SHIVAM READYMIX PRIVATE LIMITED,JAIPUR vs. ACIT, JAIPUR

2. On the facts and in the circumstances of the case and in law, Id. CIT(A) has grossly erred ignoring the fact that Id. AO in the very case of assessee in subsequent years has added only the profit on sale pertaining to such purchases and further erred in not appreciating that contrary view taken by Id. AO in this year of adding the entire purchases is totally against the provisions of law.

2.1 Without prejudice to above ground, the Ld. CIT(A) has erred in not appreciating the fact that in case if any grit has been purchased which has not been found recorded in the books of accounts then the said product was sold and what utmost can be considered is the profit earned by the appellant company in the on sale of such grit. Hence the resultant addition can only be to the extent of net profit earned and balance addition of the entire amount on account of unexplained investment deserves to be deleted.

3. On the facts and in the circumstances of the case and without prejudice to above, the Ld. CIT(A) has grossly erred in confirming the entire addition of Rs. 2,68,19,218/- u/s 69C of the Income Tax Act, 1961 on the allegation that the purchase of grit being out of books is unexplained investment ignoring the fact that these alleged purchases are spread over whole 12 months period and initial investment, if any, is out of unaccounted income offered in the group in the hands of Shri Mahesh Gupta.

4. The appellant craves leave to add, alter, amend or substitute one or more grounds of appeal as and when necessary.

assessee filed his return of income on 30.09.2012 declaring a total income of Rs 45,61,860/-. The case of the assessee was subjected to scrutiny, and the assessment was completed u/s 143(3) of the Act determining income at Rs. 61,82,380/-.

Thereafter, the case was reopened u/s 148 after recording the reasons to the satisfaction of the ld. AO and after obtaining due approval.

Notice u/s 148 was issued on 29.03.2019, which was duly served upon the assessee. The copy of the reasons recorded for issuing notice u/s 148 were provided vide letter dated 16.09.2019. In response to the statutory notices issued during the proceedings details called for were filed.

As there was a search action in the case of Gupta Group, Jaipur on 23.01.2019 in which the assessee was also covered. During the search proceedings various documents were seized from the residence of the director of the assessee company. On examination of these documents, it was found that the assessee company has made unaccounted purchases form M/s Triveni Grit manufacturing Company. Also, it is mentioned that entire purchases were made in cash and were not recorded in the books of accounts of the assessee company. Ld. AO based on the seized records noted that the assessee company has purchased aggregated Grit For Rs.

2,68,19,218/-were made in cash and thereby it also violates the provision of section 40A(3) of the Act. Based on that facts statutory notices as required u/s 143(2) & 142(1) of the Act were issued along with questionnaire requiring certain details information, which was duly served upon the assessee. The assessee was asked to show cause as to why such unaccounted purchases in the absence of evidence shouldn't be added back to the total income of the assessee company. In reference to the above, the AR of assessee has not furnished any explanation in this regard. Therefore, ld. AO made the addition of Rs. 2,68,19,218/- was made as per provision of section 69C of the Act.

4. Aggrieved from the order of the Assessing Officer, assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:

“5.2 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under:-

In this ground of appeal the appellant has challenged the addition made by the learned AO by applying the section 69C of the Act. The appellant has not explained the sources of the payments for the purchases and thus it is undisputed that the sources are unexplained. The appellant has been relied upon the submission that in the subsequent years a different approach was adopted by the learned AO.

Shivam Readymix Private Limited vs. ACIT However it is not the case of the appellant that the applicability of section 69C of the Act was examined in the subsequent years and after examination of the same the same was not applied.

Further the facts of those years can be different and it cannot be said that the facts of all the years are exactly same. The appellant has not placed on record the complete facts for all the years referred by the appellant and has not shown that the facts are exactly same.

It is a settled law that the wrong cannot be perpetuated. Also that res judicata is not applicable to income tax proceedings. Furthermore from the facts of the case as submitted by the appellant it appears that in the subsequent years the appellant offered the gross profit on the sales whereas the issue in the present case pertains to the unaccounted purchases.

The appellant has also claimed that these aggregate (grit) were used by the assessee company in the manufacturing of readymix concretes. Since, as an industrial benchmark, the grit consumption ratio is approximately 30% of the total output of readymix concrete and other raw material components are cement, sand, fly ash etc. which constitutes around 70% weightage in the total cost, besides certain other costs like conversion charges, pumping charges, manpower cost and plant operational cost and accordingly in absence of quantitative details of such unaccounted for purchases, assessee on the basis of this industrial benchmark, as worked out below, calculated the unaccounted sales of concrete prepared from such unaccounted grit purchased from M/s Triveni Grit Manufacturing company, and on such sales the GP rate declared in such activity as per the audited books of accounts was applied and the resultant profit was offered as additional income - however these statements of the appellant are without any supporting and are mere self-serving statements.

