ACIT, CC-2, CHANDIGARH V. SHRI KARAJ SINGH, YAMUNA NAGAR

ITA 726/CHANDI/2022

AI Insights

The case involves an appeal by the revenue against the decision of the Commissioner of Income Tax (Appeals) which had estimated the net profit rate of the assessee at 18% for the assessment year 2018-19, following a search and seizure operation. The assessee, engaged in mining activities, had filed a revised return declaring additional income post-search. The revenue contested the CIT(A)'s decision, arguing for a higher profit rate based on different comparable entities. The Tribunal found that the entities selected by both the assessee and the revenue were not functionally comparable and upheld the CIT(A)'s use of seized documents to estimate the profit rate. The Tribunal also addressed issues related to agricultural income and unsecured loans, ultimately reducing the additions made by the lower authorities.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 780214 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2018-2019
• Appeal Filed On: 13-12-2022
• Other Referred Cases: Rishabchand Bhansali vs. CIT, SP Singla Constructions Pvt. Ltd vs. CIT, Sushen Mohan Gupta vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUSUM BANSAL LD
• Assessee Lawyers: DHRUV GOEL LD; ENHANCING THIS PROFIT RATE
• Keywords: Set aside; Business income; Opportunity of being heard; Revised return; Revenue expenditure; Corroborative evidences; Depreciation; Rule of consistency; Document seized; Documents seized; Capital expenditure; Principle of natural justice; Search and seizure; Loose papers; Assessment record
• Section: 143(3); 142(1); 132; 153A; 68; 2; 40A(3); 40(a)(ia)

Judgement Text

"1 IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHANDIGARH HYBRID HEARING BEFORE HON’BLE SHRI RAJPAL YADAV, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM 1. आयकर अपील सं./ ITA No. 726/CHANDI/2022 (िनधाŊरण वषŊ / Assessment Year: 2018-19) ACIT-Central Circle 2 CR Building Sector 17 Chandigarh 160017 बनाम/ Vs. Shri Karaj Singh H. No 1379, Modern Colony, Near ITI Yamuna Nagar (Haryana) ˕ायीलेखासं./जीआइआरसं./PAN/GIR No. ATUPS-5528-A (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) & 2. CO. No. 16/Chandi/2024 [In ITA No. 726/CHANDI/2022 (िनधाŊरण वषŊ / Assessment Year: 2018-19) Shri Karaj Singh H. No 1379, Modern Colony, Near ITI, Yamuna Nagar (Haryana) बनाम/ Vs. ACIT-Central Circle 2 CR Building Sector 17 Chandigarh 160017 ˕ायीलेखासं./जीआइआरसं./PAN/GIR No. ATUPS-5528-A (Cross-Objector) : (Respondent) Revenue by : Smt. Kusum Bansal (CIT) – Ld. DR Assessee by : Shri Dhruv Goel (CA) - 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) 1.1 Aforesaid appeal by revenue 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 Printed from counselvise.com 2 framed by Ld. Assessing Officer [AO] u/s. 153A of the Act on 23-06-2021 making certain additions in the hands of the assessee. The grounds of appeal read as under: - (i) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is right in giving the benefits of various expenses to the assessee without any corroborative evidences while estimating the NP rate? (ii) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in restricting NP rate from 25% to 18% by considering an expense categorized as “Discount’ to the tune of Rs.153,35,21,146/- extracted from the Pen Drive seized during the course of search action without verifying its allowability and examining the genuineness of nature and scope of such discounts? (iii) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is right in allowing the expenses by referring two seized documents containing a completely different value of same expense categorized under the head “Discount” without bringing any corroborative evidences on records and without justifying the nature and scope of these discounts? (iv) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is right in not appreciating the facts that the creditworthiness of the persons from whom unsecured loan of Rs.16,00,000/- received was not proved as their accounts have been credit by some other parties prior to advancing such loan to the assessee? (v) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is right in allowing the appeal of the assessee on the issue of unsecured loan holding that creditworthiness of the person advancing such loan is proved by overlooking the facts that return of loss was furnished by such person during the year? (vi) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is right in allowing the appeal of the assessee on the issue of restricting agriculture income by not appreciating the facts that the assessee did not furnish complete documents in support of agriculture income declared in ITR? 1.2 The assessee has filed cross-objection which has subsequently been modified. The final grounds taken by the assessee read as under: 1. That the Learned CIT(A) has erred in law and on facts in assessing undisclosed business profit at 18% of business turnover of Rs.21,82,60,541/- as against profit declared by assessee in revised ITR and thereby confirming additions to extent of Rs.86,27,520/-. 