ACIT, CC-2, CHANDIGARH vs. M/S NORTHERN ROYALTY COMPANY, YAMUNANAGAR

5. We find the identical issue has been adjudicated by us in the case of Shri Karaj Singh (ITA No.726/Chandi/2022 & Co. No.16/Chandi/2024) as under: - 4. From the facts, it emerges that the assessee-group having nine entities is engaged in mining activities. These nine entities are holding separate mining licenses from state government and are preparing separate books of accounts reporting separate profits. However, consolidated financial data was being maintained for all these nine entities. The assessee-group was subjected to search action on 05-04-2018 wherein various loose papers as well as accounting data relating to business of assessee as well as other mining entities in physical form and pen-drive was found and seized from the corporate office at #1060, Sector-17, HUDA, Jagadhari. Considering the same, the assessee-group filed return of income declaring business income. The present assessee declared income of Rs.48.60 Lacs including business income of Rs.28.16 Lacs. However, during the course of assessment proceedings, the assessee agreed to offer additional income and filed revised return of income despite its claim that such additional income was never actually realized by them. The Ld. AO enhanced the declaration so made by the assessee to 25%, inter-alia, by considering three comparable entities. However, Ld. CIT(A) observed that the entities selected by Ld. AO were not comparable entities and Ld. CIT(A) worked out NP rate of 17.16% by making various adjustments to the profits on the basis of entries found noted in the seized document. Finally, Ld. CIT(A) upheld application of Net Profit Rate of 18% is impugned before us. The issue before us, thus, is in a narrow compass and related with determination of estimated profit rate earned by the assessee in the background of material seized during search action. At the outset, we concur with the approach of Ld. CIT(A) in rejecting comparable entities of the assessee as well as selected by Ld. AO since the additions are to be based on seized material as found during the search and the same could not be estimated by taking mean profit rate of other entities as disclosed by them in their audited financial statements. It is another fact that the comparable entities as selected by the assessee as well as by Ld. AO are not even otherwise functionally comparable with the functions of the assessee and therefore, the approach of Ld. CIT(A), to that extent, could not be faulted with.

6. It has been stated by Ld. AR that to estimate the NP rates, Ld. CIT(A) has made computations from combined seized material which include Profit & Loss Account as found in the pen-drive in the name of M/s GM & Co. and mining details as noted in the loose papers. However, there is no entity-wise bifurcation of financial data separately for each of the nine entities. The prime grievance of the assessee is that even by considering the seized material as found during the search, the profit rate would only be 1.47% and not 17.16% as computed by Ld. CIT(A). As against this, the assessee has already declared substantially higher profit rate of more than 14% to put a quietus to the issue. As per Ld. AR, the Ld. CIT(A) erred in not allowing actual expenses such as Mining fees paid to Government, VAT paid, new mining point setup expenses as noted in the seized material as well as Labour welfare expenses, environment protection expenses etc. as recorded in regular audited books of accounts. The Ld. AR further contended that when the income is estimated, no such adjustment is to be made for probable disallowances u/s 40A(3) / 40(a)(ia) in terms of decision of Jurisdictional High Court in the case of Smt. Santosh Jain (296 ITR 324) & Aggarwal Engg. Co. (302 ITR 246). Another argument is that there is no unaccounted profit earned on unaccounted sales. The combined regular sales of mining entities were Rs.77.43 Crores which substantially matches with the seized material after making allowance of discount as offered by the assessee group to its customers. On these facts, Ld. AR asserted that the additional profit already offered by the assessee is much in excess of profit emerging from seized materials found during search and impugned addition as sustained in the impugned order deserve to be deleted. On the issue of allowance of discount expenses of Rs.153.55 Crores while estimating business profit at 18%, Ld. AR stated that when Ld. AO assessed profit at 25%, he himself allowed the discount while estimating the profit and thus, the same could not be disputed by revenue. If discount is excluded from the computations, the same would yield unrealistic profit rate of 84% which is not, at all, possible in this line of business.