The appellant has not explained the source of making the expenditure. In view of the discussion this ground of appeal is hereby dismissed.”

5. As the assessee did not find any favor, from the appeal so filed before the ld. CIT(A), the assessee has preferred the present appeal before this Tribunal on the ground as reproduced hereinabove. To support the various grounds raised by the assessee, ld. AR of the assessee, has filed the written submissions which reads as follows:

Assessee is a private limited company incorporated on 23.07.2007. The assessee company is engaged in the business of manufacturing and sale of Readymix Concrete. The assessee has its manufacturing facility at Khasra No. 214/252, Gadhi Road, Near L. G. Warehouse, Gurugram. Return of Income for the year under appeal was filed on 30.09.2012 declaring total income at Rs.45,61,860/- (APB 1-4) and assessment was completed u/s 143(3) at Assessed Income of Rs.61,82,380/-. Subsequently, consequent upon search u/s 132 of the Income Tax Act, 1961 on 23.01.2019 at the various premises of the assessee and its Directors, various documents comprising of loose sheets, registers, pen drives, hard disks, etc. were found and seized by the respective Authorized Officers. Such documents inter alia included certain documents for unaccounted purchases made by assessee from M/s Triveni Grit manufacturing company. Accordingly, case of assessee was reopened u/s 147 of the Act and assessment was completed u/s 147 r.w.s. 143(3) of the I.T. Act, 1961 after making addition of 2,68,19,218/- u/s 69C of the Act. Aggrieved of the addition so made, assessee has preferred an appeal before ld. CIT(A) wherein ld. CIT(A) dismissed the appeal of the assessee vide order dated 23.01.2025. Thus, present appeal is being preferred against the order so passed by ld. CIT(A). Ground of Appeal

No.1 to 1.1: In this ground of appeal, assessee has challenged the action of ld.AO in reopening the assessment arbitrarily. To begin with, reasons recorded for reopening are reproduced hereunder:

3. As per information, a search & seizure action was carried out in the case of Gupta Group of cases, Jaipur on 23.01.2019. The assessee M/s Shivam Readymix P. Ltd. Was also covered u/s 132 of the I. T. Act. During the course of search action, various documents were seized from the premises of Shri Manoj Gupta, one of the directors of M/s Shivam Readymix Pvt. Ltd. Vide which, the assessee has purchased aggregates (grit) for Rs.4,65,51,809/- from M/s Triveni Grit Manufacturing Company during the F.Y. 2011-12 relevant to the A.Y. 2012-13. However, on examination of audited accounts of the assessee, it was found that the assessee company has shown total purchase at Rs.1,97,32,591/- from M/s Triveni Grit Manufacturing Company. Therefore, it is crystal clear that he assessee company has made unaccounted purchases of Rs.2,68,19,218/-(Rs. 4,65,51,809/-)(-) Rs.1,97,32,591/-) Further, it is to mention that entire purchases were made in cash in violation of provisions of section 40A(3) of the I.T. Act, 1961. As per the provisions of the section 40A(3) of the I.T. Act, Shivam Readymix Private Limited vs. ACIT 1961, “where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.” Therefore, it is clear that the assessee company has made entire purchases in cash in violation of provision of section 40A(3) of the I. T. Act, which is not allowable expenditure.

4. Considering the facts and in the circumstances of the case, it is seen that the assessee has made entire purchases in cash in violation of section 40A(3) of the Income Tax Act, 1961, during the year under consideration, has escaped assessment within the meaning of section 147 of the I.T. Act for the A.Y. 2012-13.

