addition of Rs.1,10,80,901/-. The AO has made this addition which has been upheld by the CIT (Appeals) also.
Before us, no substantive submissions have been made except submitting that these are rough jottings of Annexure- 1. However, after going through the complete details, we are not satisfied with the explanation of the assessee. If page No.3 of the assessment order is being perused where scanned copy of Annexure-1 is available, then first entry is ‘CIH’. Meaning of this abbreviated word is ‘cash-in-hand’ of Rs.38,29,376/-. It is the opening cash balance. Similarly, AO has worked out peak balance during the year reflected in these loose papers. Therefore, we are of the view that the ld. Revenue Authorities have appreciated these pages in right perspective and we do not find any merit in this ground of appeal. It is rejected.
GROUND NO. 7
In this ground, assessee has pleaded that DIN number is not being mentioned in assessment order, hence assessment order is not sustainable. We find that DIN number is being reflected in the title of the assessment order, hence there is no merit in this ground of appeal
. Accordingly, it is rejected. to 1255/CHD/2024 & 181,457/CHD/2025 49
38. Appeal of the assessee for assessment year 2018-19 is partly allowed.
Now we take appeal of Revenue for assessment year 2018- 19. In the first ground of appeal, Revenue has pleaded that ld.CIT (Appeals) has erred in reducing the GP from 11% to 10.45%. We find that CIT (Appeals) has analyzed the complete detail and comparative chart of earlier years, only thereafter upheld the GP at 10.45%. Estimation of GP always involves its discreation and element of guess work. The AO has estimated the GP at 11% on the basis of his best judgement. The CIT (Appeals) further reduced it to 10.45%. We do not deem it appropriate that second appellate authority would replace this estimated opinion by way of further estimation without there being any inherent infirmity. Therefore, ground Nos. 1 and 2 are rejected.
GROUND NO. 3
The grievance of the Revenue is that ld.CIT (Appeals) has reduced the GP on accounted turnover. We have already allowed the connected ground of appeal in assessee's appeal wherein we have observed that books of the assessee are not to be rejected and on accounted turnover, no GP is to be to 1255/CHD/2024 & 181,457/CHD/2025 50 estimated. The estimation of GP is to be applied only on unaccounted receipts, if any. Therefore, this ground of appeal is rejected.
GROUND NO. 4
In this ground, grievance of the Revenue is inter- connected with Ground No. 6 of the assessee's appeal. We have rejected the ground of appeal raised by the assessee whereby an addition of Rs. 1,10,80,901/- was made. The benefit granted by the ld.CIT (Appeals) would not be available because we have held that no GP estimation is to be made on the book results of accounted sales. In other words, the sales shown by the assessee are not to be further amplified and no enhanced GP is to be applied. In that exercise, suppressed GP of Rs.58,94,428/- would be deleted. This amount will not be available to the assessee for explaining source of capital introduction. Accordingly, finding of the CIT (Appeals) to this extent is modified.
41.1 It is further observed that alleged unaccounted GP earned on unaccounted sales could be construed as used for capital introduction because that amount has to be recognized somewhere, therefore, the ld.CIT (Appeals) has to 1255/CHD/2024 & 181,457/CHD/2025 51 rightly granted telescopic benefit of Rs.19,77,561/- qua unexplained capital contribution of Rs.1,10,80,901/-. This finding of CIT (Appeals) is upheld and, accordingly, Ground No. 4 of the Revenue’s appeal is rejected.
In the result, appeal of the Revenue is partly allowed.
A.Y.2019-20 :ASSESSEE'S APPEAL AS WELL AS REVENUE’S APPEAL
In the first ground of appeal, assessee has challenged approval granted u/s 153D which we have already decided in the foregoing paragraphs of this order.
44. In Ground No.2, assessee has challenged rejection of books u/s 145(3) of the Act. This ground is covered by our finding in assessment year 2015-16, hence, allowed.
In Ground No.3, the grievance of the assessee is that AO has erred in applying the rate of tax u/s 115BBE on the alleged cash found during the course of search. It is pertinent to note that cash of Rs. 1 Cr was found at the residence of the partner. Statement of Shri Anil Kumar, Partner, was recorded. In his reply to a question, he has stated that this cash belongs to the business concern and it has been earned out of the to 1255/CHD/2024 & 181,457/CHD/2025 52 business. Therefore, respectfully following the order of the ITAT, Amritsar Bench in the case of Shri Tej Pal Singh Vs DCIT 158 taxman.com 769 and Chandigarh Bench in the case of Shri Krishan Kumar V DCIT 162 taxman.com 518, we are of the view that rate of tax u/s 115 BBE would not be applicable. The simple reason is that very genesis of this cash in the hands of partner is supposed from the business concern i.e. manufacturing of cattle feed. It is to be assessed as business receipt. The ITAT Chandigarh Bench in the case of Shri Krishan Kumar Vs DCIT has examined this issue elaborately. In that case, during the course of survey, excess stock and excess cash was found which was admitted by the assessee. The AO sought to assess that cash u/s 115BBE as unexplained investment u/s 69A and 69B. The Tribunal was of the view that it is a business receipt and cannot be assessed u/s 115BBE. Shri Anil Kumar, Partner, in his statement u/s 132(4) duly disclosed that it is a business receipt. Therefore, we allow this ground of appeal and direct the AO to assess this amount under normal rate of tax.