7. The Ld. AR reiterated legal ground of mechanical approval u/s 153D on the ground that the assessee had submitted voluminous replies during the course of assessment proceedings. The Ld. AO forwarded draft assessment order and complete assessment record to Ld. Addl. CIT on 18-06-2021 seeking approval u/s 153D. This approval was granted on the very next day i.e., on 19-06-2021 in a non-speaking manner and without spelling out any reasons or comments on the findings in the draft order or the seized material or findings of investigation wing in appraisal report. Moreover, on the same day, Ld. Addl. CIT approved draft assessment order in more than 20 other cases of the same group wherein different issues, voluminous submissions and abundant seized material was involved. This would show that Ld. Addl. CIT granted approval u/s 153D in a non-speaking and mechanical manner without due application of mind on the seized material and without considering the submissions of assessee. Such an approval is bad-in-law and would render assessment null and void. Reference has been made to the decision of Chandigarh Tribunal in the case of SP Singla Constructions Pvt. Ltd (ITA No.140-145/Chd/2024 dated 17-01-2025) wherein, on similar facts, the assessment was quashed and additions were set aside. Similar reliance has been placed on the decision of Delhi Tribunal in the case of Sushen Mohan Gupta (ITA 2999/Del/2024 dated 20-05-2025) quashing assessment on similar grounds.

Northern Royalty Co 10,49,90,403 70,69,50,500 28,04,68,722 Delhi Royalty Co 9,50,95,233 Routes & Journeys 7,771,40,055 Development Strategies Ind Pvt 5,19,12,518 Ltd Mubarikpur Royalty Co 25,31,78,898 Ganga Yamuna Mining 1,36,02,771 Company JSM Foods Private Limited 11,81,14,281 Karaj Singh 6,14,19,016 Paramjeet Singh 4,83,19,852 Yamuna Infra developers Pvt 16,36,45,695 Ltd Total 98,74,18,722 70,69,50,000 28,04,68,722 9. In yet another tabulation, Ld. AO reconciled the consolidated Profit as per seized material (as per assessee) with profit calculated by CIT(A) for mining entities as under: - PARTICULARS AMOUNT Remarks PROFIT DETERMINED BY 39,61,88,233 As per page 105-106 of CITA Order CIT(A) ORDER LESS: EXPENSES RECORDED AS PER SEIZED PAPER AT PG 46 OF PBK-2 BUT NOT ALLOWED BY CIT(A) VAT (NET OF CREDITS) (2,31,20,138) As per seized material refer page 46 of PBK-2, VAT expense of Rs 4.94cr was recorded in debit side while VAT & GST Recovered of Rs. 2.63cr was recorded on credit side. CIT(A) has ignored both the items while computing profit while VAT being actual business expense deserved to be allowed.

NEW POINT EXPENSES (1,54,45,530) As per seized material at ps46, new point expenses of Rs. 1,04,00,000/- New point investment and Rs. 50,45,300/- New point Jaidhari was recorded as expense. CIT(A) has wrongly considered these expenses as Capital expense on pg 108 of his order whereas these related to expenditure on setting up new mining point and thus was a revenue expenditure and not a capital expenditure LESS: EXPENSES RECORDED IN ACTUAL BOOKS OF ACCOUNTS OF MINING ENTITIES BUT ONLY ALLOWED PARTIALLY BY CIT(A) MINING INSTALLMENT (28,04,68,722) As per audited books of the 9 entities, total mining installments expense stood at Rs. 98,74,18,222/- (refer summary above). However, CIT(A) has only allowed expense of Rs.70,69,50,000/-on pg 105 of order. The amount as per books was in line with amounts payable as per mining contracts and-had accrued during the current year and was thus allowable in full.

