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Facts
The assessee's appeal for AY 2018-19 challenged an addition of Rs. 82.18 Lacs, which arose from an assessment framed under Section 153A following a search action under Section 132 on the 'Majha group' of nine entities, including the assessee, involved in mining activities. The AO initially estimated income at 25% of gross receipts, reduced to 18% by the CIT(A). The assessee also raised legal grounds concerning the mechanical approval under Section 153D.
Held
The Tribunal found that, considering all expenses from seized material and regular books, the aggregate net profit margin for the group was less than 1.5% (specifically, 1.47% as argued by AR), which was substantially lower than the 14-15% declared by the assessee. Noting that a lower profit rate was accepted in the preceding year and that a consistent approach was warranted, the Tribunal concluded that the profit declared in the revised return should be accepted. Consequently, the impugned addition of Rs. 82.18 Lacs was deleted, rendering the legal grounds concerning Section 153D infructuous.
Key Issues
Whether the estimated net profit rate applied by the CIT(A) was justified given the financial data and seized materials, and whether the approval under Section 153D was mechanically granted.
Sections Cited
153A, 132, 153D, 40A(3), 40(a)(ia)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, CHANDIGARH
Before: HON’BLE SHRI RAJPAL YADAV & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
(िनधा�रणवष� / Assessment Year: 2018-19) Shri Paramjeet Singh DCIT-Central Circle-2 बनाम/ (C/o Rajiv Goel & Associates) Sector-17 SCO No 823-24, Sector 22-A Chandigarh-160017 Vs. Chandigarh-160022 �ायीलेखासं./जीआइआरसं./PAN/GIR No. ASTPS-8898-R (अपीलाथ�/Appellant) : (��थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Shri Dhruv Goel(CA) – Ld. AR ��थ�कीओरसे/Respondent by : Smt. Kusum Bansal (CIT) -Ld. AR सुनवाईकीतारीख/Date of Hearing : 18-09-2025 घोषणाकीतारीख /Date of Pronouncement : 08/10/2025 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2018-19 arises out of an order of learned Commissioner of Income Tax (Appeals)- 3, Gurgaon [CIT(A)] dated 26-09-2022 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s. 153A of the Act on 23-06-2021. The sole grievance of the assessee is confirmation of addition of Rs.82.18 Lacs. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.
The registry has noted delay of 769 days in the appeal, the condonation of which has been sought by Ld. AR on the strength of condonation petition which is accompanied by the affidavit of the assessee. It has been stated that delay happened due to the fact the impugned order was not within the knowledge of the assessee. The assessee being uneducated person was dependent on its tax counsel for Income Tax matters. The delay occurred due to non-intimation of appellate order and for bona-fide trust placed on legal counsel and not due to willful default on the part of the assessee. The Ld. CIT-DR opposed condonation of delay. However, after considering the averments made in condonation petition and keeping in mind the guiding principles laid down by Hon’ble Apex Court in the case of Collector, Land Acquisition vs. Mst. Katiji & Ors. (1987; (2) TMI 61 SC), we condone the delay and proceed for disposal of the appeal on merits.
The assessee belongs to Majha group of cases. The assessee- group having nine entities was subjected to search action by the department u/s 132 on 05-04-2018 wherein digital pen-drive and incriminating material was found. Based on the same, identical assessments were framed on all the entities of the assessee-group. The present appeal was heard along with other appeals of the assessee- group. It was admitted position that facts as well as issues are substantially the same in all the appeals and therefore, our adjudication in lead appeal would have an equal application on the other appeals also. The lead order has been passed by us in the case of Shri Karaj Singh (ITA No.726/Chandi/2022 & Co. No.16/Chandi/2024) the ratio of which would accordingly, apply to the present appeal also.
In the assessment order, Ld. AO estimated assessee’s income at 25% on gross receipts of Rs.21.12 Crores. After adjusting the declared income by the assessee in the revised return of income, Ld. AO made addition of Rs.211.29 Lacs. The Ld. CIT(A), vide para 6.9 of the impugned order, reduced the estimation to 18% which restricted the impugned addition to Rs.82.18 Lacs. Aggrieved, the assessee is in further appeal before us on merits as well as on legal grounds assailing requisite approval u/s 153D.
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.
The undisputed fact that emerges is that though Ld. CIT(A) has computed NP rate of 17.16% but, finally, it has applied NP rate of 18%. This is in sharp contrast to the fact that for immediately preceding AY 2017-18, Ld. CIT(A) himself estimated substantially lower NP rate of the assessee at 2.28% whereas there is no change in assessee’s business model. The approach of Ld. CIT(A) is contradictory to the rule of consistency and such vast variation in NP rates of two consecutive years, under identical business conditions, could not be sustained in law. The assessee initially reflected NP rate of 5.85% which has later been substantially enhanced to 14.05% despite the fact that the assessee is having much lower profit as per seized document.