GROUND NO. 4
In this ground, assessee has pleaded that AO has erred in arbitrarily making addition of Rs.1 Cr on account of excess to 1255/CHD/2024 & 181,457/CHD/2025 53 stock found during the course of survey. This ground is connected with Ground No.1 of the Revenue’s appeal wherein Revenue has pleaded that ld.CIT (Appeals) has erred in treating the surrendered income of Rs.1Cr on account of excess stock as a normal business income instead of unexplained inv u/s 69 of the Act.
With the assistance of the ld. Representative, we have gone through both these grounds of appeal. During the course of search conducted on 25.04.2018, physical verification of stock was made. There was a difference between value of stock as reflected on the audited account as on 31.03.2018 vis-à-vis 25.04.2018. The contention of the assessee was that accounts have not been completed because it has recently been closed as on 31.03.2018, therefore, certain entries are not being taken into consideration. But, in order to have peace, assessee has offered income of Rs.1 Cr on this account. The ld.CIT (Appeals), in principle, upheld the addition but held that it is a business receipt and normal rate of taxation will be applicable on this value of unexplained stock.
47.1 After looking into finding of the ld.CIT (Appeals), we do not find any error in it. The addition of Rs.1 Cr qua to 1255/CHD/2024 & 181,457/CHD/2025 54 unexplained stock is being confirmed. However, it is to be taxed on normal rate of taxation and not u/s 115BBE. Accordingly, ground of appeal No.1 raised by the Revenue as well as Ground No.4 raised by the assessee are rejected.
48. Ground No. 5 of assessee's appeal is linked with ground No.2 of Revenue’s appeal. The brief facts of the case are that assessee has given an advance of Rs.11 lacs on account of purchases of the property but this property was not ultimately purchased. The AO has made an addition of Rs.1,96,00,500/- i.e. the value of the property for which it was to be purchased. The ld.CIT (Appeals) has allowed the appeal of the assessee on this ground and held that since no property was purchased, therefore, no unexplained investment can be assumed. The ld.CIT (Appeals) confirmed the addition of Rs.11 lacs which was given as advance because to that extent, payment was made.
49. On due consideration of the above facts and circumstances, we are of the view that unless Sale Deed is being registered in favour of the assessee or possession has been granted to the assessee, it cannot be assumed that assessee has purchased property in which unexplained to 1255/CHD/2024 & 181,457/CHD/2025 55 investment is being made. Accordingly, ld.CIT (Appeals) has rightly deleted the addition to the extent of Rs.1,84,50,000/- and has rightly confirmed to the extent of Rs.11 lacs. because investment to the extent of Rs.11 lacs is there. Accordingly, Ground No.2 of Revenue’s appeal and Ground No.5 of assessee's appeal are rejected.
GROUND NO. 6
Ground No. 6 of assessee's appeal is inter-connected with Ground No.3 of Revenue’s appeal. The grievance of the assessee is that AO has erred in estimating unaccounted turnovers and applying higher rate of GP. The ld.CIT (Appeals), in principle, accepted the alleged unaccounted turnover achieved by the assessee which has been worked out on the basis of loose papers but directed the AO to reduce the profit element to 13.36% as against 14%.
On due consideration of the findings of ld. First Appellate Authority, we do not find any error in it. The alleged unexplained turnover is being worked out by the AO on the basis of jottings available in loose papers and he has rightly calculated the GP in the alleged unaccounted turnover. The rate of GP reduced by the CIT (Appeals) is justifiably looking to 1255/CHD/2024 & 181,457/CHD/2025 56 into GP disclosed in earlier year. Accordingly, both grounds are rejected.
The assessee, in its last ground of appeal has alleged that DIN number was not generated by the AO, however, in the title of the assessment order, such number is discernible. Therefore, we do not find any merit in this ground of appeal. Accordingly, this ground of appeal is rejected.
In the result, appeals of the assessee for A.Y. 2015-16 and 2017-18 are allowed and for A.Y. 2018-19 and 2019-20 are partly allowed, whereas appeal of the Revenue for assessment year 2017-18 and 2019-20 are dismissed and for assessment year 2018-19 is partly allowed.
Order pronounced on 16.10.2025.