5. Considering the facts and circumstances of the case, I am satisfied that the assessee has made entire purchases at Rs.2,68,19,218 in cash in violation of section 40A(3) of the I.T. Act, 1961, during the year under consideration, has escaped assessment within the meaning of section 147 of the I.T. Act for the A.Y. 2012-13.” In view of above, it is evident that, in the reasons recorded before issue of notice u/s 148, ld.AO formed belief that income has escaped assessment as the assessee has made unaccounted cash purchases to the tune of Rs. 2,68,19,218/- in violation to the provisions of section 40A(3) of the Act. During the course of assessment proceedings, ld.AO issued show cause notice dated 9.12.2019 (copy enclosed), wherein details in the nature of copy of ledger account alongwith confirmation, purchase account alongwith bill and vouchers of M/s Triveni Grit Udyog. In response to such show cause notice, assessee furnished reply dated 30.12.2019 (APB 43-44), whereby it was submitted that provisions of section 40A(3) are not applicable to the facts of the case. Thereafter, assessee received assessment order, whereby addition of Rs.2,68,19,218/- was made u/s 69C of the Income Tax Act. It is pertinent to note here that in show cause notice dated 9.12.2019 issued prior to completion of assessment, no disallowance was proposed in this regard and disallowance was made directly in assessment order. Your honours would appreciate that issuance of show cause notice is not a mere technical formality and is rather very important part of assessment proceedings as the same is issued as a compliance of principle of natural justice, according to which an assessee must be afforded with adequate opportunity of being heard and to give explanation, prior to taking any adverse view in his case. In the present case, ld.AO, in the show cause notice has not expressed his intention of making addition u/s 69C or even u/s 40A(3), for which assessment was reopened. Whereas to utter surprise of assessee, eventually ld.AO has made addition to the tune of Rs.2,68,19,218/- u/s 69C of the Income Tax Act. Your honours would appreciate that such action of ld.AO is contrary to the principle of natural justice.

Shivam Readymix Private Limited vs. ACIT It is thus very clear that being satisfied with the explanation of assessee regarding non applicability of provisions of section 40A(3), eventually no addition was made u/s 40A(3) and rather addition was made u/s 69C. However, at no point of time throughout the assessment proceedings, ld.AO has conveyed intention to make addition u/s 69C, not even in the final show cause notice issued. It is thus clear that belief of escapement of income has been made on incorrect appreciation of facts and law and therefore re-assessment proceedings initiated are bad in law and void are initio. In this regard, reliance is placed on: Hon’ble Bombay High Court, in the case of Commissioner of Income-tax-5, Mumbai v. Jet Airways (I) Ltd., reported in (2011) 331 ITR 236 (Bom.), have made an in depth interpretation of the language used in the main provision of section 147(1) of the Income Tax Act, 1961 and newly inserted Explanation-3 to this section w.e.f. 01/04/1989 with a view to make the same in line with the legislative intent. The Bombay High Court held that, if after issuing a notice under section 148, the Assessing Officer accepts contention of assessee and holds that income, for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income. 63 DTR 212 – CIT vs. Adhunik Niryat Ispat Ltd. (Delhi) [DOD: 28.07.2011] Reassessment – Scope – Issue not subject-matter of reasons to believe – Assessment reopened on the ground that the assessee had accepted accommodation entries from some parties in the garb of share capital – However during the reassessment proceedings, the AO also made certain additions of the credits received from some other parties though on that basis the assessment was not reopened – Reasons which persuaded the AO to reopen the assessment proceedings and on the basis of which additions were made were not found valid and those additions were deleted by the Tribunal – Since the grounds for reopening the assessment do not exist any longer and no additions were ultimately made on that account, the additions in respect of other items which were not part of “reasons to believe” cannot be made. Similar view was taken by the Delhi High Court in the case of Ranbaxy Laboratories Limited Vs Commissioner Of Income Tax, reported in 2011-TIOL- 356-HC-DEL [336 ITR 136]holding that there must be some nexus between ‘reasons to believe’ recorded and the assessment framed. Ram Singh 306 ITR 343 (Rajasthan)

Shivam Readymix Private Limited vs. ACIT Reassessment – Income escaping assessment – Income believed to have escaped investment explained by assessee – Tribunal rightly holding reassessment proceedings initiated on non-existing facts and invalid – Income Tax Act, 1961, ss. 147, 148. Hon’ble Court in this case has inter alia held that: 29. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the AO were to come to conclusion, that any income chargeable to tax, which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then, the mere fact, that the AO entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the AO may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147.

