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Facts
During a survey, the assessee surrendered Rs.1 crore. The Assessing Officer (AO) made an ad-hoc addition of Rs. 3,05,61,134/- by increasing the GP rate to 12% from the declared 2.998%, citing lack of quantitative details and non-genuine profit figures. The CIT(A) confirmed this addition.
Held
The Tribunal noted that the AO's estimation of GP at 12% was ad-hoc, without any reasoning, and based on conjectures. The Tribunal also found that the 2.998% was the Net Profit rate, not Gross Profit rate, as mistakenly understood by the AO. The Tribunal held that disturbing profit ratios requires rejection of books of accounts, which was not done.
Key Issues
Whether the AO was justified in making an ad-hoc addition to the Gross Profit by arbitrarily increasing the GP rate without proper verification and rejection of books of accounts.
Sections Cited
133A, 143(3), 145, 270A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘E’: NEW DELHI
Before: SHRI SATBEER SINGH GODARA
ORDER PER AMITABH SHUKLA, AM,
This appeal filed by the assessee is against order dated 02.07.2025 of the learned Commissioner of Income Tax (Appeals)-3, Gurgaon, [hereinafter referred to as ‘ld. CIT(A)] arising out of assessment order dated 05.11.2019 passed under section 143(3) of the Income Tax Act, 1961 pertaining to Assessment Year 2017-18. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
The assessee is contesting the ad-hoc addition of Rs.3,05,61,134/- made by the ld. AO on account of Gross Profit. As per brief facts of the case, a survey under section 133A was conducted upon the assessee wherein surrender of Rs.1 cores was made. The ld. AO made an ad-hoc GP addition of Rs.3,05,61,134/- by inter alia observing as under:-
“……5.1 As per the above mentioned facts placed on record, the assessee was clearly conveyed in various notices/showcases, that in the absence of quantitative details of stock, the profit figures shown by the assessee are to be considered as non-genuine. Therefore, in view of non-availability of any explanation on the behalf of the assessee, the GP rate of the assessee is increased to 12% (after understanding the business expediency of the assessee), and after rejecting the GP rate of 2.998% shown by the assessee. This increase in the GP rate results in an addition of Rs 3,05,61, 134/- to the income of the assessee for A.Y 2017-18. Penalty proceedings u/s 270A for misreporting income are being initiated……”
The ld. CIT(A) concurred with the findings of the ld. AO and confirmed the impugned addition.
Per Contra, the ld. DR supported the orders of the lower authorities.
We have heard rival submissions in the light of material placed on record. The ld. Counsel for the appellant assessee vehemently argued against the order of the lower authorities. It was contended that the addition has been made purely on ad-hoc basis without any basis. It was submitted that the assessee had already surrendered an amount of Rs.1 crore in the survey. The ld. Counsel submitted a chart indicating following Gross Profit and Net Profit reported by the assessee in its return of income in last four years. Page 2 of 5
Particulars AY 14-15 AY 15-16 AY 16-17 AY 17-18 Gross Turnover 22,18,32,906.00 26,21,16,195.00 34,16,48,493.00 34,57,57,452.00 Gross Profit 3,17,83,524.00 3,34,13,444.00 4,04,36,149.00 3,29,40,576.00 Net Profit 10,01,179.00 36,27,751.00 28,00,859.00 69,96,025.00 G/P Rate 14.33 12.75 11.84 9.26 N/P Rate 0.45 1.38 0.82 2.998
The ld. Counsel for the assessee thus argued that the ld AO has completely mis-read the situation by holding that 2.998% is the GP of the assessee, whereas the same is net profit of the assessee. It was contended that the impugned inconsistency per se denotes a non-application of mind and a mechanical addition without any proper verification. It was further argued that no rejection of books of accounts done before the impugned disturbance which was legally barred. In support of its contentions, the ld. Counsel for the assessee placed reliance upon judicial pronouncements including of a Co-ordinate Bench of this Tribunal in the case of Azad Coach Private Limited vide dated 11.11.2025 and of Hon’ble Madras High Court in M/s Marg Limited 84 taxmann.com 82 holding that disturbance to declared profit ratios can only be made after rejecting books of accounts under section 145 of the Act.
We have carefully considered the facts of the case and found force in the arguments of the appellant assessee qua non-application of mind and a mechanical addition without any proper verification while making the Page 3 of 5 impugned addition of Rs.3,05,61,134/-. The apparent inconsistency in the figures of assessee’s declared profit ratios, adopted by the ld. AO is conspicuously present in the case. As regards the issue of adoption of GP ratio of 12% by the ld. AO, we have noted that the ld. AO has estimated the GP at 12% in an ad-hoc fashion without placing on records any reasoning for the same. The conclusions drawn by the ld. AO in para-5.1 of his order is without any basis and is merely a case of conjectures and surmises. No quantification whatsoever has been done of the unvouched and unverifiable expenses, etc. The fact though also remains that survey proceedings alluded that the assessee was not correctly disclosing its taxable income. Be that as it may be in the interest of justice, we deem it appropriate to restrict the disallowance of Gross Profit addition to 10% as against 12% adopted by the ld. AO. The order of the lower authorities is set-aside and the ld. AO is directed to recalculate the GP addition at 10% of sales turnover and issue fresh demand notice.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 15th January, 2026.
Sd/- Sd/- [SATBEER SINGH GODARA] [AMITABH SHUKLA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 19.01.2026 Shekhar
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