2. That the learned CIT(A) has erred in confirming the additions of Rs.86,27,520/- on account of undisclosed business profit on basis of estimates and suspicious drawn on material found during search. 3. That the learned CIT(A) has erred in law and on facts in confirming additions u/s 68 of Rs.10 lakhs on account of unsecured loans. 4. That the assessment order u/s 153A r.w.s. 143(3) dated 23.06.2021 is null, void ab initio and without jurisdiction in so far as it has been passed pursuant to a mechanical and non- speaking approval granted by Ld. Additional CIT u/s 153-D of the Act. 5. That the approval u/s 153D granted by the Ld. Additional CIT is null, void ab initio and without jurisdiction as the same is in violation of CBDT Circular No 189/2019 requiring DIN Printed from counselvise.com 3 therefore order of assessment dated 23.06.2021 u/s 153A of the Act read with section 143(3) of the Act read with Section 143(3) of the Act deserve to be quashed as such. 6. That the authorities below have erred in making/confirming additions without providing adequate opportunity of being heard to the assessee and without adhering to the principles of natural justice. 7. The assessee craves leave to add, amend, alter, substitute or revise any of the above-mentioned grounds before the disposal of appeal. 1.3 As is evident, the issues in revenue’s appeals are- (i) Estimation of Net profit Rate; (ii) Deletion of addition of Unsecured loans for Rs.16 Lacs; (iii) Deletion of addition of Agricultural income. The issues in assessee’s cross-objections are – (i) Estimation of Net profit Rate; (ii) Addition of Unsecured loans for Rs.10 Lacs; (iii) Mechanical approval u/s 153D. The Ld. AR has not pressed for remaining grounds in the appeal and accordingly, these ground stands dismissed as not pressed. 1.4 The Ld. CIT-DR advanced arguments and supported the assessment order of Ld. AO. The Ld. AR, on the other hand, controverted the arguments of Ld. CIT-DR and pleaded for acceptance of additional income as offered by the assessee in its revised return of income. The Ld. AR also advanced arguments on legal grounds. The written submissions have been filed along with paper-book and case laws which have duly been considered while adjudicating the issues. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Assessment Proceedings 2.1 The impugned assessment has been framed pursuant to search action by the department on assessee-group u/s 132 on 05-04-2018. During search, certain incriminating documents were found which form the very basis of impugned additions in the hands of the assessee. The assessee being resident individual is stated to be belonging to M/s Majha Group of cases. The regular return of income for this year was filed by Printed from counselvise.com 4 the assessee on 31-03-2019 declaring income of Rs.48.60 Lacs and the same return was offered in response to notice issued by Ld. AO u/s 153A on 21-02-2020. During the course of assessment proceedings, notices were issued u/s 142(1) from time to time calling for various details / documents / explanations from the assessee which were duly been responded to by the assessee. Based on the same, impugned assessment was framed against the assessee. 