However, during the course of appellate proceedings, ld.CIT(A) has not accepted the plea of assessee w.r.t. above contention that in the event no addition is made on the reason for which assessment was reopened, no further addition can be made, by holding that reason for reopening is on the issue of unaccounted purchases and addition has been made on that issue and therefore irrespective of applicability of section 40A(3) or 69C, addition is on the same issue. In this regard, it is submitted that in the present case, right from the issuance of notice u/s 148 till the completion of assessment, there was no reference of section 69C. Your honours would appreciate that both section 40A(3) and section 69C are altogether different and once ld.AO was satisfied that provisions of section 40A(3) are not applicable (as is evident from show cause notice and assessment order), he was duty bound to give opportunity to assessee to furnish explanation on section 69C before invoking such provisions. It is trite law that assessee should be made aware of specific charge against him, so as to afford him opportunity to defend and present his case on that specific issue, which has not been done. It is therefore submitted that reliance placed by assessee on above judicial pronouncements holds good.

Even otherwise, it is submitted that from the perusal of reasons recorded, it is evident that belief of escapement was formed on the basis of incriminating material found in search proceedings. Further, from perusal of the provisions of section 153A of the Income Tax Act, 1961, it is apparent that where any asset has been found to be created out of undisclosed sources during the period covered under search, the proper course of action is to issue notice u/s 153A beyond the 6 years up to the 10 years from the date of search. Thus, the Shivam Readymix Private Limited vs. ACIT proceedings, if at all had to be undertaken u/s 153A to assess “total income” and reassessment proceedings could not have been initiated u/s 148 of the Income Tax Act. Accordingly, proceedings for the year under appeal as initiated and completed u/s 147 is patently wrong and order so passed deserves to be quashed. During the course of assessment proceedings also, assessee, vide letter dated 24.12.2019 (APB 40-42) objected the reopening of assessment u/s 147 on this issue, however, ld.AO without disposing objections so raised, proceeded to continue the assessment proceedings, which is also against the settled legal position, according to which ld.AO is bound to dispose off objections raised by assessee by passing speaking order. Even in assessment order, there is no averment regarding objections of raised by assessee. Your honours would appreciate that even in the other cases of same group, where documents found as a result of search pertained to period beyond 6 years, assessments have been completed u/s 153A by the same assessing officer.

From perusal of above, it is evident that assessment proceedings initiated u/s 147 are not in accordance with law. This contention of assessee is also strengthened by following judicial pronouncements:

Hon’ble Bombay High Court in the case of Sejal Jewellery vs Union of India reported in [2025] 171 taxmann.com 846 (Bombay), wherein under identical facts and circumstances hon’ble court has held as under: (headnote reproduced) Section 153C, read with sections 147, 148 and 153A, of the Income-tax Act, 1961 - Search and seizure - Assessment of any other person (Unsecured loan) - Assessment year 2012-13 - A search and seizure operation was conducted at premises of 'SJP' and its associate concerns as well as key individuals of group - During search, incriminating evidences in form of various loose papers and data back-ups of various electronic devices were found and seized- It was revealed that assessee had accepted accomodation entries towards huge unsecured loans from a shell/paper company/entity - On basis of same, Assessing Officer reopened assessee's case under section 147 - Assessee contended that since entire basis of reopening was search action, assessment could be made only under section 153A and not under sections 147 and 148 - Whether since foundation of present case was certainly a search action which was undertaken by revenue against 'SJP' and in such search and seizure action, materials were seized and such materials were further explored and enquired, provisions of section 153C read with section 153A would be applicable - Held, yes - Whether, therefore, impugned notice under section 147 and all actions consequent thereto were required to be held to be without jurisdiction and bad in law - Held, yes [Paras 22 and 23] [In favour of assessee]

Hon’ble Rajasthan High Court, in the case of Tirupati Construction Company Vs. ITO reported in [2024] 165 taxmann.com 176 (Rajasthan) has decided the issue as under (headnote reproduced: Section 148A, read with sections 147, 148, 153A and 153C, of the Income-tax Act, 1961 - Income escaping assessment - Conducting inquiry, providing opportunity before issue of notice under section 148 (Scope of provision) - Assessment years 2016-17 and 2017-18 - Assessing Officer issued on assessee a notice under section 148A(b) seeking to reopen assessment for assessment year 2016-17 - Assessee in response filed a reply raising serious objection to maintainability of proceedings on ground that entire basis for reassessment was incriminating material and information collected during search carried out in year 2016 and prior to 31-3-2021 in premises of another assessee and nothing more and, therefore, no proceedings for reassessment could be drawn under section 148A - Assessing Officer did not find merit in reply of assessee and passed an order under section 148A(d) - Whether since entire basis for reopening assessment was nothing but material and information collected during search conducted in year 2016 in premises of another assessee, only legally permissible course of action was one provided under section 153C and not under section 148 - Held, yes - Whether impugned order passed under section 148A(d) deserved to be set aside - Held, yes [Paras 14, 16 and 17] [In favour of assessee]