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.
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.
The Ld. AR has tabulated the comparative figures as per Income Tax Returns, seized material as per orders of lower authorities as under:-
COMPARATIVE FIGURES ASS PER ITR, SEIZED MATERIALS, AO ORDER AND CIT(a) FOR AY 2018-19 IN CASE OF ALL 9 MINING ENTITIES No ENTITY Gross Mining Net sales Mining sales Profit as per Profit Profit sales considered (after as per audited P&L A/C offered for determined by CIT(A) and discount) as P&L A/C ( (Refer tax by by AO (25% of A.O. on basis of per seized Refer Audited Audited P&L assessee Gross Mining Seized material material (PG P&L at Pages at Pages 65 before A.O. Sales (PG 95 of CIT(A) 46 of PBK 2) 65 to 77) to 77) (Refer PG Order. 95 of CIT(A) order) 1 Northern 367,814,720 109,107,210 109,107,210 12,226,154 54,979,869 91,853,680 Royalty Co 2 Delhi Royalty 204,094,825 68,973,800 68,973,800 5,019,766 30,492,528 51,023,706 Co 3 Routes & 203,568,151 59,479,423 59,479,423 3,892,313 30,535,226 50,892,038 Journeys 4 Development 159,631,779 47,416,917 47,416,917 1575,242 23,944,764 39,907,945 Strategies Ind Pvt Ltd 5 Mubarikpur 633,832,815 215,614,964 219,614,964 10,193,139 95,060,051 158,458,204 Royalty Co 6 JSM Foods 149,368,071 102,942,179 102,942,179 1941,516 20,072,285 37,342,019 Private Limited 7 Karaj Singh 218,260,541 48,147.611 48,147,611 2,816,286 ,3,0659,375 54,565,135 8 Paramjeet 211,296,850 44,819,500 44,819,500 2,628,173 29,814,718 52,824,213 Singh 9 Yamuna Infra 160,029,000 77,870,000 77,870,000 40,007,250 developers Pvt Ltd Total 2,307,896,752 774,371,604 774,371,604 36,409,558 31,409,598 57,69,74,188 The Ld. AR thus submitted that net mining sales (after discount as per seized material) was Rs.77.43 Crores which matches with the regular mining sales as disclosed by the nine mining entities. The Ld. AR also stated that Ld. CIT(A) did not allow full mining installment of Rs.98.74 Crores as recorded in the books of accounts of nine mining entities. Out of Rs.98.74 Crores, Ld. CIT(A) did not allow installment to the extent of Rs.28.04 Crores as tabulated below: - COMPARATIVE FIGURES OF MINING INSTALLMENTS AS PER P&L OF MINING ENTITIES & ALLOWED BY CIT(A) AY 2018-19 ENTITY Mining Installment debited to P Mining installment Expense not allowed by & L A/C for A Y 18-19 (PG 65-66) allowed by CIT(A) CIT(A)
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) (2,31,20,138) As per seized material refer page 46 of PBK-2, VAT expense of Rs 4.94cr was VAT (NET OF CREDITS) 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.
(1,54,45,530) As per seized material at ps46, new point expenses of Rs. 1,04,00,000/- New NEW POINT EXPENSES 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.
To further support his argument, Ld. AR also tabulated comparative chart of profit computed by CIT(A) for all mining entities and as computed by the assessee for this year as under: - COMPARITIVE CHART OF PROFIT COMPUTED BY CIT(A) AND AS PER ASSESSEE FOR AY 2018-19 (CONSOLIDATED FOR ALL 9 MINING ENTITIES)
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%.
After going through above tabulations, we find substance in the plea / working of Ld. AR. It could be seen that considering the expenses found recorded in the seized material as well as in the regular books of accounts (allowed partially by Ld. CIT(A) while arriving at profit rate of 17.16%), the aggregate net profit margin for the group as a whole is less than 1.5%. If the material is considered in toto, the NP rate for all the entities work out to be 1.47% which is substantially lower than the declared profit of 14% to 15% by the assessee group in the revised return of income. This being the case, the profit declared in the revised return of income is to be accepted and in our considered opinion, no further addition is warranted in the hands of the assessee. The profit rate declared by the assessee is substantially higher. Pertinently, profit rate of less than 3% has been accepted in immediately preceding year in assessee’s case and such higher estimation of 18%, under identical business conditions, could not be sustained in law. In other orders, we delete the impugned addition of Rs.86.27 Lacs as sustained in the impugned order and allow the corresponding grounds of assessee’s cross-objection. The revenue’s ground of appeal stands dismissed.