2.2 The assessee and its group entities are stated to be engaged in mining business under license from Director of Mining, Haryana. In the audited financial statements, the assessee reflected gross profit rate of 25.16% and net profit rate of 5.85% on turnover of Rs.4.81 Crores. However, the dispute arose on account of unaccounted sales since during search, two pen-drives were found from Corporate Office bearing No.1060, Sector-17, HUDA, Jagadhari, Yamuna Nagar. Upon analysis of the same, it was found that the same contained consolidated financials / books of accounts in the name of paper / dummy concerns under the name and style of M/s GM & Co. and M/s Jay Krishna & Co. The data contained consolidated financial data of all the group entities. The same allegedly contained details of sales which were not fully recorded in the regular books of accounts of the nine mining concerns related to Majha Group including the assessee. The pen-drives (seized as Annexure A-1) contained financial documents in the name of M/s GM & Co. (for FYs 2016-17 and 2017-18) whereas the other pen-drive contained financial statements & documents in the name of M/s Jay Krishna & Co. (for the period from 01-04-2018 to 03-04-2018 i.e., pertaining to three days of FY 2018-19). These have already been extracted by Ld. AO in the assessment order on sample basis. The cash-in-hand as found in the Printed from counselvise.com 5 pen-drive matched with the seized day book and accordingly, this data was used to make additions in the hands of the assessee-group. 2.3 The above data was confronted to Shri Naresh Chand (Accountant of Majha Group) from whose custody the documents were found and seized. It transpired that these two entities viz. M/s GM & Co. and M/s Jay Krishna & Co. where paper / dummy concerns. The data found contained aggregate of sales made and expenses incurred by various concerns of the group which were engaged in mining activities. The sworn statement was also recorded from Shri Nirmal Roy who was working as Manager in the accounts department of Majha Group. He was controlling and managing the accounted as well as alleged unaccounted sales generated through mining activities of various concerns of the group. His statement corroborated the statement of Shri Naresh Chand with regard to extracted financial of M/s GM & Co. and M/s Jay Krishna & Co. During post search proceedings, summons was issued to Shri Rajinder Singh (principal person of the group) requiring him to furnish the nature, ledger account and mode of expenses incurred and debited in the receipt and expenditure account of M/s GM & Co. Though the assessee claimed to have allowed discount to its customers on sales and denied making unaccounted sales but the same largely remained unsubstantiated. The position remained the same for rehabilitation charges stated to be recovered in cash from the customers. Finally, Ld. AO quantified quantum of alleged unaccounted sales for the group as a whole and the assessee was show-caused during assessment proceedings. 2.4 The assessee furnished various replies in response to notices issued by Ld. AO u/s 142(1). In reply dated 22-04-2021, the assessee Printed from counselvise.com 6 stated that there was a substantial loss in the mining business as per data found maintained in the name of M/s GM & Co. However, to put a quietus to the issue, the assessee-group filed revised return of income on 08-06-2021 by disclosing profit rate in the range of 14% to 15% in various entities as tabulated below: - (Figure in Rs.) It could be seen that the gross sales of the group, for this year, were determined as Rs.230.78 Crores and all the entities filed revised return of income by offering additional income. The assessee offered profit of 14.05% on its respective turnover of Rs.21.82 Crores. However, Ld. AO disputed this profit rate and went on to make further additions in the hands of the assessee by enhancing this profit rate. 2.5 In Para 11.1 of the order, Ld. AO noted that the assessee furnished its books of accounts which were examined on test check basis. The No. Name of the entity (M/s) Gross sales as per seized document Net sales as per books of account Business profit as per original return Business profit as per revised return % NP as per revised return 1 JSM Food Pvt Ltd 14,93,68,071 10,29,42,179 -23,32,926 2,00,72,285 13.44 2 Mubarikpur Royalty Co 63,38,32,815 21,56,14,964 1,01,78,269 9,50,60,051 15.00 3 Delhi Royalty Co 20,40,.94,625 6,89,73,800 48,98,075 3,04,92,528 14.94 4 Karaj Singh 21,82,60,541 4,81,47,611 48,78,075 3,04,92,528 14.05 5 Northern Royalty Co. 36,78,14,720 10,91,07,210 1,20,33,815 5,49,79,869 14.95 6 Yamuna Inf. Pvt. Ltd. 16,0029,000 7,78,70,000 Not available Not available Not available 7 Development Strategic Pvt. Ltd. 15,96,31,779 4,74,16,917 20,89,777 2,39,44,764 15.00 8 Routes & Journeys 20,35,68,151 5,94,79,423 38,92,313 3,05,35,226 15.00 9 Paramjeet Singh 21,12,96,850 4,48,19,500 38,72,070 2,98,14,718 14.11 Total 2,30,78,95,752 77,43,75,607 3,74,11,777 31,55,58,816 