Hon’ble Rajasthan High Court, in the case of Sh. Shyam Sunder Khandelwal Vs. ACIT, Jaipur reported in [2024] 161 taxmann.com 255 (Rajasthan)[19-03-2024] has decided the issue as under (headnote reproduced): Section 153C, read with sections 148 and 153C, of the Income-tax Act, 1961 - Search and seizure - Assessment of any other person (Section 153C vis-a-vis section 148) - Assessment year 2014-15 - Whether on satisfaction of twin condition for proceedings under section 153C, Assessing Officer has to proceed in accordance with section 153A, however, it is not obligatory on Assessing Officer to make assessment for all years - Held, yes - Whether provisions of sections 153A to 153D have prevalence over the regular provisions for assessment or reassessment under sections 143 & 147/148 - Held, yes - Whether once there is incriminating material seized or requisitioned belonging or relatable to person other than on whom search was conducted, section 153C is to be resorted to - Held, yes - Whether provisions of sections 153A to 153D have prevalence over regular provisions for assessment or reassessment under sections 148 & 147/148 - Held, yes - Whether therefore, where basis for initiation of section 148 proceedings in case of assessee was material seized relating to or belonging to assessee during search conducted on ‘M’ Group, notices issued under section 148 and impugned orders rejecting objections filed to issuance of notice were to be quashed and set aside - Held, yes [Paras 30, 32 and 40] [In favour of assessee]

Though the above decisions have been laid down in the context of section 153C, however ratio laid down in the same is squarely applicable to cases where documents have been found in search of assessee itself and assessment is required to be framed under section 153A as well. It is thus submitted that since in the present case, assessment has been framed solely on the basis of documents found during search, assessment proceedings were to be completed in accordance with provisions of section 153A and not 147, and consequent re- assessment order passed u/s 147 is without jurisdiction and deserves to be quashed. Without prejudice to above and in the alternative: Ground of Appeal

No. 2 to 3: In this ground of appeal, assessee has challenged the addition of entire amount of purchases and moreover has raised the issue that since this expense of purchase has not been debited in books and there is nothing out of which disallowance could have been made that since the purchases, alleged to be not recorded in books of accounts, would have definitely been sold, therefore at the most net profit on such sales made can be upheld. It is seen that during the year under consideration the assessee company had carried out two activities i.e. i) Manufacturing and trading of Readymix and ii) Transportation. However as the addition is made by ld.AO on account of purchases made in manufacturing and trading of readymix therefore the GP earned on this activity may be taken for computing the additional undisclosed income. The manufacturing account of readymix is reproduced as under:- GP AY 2012

13. Rate Opening Stock 74,86,029.00 Sales 25,82,69,432.68 Consumption of Raw 20,71,37,724.00 Closing Stock 60,38,736.00 material Direct Expenses 3,55,73,524.60 Gross Profit 1,41,10,891.08 5.46 Shivam Readymix Private Limited vs. ACIT Your honours would appreciate that it is a settled proposition of law that entire amount of purchases cannot be added to the total income and rather only income component from sales thereof could be added at the most. Accordingly, addition if any, on account of alleged unaccounted sale out of unaccounted purchase is to be made, it could have been of profit earned on account of these sales. In this regard reliance is placed on the decision of the Hon’ble ITAT, Jaipur bench in the case of M/s M/s Vikas Timber Products (P) Ltd. wherein in ITSSA No. 53/JP/06, Hon’ble bench has held that in the case of unaccounted sales income is to be estimated by applying a reasonable Net profit rate.

Also reliance is placed on the following judicial pronouncements: CIT Vs. President Industries 225 ITR 47 (SC): Entire sales cannot be taxed only profits could be added.

[2023] 146 taxmann.com 467 (SC) Kuwer Fibres (P.) Ltd. v. Commissioner of Income-tax* Section 69B, read with sections 158B and 132, of the Income-tax Act, 1961 – Undisclosed investments (Unaccounted purchases) - Block periods 1-4-1985 to 20-3-1996 - Search and seizures proceedings were conducted at assessee's premises and notice under section 158BC(c) was issued to it - Assessing Officer based upon materials seized framed block assessment and made addition on account of excess of unaccounted purchase over unaccounted sale - High Court by impugned order held that once raw material quantity that did not appear in regular books of account was discovered and could be inferred as a result of search, onus was upon assessee to furnish full particulars as to cost of that raw material or average cost - It further held that where purchases were made outside books of account and proper accounting or reconciliation could not be made by assessee, profits on unaccounted purchases was rightly estimated at GP rate of 4.5 per cent - Whether SLP filed by assessee against impugned order of High Court was to be dismissed - Held, yes [Para 3] ITO, Ward 45(3), Kolkata Vs. Maniklal Dey /Kol/2016 (ITAT-Kol): Turnover includes cost or purchases and gross profit. Only gross profit can be termed as the income of the appellant. The action of the AO for adding entire turnover is baseless.