LESS: EXPENSES RECORDED IN ACTUAL BOOKS OF ACCOUNT OF MINING ENTITIES BUT NOT ALLOWED ENTIRELY BY CIT(A) CSR EXPENSES (15,235,000) On page 106, CITA has only allowed depreciation, interest and audit fees as per actual books of accounts. On page 108, CITA observed that CSR expenses and Environment protection expense are not allowable separately as they were part of misc expenses of Rs 6.28cr already allowed as per seized books. However, there is no basis to such assumption when other expenses as per actual books have already been allowed. CSR expense and Environmental protection expense and Labour welfare expense were actually paid by assessee as per books and thus allowable while estimating profits. The figures are as per audited P&L of 9 entities at pg 65-77. ENIVRONMENTAL (22,402,500) PROTECTION EXP LABOUR WELFARE EXP (5,613,000) PROFIT AS PER ASSESSEE 3,39,03,343 PROFIT % 1.47% (AGAINST SALES OF RS 230,78,96,752/- CONSIDERED BY CIT(A))

In above tabulation, Ld. AR demonstrated that by considering the expenses as recorded in the seized material and expenses as debited in the regular books of accounts, the profit rate as earned by all the mining entities would only be 1.47% whereas all these entities have already declared NP rates in the range of 14% to 15% which are substantially higher than this profit.

PARTICULARS AS PER CIT(A) AS PER Remarks ASSESSEE Gross sales receipt as per seized 2,307,896,752 2,307,896,752 As per pg 46 of PBK documents Rehabilitation charges recovered 766,072,879 766,072,879 As per pg 46 of PBK Misc. Income 371,552 371,552 As per audited books of accounts of all 9 entities Total Gross Receipts 3,074,341,183 3,074,341,183 Less: (-) Discount 1,533,521,146 1,533,521,146 As per pg 46 of PBK Annual contract money (payable to 706,950,000 987,418,722 As per audited books of accounts of all 9 the Govt, of Haryana for mining entities rights)

Salary account 64,590,764 64,590,764 As per pg 45 of PBK Wages 40,844,566 40,844,566 As per pg 45 of PBK Diesel 44,394,113 44,394,113 As per pg 45 of PBK Diwali expenses 4,370,100 4,370,100 As per pg 45 of PBK Land compensation 110,803,555 110,803,555 As per pg 45 of PBK less Rs 76 lakhs disallowed by CITA Land on rent 24,116,384 24,116,384 As per pg 45 of PBK Other expense 20,000,000 20,000,000 As per pg 45 of PBK Misc. expenses 62,870,938 62,870,938 As per pg 45 of PBK Bank charges 373,976 373,976 As per pg 45 of PBK Crossing contract expenses 840,500 840,500 As per pg 45 of PBK Generator expenses 1,632,000 1,632,000 As per pg 45 of PBK Machine rent 26,770,458 26,770,458 As per pg 45 of PBK Fees and taxes 11,162,300 11,162,300 Including HPSCB Draft and Wildlife forest A/c as per pg 45 of PBK Insurance account 650,590 650,593 As per pg 45 of PBK Legal expenses 5,733,000 5,733,000 As per pg 45 of PBK Printing stationary 1,429,972 1,429,972 As per pg 45 of PBK 9,356,588 As per pg 45 of PBK Road repair 9,356,588 Depreciation 3,586,000 3,586,000 As per books of account Interest on loan 3,756,000 3,756,000 As per books of account Audit fees 400,000 400,000 As per books of account VAT (net of recovery) 23,120,138 As per pg 45 of PBK - NEW POINT EXPENSE 15,445,530 As per pg 45 of PBK CSREXPENSES - 15,235,000 As per books of account of all 9 mining entities ENVIRONMENTAL 22,402,500 As per books of account of all 9 mining PROTECTION EXP entities LABOUR WELFARE EXP 5,613,000 As per books of account of ail 9 mining entities Total expenses 2,678,152,950 3,040,437,843 Net Business Profit 396,188,233 33,903,340 PROFIT % 17.16% 1.47% The Ld. AR thus demonstrated that going by the seized document and regular books, the profit earned by the ground is merely in the range of less than 1.5%.