Printed from counselvise.com 7 perusal of the same revealed that the assessee did not maintain complete bills and vouchers for receipts and expenses as shown in the books of accounts found maintained in the name of M/s GM & Co. The substantial expenses were shown in cash which were not fully vouched and not verifiable. The violation of Sec. 40A(3) and 40(a)(ia) were also noted. Accordingly, the trading results as shown by the assessee were rejected u/s 145(3) and Ld. AO proceeded to estimate the income of the assessee on sales attributable to him. 2.6 The assessee, while estimating profit rate of 14.05%, considered two comparable entities having mean profit rate of 13.40%. As against this, Ld. AO considered three comparable entities having mean profit rate of 23.21% which has been tabulated on Page-59 of the assessment order. Considering the fact that various discrepancies were noted in audited books of account as well as in the books of accounts found maintained in the name of M/s GM & Co. and large expenses were incurred in cash which were not verifiable / not completely vouched, Ld. AO rejected assessee’s offer of revised profit rate and eventually applied net profit rate of 25% on the gross receipts which resulted into an addition of Rs.218.26 Lacs in the hands of the assessee. 2.7 The Ld. AO also made another addition of Rs.26 Lacs for unsecured loans as taken by the assessee from 3 parties which are tabulated at Page 64 of the paper-book. The assessee furnished confirmation from Shree Guru Nanak Stone Crusher from whom loan of Rs.1 Lacs was taken. However, the assessee did not furnish its Income Tax Return (ITR) and financial statements. For loan taken from Smt. Mandeep Kaur for Rs.5 Lacs, the assessee furnished confirmation of lender, copy of ITR and its bank account. Similar documents were Printed from counselvise.com 8 furnished for loan of Rs.20 Lacs as taken from Shri Rajbeer Singh. However, since substantial credits were noted in the accounts of both the lenders prior to grant of loan to the assessee, Ld. AO rejected the explanation of the assessee and made addition of Rs.26 Lacs u/s 68 r.w.s. 115BBE of the Act. 2.8 The assessee reflected agricultural income of Rs.19.85 Lacs against ownership of 22.76 acres of agricultural land. The same was doubted by Ld. AO for want of complete documentary evidences. The assessee had furnished copies of “J” Form as issued by the commission agent which contained details of agricultural produce as sold by the assessee. The assessee also furnished copies of Khasra and Khatauni of the agricultural land on sample basis. However, Ld. AO estimated income of Rs.50,000/- per acre and accepted agricultural income to the extent of Rs.11.38 Lacs whereas the remaining income of Rs.9.47 Lacs was considered as ‘income from other sources’. 2.9 Finally, the assessment was framed determining total income of Rs.580.12 Lacs and accepting agricultural income of Rs.11.38 Lacs. Appellate Proceedings 3.1 The assessee assailed assessment proceedings on the ground that the approval as required u/s 153D by approving authority i.e., Addl. CIT was a mechanical approval. The assessee also challenged quantum additions on merits. The Ld. CIT(A) analyzed the factual matrix and rendered its findings from para-4 onwards of the impugned order. 3.2 The Ld. CIT(A) held that the entities of the assessee-group had suppressed gross sales in their books of accounts. Upon perusal of seized documents, it could be observed that these entities incurred various expenses which were not accounted for in the regular books of Printed from counselvise.com 9 accounts. The substantial transactions were undertaken outside the books of accounts. The regular books were found to be incorrect and incomplete and such books did not represent true state of affairs of business activities being undertaken by such entities. The books were manipulated substantially and therefore, rightly rejected u/s 145(3). 