Shivam Readymix Private Limited vs. ACIT Surinder Pal Verma Vs. ACIT 89 ITD 129 (Chd. TM) When unrecorded sales were noted during the survey or otherwise only the normal G.P. could be applied. It would be patently illegal to add the entire sales as income of the assessee. K Venkatesh vs Income Tax Officer (2016) 47 CCH 0447 Banglore Tribunal “14. I have heard the rival submissions and considered the relevant material on record. The return of income filed by the assessee was accompanied by a report of the accountant u/s. 44AB. The total revenue/turnover shown by the assessee in the year under appeal was Rs.53,27,417 and the assessee has shown a net income of Rs.3,08,770, which works out to 5.80% of the gross receipts. The assessee has submitted that the omission to show the aforesaid receipt of Rs.40,79,790 does not distort the correct income of the assessee, in as much as to the extent of such receipts, the related expenditure on the payment made to security guards is also not claimed as a deduction. The AO did not appreciate the contention of the assessee and the CIT(Appeals) took a different view with respect to determination of income. The Tribunal had held that the entire receipts cannot be stated to be the income of the assessee because the assessee would have to pay the wages and also incur other expenses for the purpose of carrying on of the business of the assessee. Hence the Tribunal directed the AO to consider the totality of facts and compute the net income of the assessee. Following the decision of the Hon'ble Madhya Pradesh High Court in CIT v. Balchand Ajit Kumar (supra) and the Hon'ble Bombay High Court in the case of CIT v. Hariram Bhambhani (supra), I am of the view that the lower authorities ought to have determined the net income of the assessee on the basis of net profit earned by the assessee and ought to have adopted the net profit @ 5.80%. I direct accordingly.” Shri Nikhil Garg vs ITO 180/JPR/2018 “9. ……..In this regard, we draw strength from the decision in the case of CIT Vs President Industries (supra) wherein the Coordinate Bench had held that entire sales could not be added as income of assessee but addition could be made only to the extent of estimated profits embedded in sales. Further in the case of K Venkatesh Vs ITO (supra) wherein the Hon’ble High Court upheld the order of Tribunal by holding that it not the entire sales consideration which is to be brought to tax but only the profit attributable on the total unrecorded sales consideration which alone can be subject to income tax. Thus, keeping in view the principles laid down by the Hon’ble High Court as well as the Coordinate Bench of the Tribunal, we are of the view that the entire sale consideration cannot be treated as income of the assessee but the addition could be made only to the extent of estimated profits embedded in sales, thus, in that eventuality, we deem it appropriate to restore the matter back to the file of the A.O. with a direction to make addition only to the extent of estimated profits embedded in sales of Rs. 66,35,957/- while keeping in view the GP declared by the assessee on the total sales for the year under consideration. Reasonable and adequate opportunity of hearing shall be provided to the assessee before deciding the matter afresh. We order accordingly.” In view of above, it is submitted that: - Reopening of assessment u/s 147 on the basis of documents seized as result of search conducted, for which specific mechanism is provided u/s 153A and 153C, is void ab initio;

- Reopening of Assessment on the belief that income has escaped assessment as per provisions of section 40A(3) and completion of proceedings by making addition u/s 69C, that too without affording any single opportunity to assessee in this regard (no such proposal made in show cause notice regarding addition made) is not in accordance with law; - Without prejudice to above and in the alternative, even if legality of assessment order is upheld, it is requested that as per settled position of law, at the most gross profit earned on sale in respect of such unaccounted purchases be upheld, which for the year under consideration is 5.46%.

PAGE S. No. PARTICULARS NOS.

Copy of Acknowledgment of Return of Income and Computation of Income 1. 01-04 filed u/s 139(1) of the Act. Copy of Acknowledgment of Return of Income and Computation of Income 2. 05-09 filed u/s 148 of the Act. 3. Copy of Audited Financial Statements along with Tax Audit Report 10-39

PAGE S. No. PARTICULARS NOS.

Copy of reply dated 24.12.2019 in response to the show cause notice 4. 40-42 dated 09.12.2019 Copy of reply dated 30.12.2019 in response to the show cause notice 5. 43-44 dated 09.12.2019. Copy of reply filed on 23.04.2021, before Ld. DCIT during assessment 6. 45-48 proceedings for the A.Y. 2013 to 2019-20. 7. Copy of Written Submission filed before Ld. CIT(A)-4 dated 20.12.2024 49-61

Facts of the Case: M/S Deepak Agro Foods, a proprietorship firm, was assessed under the Rajasthan Sales Tax Act for the years 1995-96 and 1996-97. The firm challenged the assessment orders on grounds of procedural irregularities, alleging that the orders were backdated and that there were interpolations in the records. The High Court, upon examining the records, found evidence supporting these claims and set aside the assessment orders, directing fresh assessments by a different assessing officer. The firm appealed to the Supreme Court, contending that the assessment orders were null and void due to the alleged irregularities

• Procedural irregularities, even if serious, do not necessarily render an order void ab initio.

• An order is considered void ab initio only when the authority issuing it lacks inherent jurisdiction.

• If the authority has jurisdiction but errs in procedure, the order is irregular or illegal, not void. Such orders remain effective until set aside through appropriate legal channels.

Legal Principle: This case reinforces the distinction that:

• An order passed without jurisdiction is a nullity and can be challenged at any stage.

• An order passed with jurisdiction but suffering from procedural defects is irregular or illegal and must be challenged through the prescribed legal remedies.

Relevance to Other Case Laws: The principles elucidated in M/S Deepak Agro Foods align with earlier judgments such asKiran Singh & Ors. v. Chaman Paswan & Ors. (AIR 1954 SC 340): Emphasized that a decree passed by a court without jurisdiction is a nullity.

• Rafique Bibi v. Sayed Waliuddin ((2004) 1 SCC 287): Distinguished between decrees that are void due to lack of jurisdiction and those that are merely illegal or irregular.

These cases collectively underscore the importance of jurisdiction in determining the validity of judicial and quasi-judicial orders.

Conclusion: The M/S Deepak Agro Foods case serves as a significant precedent in understanding that not all procedural irregularities render an order void ab initio. The determining factor is whether the authority had the jurisdiction to issue the order in the first place. assessment has relied upon the decision of the our own High Court in the case of M/s. Deepak Agro Foods Vs. State of Rajasthan about the defect in the notice in the state tax proceeding.

We considered the grievance of taking one by one issue but before doing so it would be appropriate recap the facts of the case. Assessee is a private limited company incorporated. The assessee company is engaged in the business of manufacturing and sale of Readymix Concrete. Return of Income for the year was filed on 30.09.2012 declaring total income at Rs.45,61,860/-. That was also subjected to scrutiny assessment and thereby the assessment was completed at assessed income of Rs.61,82,380/-.

As there was a search u/s 132 of the Act on 23.01.2019 at the various premises of the assessee and its Directors, documents comprising seized by the respective Authorized Officers. Such documents included certain documents for unaccounted purchases made by assessee from M/s Triveni Grit manufacturing company. Accordingly, case of assessee was reopened u/s 147 of the Act and assessment was completed u/s 147 r.w.s.

143(3) of the I.T. Act, 1961 after making addition of 2,68,19,218/- u/s 69C of the Act. Aggrieved of the addition so made, assessee has preferred an appeal before ld. CIT(A) wherein ld. CIT(A) dismissed the appeal of the assessee vide order dated 23.01.2025. The assessee challenged the finding of the ld. CIT(A) before this tribunal.

Vide ground no. 1 and 1.1 the assessee challenges the action of the ld. AO in re-opening the assessment. Record reveals that the while doing so the ld. AO recorded the reason to reopen the case of the assessee which reads as under :

Thereafter, assessee received assessment order, whereby addition of Rs.2,68,19,218/- was made u/s 69C of the Act. It is pertinent to note here that in show cause notice dated 9.12.2019 issued prior to completion of disallowance was made directly in assessment order.