3.3 While estimating additional income, the assessee adopted two comparable entities viz. LSC Infratech Ltd. and ASI Industries Ltd. having mean profit of 13.40%. However, M/s LSC Infratech did not carry out any crushing activity and therefore, it was not a comparable entity. Similarly, M/s ASI Industries Ltd. was engaged in mining of Kota stones by using diamond cutting tool for cutting and shaping natural stones and therefore, it could also not be held to be a comparable entity. The Ld. AO had adopted three comparable entities having mean profit rate of 23.21%. These were M/s Pokarana Ltd., M/s Gujarat Mineral Development Corp. Ltd and M/s Fortune Stone Ltd. However, M/s Pokarana Ltd. was dealing in different products line and moreover, it had 60% export turnover and therefore, not comparable entity. M/s Gujarat Mineral Development Corp. was owned by State Govt. and its maximum revenue was from mining and sales of lignite and therefore, not a comparable entity. Similarly, M/s Fortune Stone Ltd. was stated to be engaged in different product line. In other words, all the three comparable entities of Ld. AO were also not comparable on operational and financial basis. Therefore, their financials could also not be held to be a reliable basis to estimate the profit of the assessee-group from mining activities. 3.4 The Ld. CIT(A) further observed that neither the assessee nor Ld. AO could substantiate their respective NP rates. The most reliable basis to compute the profits would be seized documents which represent Printed from counselvise.com 10 actual state of affairs of business activities as undertaken during the year. The Ld. AO relied on seized document to arrive at sales of Rs.230.78 Crores for the group and therefore, on the same reasoning, remaining transaction in respect of expenses as recorded in the same seized document was to be considered in totality to compute business profits. The same was supported by provisions of Sec.132(4A) r.w.s. 292C raising presumption of truthfulness of seized documents. Therefore, the reasonable basis to estimate the business profit would be on the basis of transactions found recorded in the seized document. 3.5 As per seized document, the entities made total sales of Rs.230.78 Crores. The mining entities allowed discount of Rs.153.35 Crores and recovered rehabilitation charges of Rs.76.60 Crores. There was reference of discount and compensation paid to farmers as well as various others expenses such as diesel, Diwali, land compensation, machine rent etc. in the seized document which has been extracted in the impugned order on Pages 101 to 104. The Ld. CIT(A), at para 6.8 of the impugned order, by considering various components of expenditure, tabulated the profits as per seized document and arrived at business profit of Rs.39.61 Crores on total gross receipts including rehabilitation charges recovered. The annual contract money as payable by nine entities for Rs.70.69 Crores was allowed as expenditure while computing the same. The profit was also adjusted for capital expenditure etc. and finally profit of Rs.42.51 Crores was computed on turnover of Rs.230.78 Crores which translated into profit rate of 17.16%. The same was further adjusted to arrive at profit rate of 18% which was directed to be applied. The same reduced the impugned addition to the extent of Rs.86.27 Lacs. Printed from counselvise.com 11 The same has led to revenue’s appeal as well as assessee’s cross- objection before us. 3.6 On the issue of agricultural income, the approach of Ld. AO was held to be adhoc and mechanical in nature and therefore, the disallowance of agricultural income of Rs.9.47 Lacs was deleted. 3.7 On the issue of unsecured loans additions u/s 68, the assessee stated that it had duly discharged its primary onus of explaining the nature and source of unsecured loans as received from the lenders by furnishing PAN details, Copy of ITRs, financial statements, bank statement and confirmation from the lenders. The Ld. CIT(A) tabulated the documents furnished by the assessee in para 11.3 of the impugned order. The assessee had furnished satisfactory document with respect to M/s Guru Nanak Stone Crusher and therefore, the addition of Rs.1 Lacs was deleted. With respect to loan of Rs.5 Lacs from Smt. Mandeep Kaur, the explanation was rejected on the ground that there was immediate cash deposit before advancing such amount to the assessee. Similarly, there was cash deposit of Rs.5 Lacs in the account of Shri Rajbeer Singh before advancing the same to the assessee. Therefore, out of Rs.20 Lacs, addition of Rs.5 Lacs was confirmed whereas the addition of Rs.15 Lacs was confirmed. In other words, addition was confirmed to the extent of Rs.10 Lacs out of total addition of Rs.26 Lacs as made by Ld. AO. Aggrieved, the revenue as well as the assessee is in further appeal before us. 3.8 On the issue of approval u/s 153D, Ld. CIT(A) noted that Ld. AO sent the draft assessment order along with assessment record to Addl. CIT on 18-06-2021 and Ld. Addl. CIT recorded his approval on 19-06- 2021. Thus, prior approval as required u/s 153D was obtained by Ld. AO. Printed from counselvise.com 12 The Ld. AO proposed to make addition of business income from mining activities in the draft assessment order and forwarded the assessment record with the same. The Addl. CIT considered the issue involved in the draft assessment order in the light of relevant material on record and made perusal of assessment record. The allegation that approval was a mechanical approval was without any basis. In Central charges, all search and seizure assessments are regularly supervised and monitored by the range heads. One copy of appraisal report prepared by the investigation wing after conducting post search enquiries along with copies of the core seized documents is forwarded to Addl. CIT by the investigation wing. Thus, Addl. CIT was in possession of the relevant seized documents along with the copy of appraisal report right from beginning of the assessment proceedings in the case. The AO and the range heard both followed the instruction / guidelines of the Board for completion of search and seizure assessments and the assessment order was finalized by Ld. AO after obtaining prior approval u/s 153D from range head. Both the officers were located at same station and Addl. CIT was actively involved in assessment of all such cases from the beginning and at all stages of search and seizure assessment. The AO would discuss and seek his guidance periodically. Thus, the approval was accorded after due examination of relevant record and with due application of mind by range head. Further, the approval was in the nature of administrative power. The Range head do not examine or adjudicate upon rights and obligations of the assessee but only consider whether AO has fulfilled the requirement of Sec.153A or not. Reference was made to the decision of Hon’ble Karnataka High Court in the case of Printed from counselvise.com 13 Rishabchand Bhansali (267 ITR 577) to support the conclusion. Finally, this legal ground as urged by the assessee was rejected. 3.9 In yet another legal ground, the assessee pleaded that in the absence of incriminating material no such addition could have been made. The same was rejected on the ground that that the addition was made on the basis of incriminating document found and seized during the course of search at centralized premises of the assessee. Moreover, the search happened on 05-04-2018 and due date to file return of income for this year had not expired. Therefore, this plea was also rejected. Finally, the appeal was partly allowed. Aggrieved, the assessee as well as revenue is in further appeal before us. Our Findings and Adjudication 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 Printed from counselvise.com 14 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. 5. 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 Printed from counselvise.com 15 substantially enhanced to 14.05% despite the fact that the assessee is having much lower profit as per seized document. 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 Printed from counselvise.com 16 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. Printed from counselvise.com 17 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. 8. 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 sales considered by CIT(A) and A.O. on basis of Seized material (PG 95 of CIT(A) Order. Net sales (after discount) as per seized material (PG 46 of PBK 2) Mining sales as per audited P&L A/C ( Refer Audited P&L at Pages 65 to 77) Profit as per P&L A/C (Refer Audited P&L at Pages 65 to 77) Profit offered for tax by assessee before A.O. (Refer PG 95 of CIT(A) order) Profit determined by AO (25% of Gross Mining Sales 1 Northern Royalty Co 367,814,720 109,107,210 109,107,210 12,226,154 54,979,869 91,853,680 2 Delhi Royalty Co 204,094,825 68,973,800 68,973,800 5,019,766 30,492,528 51,023,706 3 Routes & Journeys 203,568,151 59,479,423 59,479,423 3,892,313 30,535,226 50,892,038 4 Development Strategies Ind Pvt Ltd 159,631,779 47,416,917 47,416,917 1575,242 23,944,764 39,907,945 5 Mubarikpur Royalty Co 633,832,815 215,614,964 219,614,964 10,193,139 95,060,051 158,458,204 6 JSM Foods Private Limited 149,368,071 102,942,179 102,942,179 1941,516 20,072,285 37,342,019 7 Karaj Singh 218,260,541 48,147.611 48,147,611 2,816,286 ,3,0659,37 5 54,565,135 8 Paramjeet Singh 211,296,850 44,819,500 44,819,500 2,628,173 29,814,718 52,824,213 9 Yamuna Infra developers Pvt Ltd 160,029,000 77,870,000 77,870,000 40,007,250 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 Printed from counselvise.com 18 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 & L A/C for A Y 18-19 (PG 65-66) Mining installment allowed by CIT(A) Expense not allowed by 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 Ltd 5,19,12,518 Mubarikpur Royalty Co 25,31,78,898 Ganga Yamuna Mining Company 1,36,02,771 JSM Foods Private Limited 11,81,14,281 Karaj Singh 6,14,19,016 Paramjeet Singh 4,83,19,852 Yamuna Infra developers Pvt Ltd 16,36,45,695 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 CIT(A) ORDER 39,61,88,233 As per page 105-106 of CITA 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. Printed from counselvise.com 19 7 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 PROTECTION EXP (22,402,500) LABOUR WELFARE EXP (5,613,000) PROFIT AS PER ASSESSEE 3,39,03,343 PROFIT % (AGAINST SALES OF RS 230,78,96,752/- CONSIDERED BY CIT(A)) 1.47% Printed from counselvise.com 20 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. 10. 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 ASSESSEE Remarks Gross sales receipt as per seized documents 2,307,896,752 2,307,896,752 As per pg 46 of PBK 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 the Govt, of Haryana for mining rights) 706,950,000 987,418,722 As per audited books of accounts of all 9 entities 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 Printed from counselvise.com 21 Road repair 9,356,588 9,356,588 As per pg 45 of PBK 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 PROTECTION EXP 22,402,500 As per books of account of all 9 mining 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%. 11. 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 Printed from counselvise.com 22 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. 12. On the issue of agricultural income as discarded by Ld. AO, it could be seen that the estimation of Rs.50,000/- per acre is without any supporting document on record. It is undisputed fact that the assessee was having sufficient land holding to earn the agricultural income so disclosed by the assessee. The claim of the assessee stood substantiated by copies of “J” forms and copies of Khasra and Khatauni. Therefore, the approach of Ld. CIT(A) in discarding the estimation made by Ld. AO could not be faulted with. The grounds raised by the revenue stand dismissed. 13. On issue of unsecured loans as taken by the assessee from three parties, it could be seen that the assessee had furnished sufficient documents with respect to M/s Guru Nanak Stone Crusher as required in terms of Sec.68. With respect to loan as taken from Smt. Mandeep Kaur and Shri Rajbeer Singh, the assessee duly filed confirmation letters from the lenders along with their respective PAN details, copies of ITRs etc. The same has been disbelieved only because some immediate cash has been found to be deposited in their respective bank accounts. However, no verification has been done by Ld. AO from these two lenders. The assessee had filed confirmatory letters as well as income tax details of all the lenders and duly discharged the primary onus as required u/s 68. Therefore, the deletion of addition of Rs.16 Lacs by Ld. CIT(A) is upheld. The remaining addition of Rs.10 Lacs as sustained in the impugned order stand deleted. We order so. The corresponding grounds of revenue’s Printed from counselvise.com 23 appeal stand dismissed. The corresponding ground in assessee’s cross- objection stand allowed. 14. The assessee has raised issue of mechanical approval u/s 153D by Ld. Addl. CIT. This legal issue has been rendered infructuous since we have dismissed revenue’s grounds on merits and allowed assessee’s cross-objections on merits. Conclusion 15. In the result, the revenue’s appeal ITA No.726/Chandi/2022 stands dismissed. The assessee’s cross-objection CO. 16/Chandi/2024 stand partly allowed. Order pronounced on 08/10/2025 Sd/- Sd/- (RAJPAL YADAV) (MANOJ KUMAR AGGARWAL) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 08/10/2025 आदेश की Ůितिलिप अŤेिषत /Copy of the Order forwarded to : 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3. आयकरआयुƅ/CIT 4. िवभागीयŮितिनिध/DR 5. गाडŊफाईल/GF ASSISTANT REGISTRAR ITAT CHANDIGARH Printed from counselvise.com "