Records also reveal while shifting the contention, ld. AO did not issue any show cause notice. The principles of natural justice cast a responsibility upon the assessing officer to issue a show cause notice before making any addition in the assessment proceedings. In the present case, ld.AO, in the show cause notice has not expressed his intention of making addition u/s 69C or even u/s 40A(3), for which assessment was reopened. Thus, the ld. AO did not make any addition u/s. 40A(3) which was very basis to issue notice u/s. 148 of the Act. Records show that ld.AO has not conveyed his intention to make addition u/s 69C, not even in the final show cause notice issued. Thus, the belief of escapement of income has been made on incorrect appreciation of facts and law and therefore re- assessment proceedings initiated are bad in law and void are initio. We get support of this view from the decision of the Hon’ble Bombay High Court in the case of Commissioner of Income-tax-5, Mumbai v. Jet Airways (I) Ltd., reported in (2011) 331 ITR 236 (Bom.) and the binding precedent cited of our own High Court in the case of CIT Vs. Ramsingh [ 217 CTR 345 ] has held that; Shivam Readymix Private Limited vs. ACIT 29. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the AO were to come to conclusion, that any income chargeable to tax, Which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then, the mere fact, that the AO entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the AO may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147.

Respectfully following the view of our Jurisdictional High Court that once the ld. AO found that the income, with respect to which he had entertained "reason to believe" to have escaped assessment, was found to have been explained [ that on original proceeding assessee made submission on the issue raised by the ld. AO ], his jurisdiction came to a stop at that, and he which subsequently came to his notice, in the course of the proceedings, which were found by him, to have escaped assessment.

Having held so the bench also noted from the perusal of the reasons recorded that the ld. AO referred the seized material recovered in the group search. The ld. AR of the assessee as based on pachnama submitted that the considering the facts that there was a panchnama in the case of the assessee-appellant the proceeding u/s. 153A of the Act is required to be done as done in the case of the director of the company Shri Mahesh Gupta [ assessment order dated 04.08.2021] being the proper course of action. Thus, ld. AO if intend to assessee the income in the hands of the assessee the proper course of action is to issue notice u/s. 153A of the Act and the recourse of issuing the notice u/s. 148 is not available with the ld.AO. This aspect of the matter has already been drawn attention to the ld.

AO by the assessee vide letter dated 24.12.2019 [ paper book page 40 to 42 ] while objecting the reopening of the case. In support of the claim the ld. AR of the assessee submitted on the similar facts in the case of Sejal Jewellery vs Union of India reported in [2025] 171 taxmann.com 846 (Bombay), where in the Bomabay High Court held that ; Shivam Readymix Private Limited vs. ACIT 23. Insofar as Mr. Suresh Kumar's contention supporting the proceedings under Section 147 and 148 of I.T. Act are concerned, for the aforesaid reasons, such contention would in fact go contrary to the intention of the legislature as depicted by the provisions of Section 153A and 153C of the I.T. Act. There would not be any difficulty in accepting the proposition as canvassed by Mr. Suresh Kumar, referring to the decision of the Supreme Court in Phool Chand Bajrang Lal (supra), however, the facts in the present case are distinct. There cannot be any doubt on the position in law when the Revenue intends to proceed purely on materials relevant for an action under Section 148 read with Section 147. We have already observed that the provisions of Sections 147, 148 vis-a-vis Section 153A and Section 153 are quite compartmentalized. To avoid any overlapping of these provisions, the legislature in its wisdom has thought it appropriate to provide for an independent effect, to be given under Section 153A read with Section 153C by incorporating the "non-obstante" clause, in these provisions, which carves out an exception to any normal/regular action being resorted under Section 147.

He also submitted that the issue is squarely covered by our own Rajasthan High Court in the case of Tirupati Construction Company Vs.

ITO reported in [2024] 165 taxmann.com 176 (Rajasthan) has decided the issue as under (headnote reproduced:

Considering the above two technical reason once the ld. AO recorded the reason to assessee the income on the particular issue which has been explained and not addition was made ld.AO cannot proceed on the other issue and that too without issue of any show cause notice. The other because of some material recovered in the search the proper course of action is to issue notice u/s. 153A/153C of the Act and not to assessee that income u/s. 148 of the Act.

In the light of the above discussion we allow the ground no. 1 & 1.1 raised by the assessee, other ground no. 2 , 2.1 & 3 which deals the merits of the issue becomes academic at this stage and are not required to be adjudicated.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 06/08/2025. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 06/08/2025 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Shivam Readymix Private Limited, Neemuch, Madhya Pradesh 2. izR;FkhZ@ The Respondent- ACIT, Central Circle-03, Jaipur 3. vk;dj vk;qDr@ The ld CIT vk;dj vk;qDr¼vihy½@The ld CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. 6. xkMZ QkbZy@ Guard File (ITA No. 166/JP/2025) vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत