AI Insights
The case involves appeals by the Deputy Commissioner of Income-tax against the orders of the CIT(A) which had estimated the gross profit of M/s. Kedarnath Agri Tradelink Pvt. Ltd. and M/s. B.B. Tradelink Agro Pvt. Ltd. at 2% for the assessment years 2012-13 and 2013-14, respectively. The Assessing Officer had initially rejected the books of account under section 145(3) of the Income Tax Act and estimated the gross profit at 4%. The CIT(A) reduced this estimation to 2%, considering the precedents set by the Income Tax Settlement Commission and similar cases within the same group. The Tribunal agreed with the CIT(A)'s decision, emphasizing the lack of comparable instances provided by the Revenue to justify a 4% estimation.
Appeal Details
Counselvise Citation
[2022] 140 COUNSELVISE.COM (IT) 114078 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 9 month(s) 26 day(s)
Appellant
Respondent
Appeal Type
Income Tax (Search & Seizure) Appeal
Pronouncement Date
29-12-2022
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
17-10-2022
Assessment Year
2013-2014
Appeal Filed On
04-03-2018
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: Ms. Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member The Deputy Commissioner of Income-tax, Central Circle-2(2), Ahmedabad (Appellant) Vs M/s. Kedarnath Agri Tradelink Pvt. Ltd. D-14, 15,16,17, New APMC Yard, Palanpur PAN No:AAECK5973B (Respondent) The Deputy Commissioner of Income-tax, Central Circle-2(2), Ahmedabad (Appellant) Vs M/s. B.B. Tradelink Agro Pvt. Ltd. D-14, 15,16,17, New APMC Yard, Palanpur PAN No:AAECB3254C (Respondent) Appellant by : Shri Vijay Kumar Jaiswal, CIT-DR Respondent by : None Date of hearing : 18-10-2022 Date of pronouncement : 30-12-2022 IT(SS)A Nos 54/Ahd/2018 Assessment Year: 2013-14 IT(SS)A No: 55/Ahd/2018 Assessment Year: 2012-13 I.T(SS.A No. 54 & 55/Ahd/2018 A.Y. 2012-13 &2013-14 Page No DCIT vs. M/s. Kedarnath Agri Tradelink Pvt. Ltd. and Ors. 2 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- IT(SS)A No. 54/Ahd/2018 is filed by the Revenue against the Appellate order dated 05.12.2017 passed by the Ld. Commissioner of Income Tax (Appeals)-12, Ahmedabad arising against the assessment order passed under section 143(3) r.w.s. 153B(1)b) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2013-14 and IT(SS)A No. 55/Ahd/2018 is filed by the Revenue against the Appellate order dated 05.12.2017 passed by the Ld. Commissioner of Income Tax (Appeals)-12, Ahmedabad arising against the assessment order passed under section 143(3) r.w.s. 153A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2012-13. Since common issue is involved in both the cases, the same are disposed of by this common order. 2. The Respondents/assessees before us are one of the group concerns of Manoj Agrawal & Group. A search action u/s. 132 was carried out in the case of Manoj Agrawal & Group on 27 th September, 2012 wherein the respondents/assessees were also covered. Pursuant to the search, the respondents/assessees were been issued with notice u/s. 153A of the Act. 2.1. Solitary issue in these appeals are the Assessing Officer rejected the books of account u/s. 145(3) of the Act and estimated gross profit of the assessee @ 4% on the sales turnover. Brief facts of the case is that the assessee engaged in the business of trading I.T(SS.A No. 54 & 55/Ahd/2018 A.Y. 2012-13 &2013-14 Page No DCIT vs. M/s. Kedarnath Agri Tradelink Pvt. Ltd. and Ors. 3 in agricultural commodities like castor seed, guar, etc. and showing the gross profit @ 1.09% in the books of accounts for the Assessment Year 2012-13 and 3.25% in the Assessment Year 2013-14. The Assessing Officer observed that the assessee showed purchase of Rs. 118.54 crores from (UnRegistered Dealer) out of the total purchases of Rs. 182.95 crores during the Assessment Year 2012-13. The assessee submitted the details of purchases and sales with vouchers wherein purchases from UnRegistered Dealers, stock registers also produced various farmers for verification. However the Assessing Officer pointed out certain defects in the books of account and issued a show cause notice to the assessee as follows: “ (i) On examination of bills/vouchers for UnRegistered Dealer purchases those are not signed by the person selling the goods and quality of the commodity was also not mentioned thereon. There is no details about direct purchase and purchases through APMC. (ii) On perusal of details of UnRegistered Dealer purchases, there were large fluctuations in the rates on every day basis or even on the same date. Thus the genuineness of the rate cannot be verified in the absence of mention of quality of produce on the purchase vouchers of UnRegistered Dealer. (iii) Difference in stock as per books and as per physical verification not reconciled. (iv) Verification of purchases and sales, the purchase rates and sale rates were different for purchases/ sales made from/to unrelated parties including farmers and from/to sister concerns of the assessee company. (v) There was increase in expenses by about Rs. 90.00 lacs from last year although the turnover was less than that of the last year.” 2.2. The assessee replied that it is basically a supplier who ensures timely supply of goods to the agro produce consuming industries. It buys the Agro goods from a large number of farmers/cultivators I.T(SS.A No. 54 & 55/Ahd/2018 A.Y. 2012-13 &2013-14 Page No DCIT vs. M/s. Kedarnath Agri Tradelink Pvt. Ltd. and Ors. 4 and send them to mills (corporate buyers) where these produces are further processed to make agro-based products. Goods supplied by the assessee include guwar and castor seeds and which are cultivated by farmers, who are a part of the unorganized sector of India. Thus farmers/cultivator comes to the assessee with their produce, which are available for sell with them. The assessee buys the goods for its clients, the end consumers namely the mills. Thus the assessee merely acted as an intermediary between the mills and the farmers. Thus the end customers of the goods are fixed and known, but the suppliers of the agriculture produces are numerous. The farmers comes from various distant villages and hence producing them in one go and at such a short notice is a real difficult task. There is huge practical difficulty in verifying all the purchases and this fact is affirmed by the Income Tax Department itself in the case of AC Industries reported in [2014] 43 taxmann.com 290. 2.3. Regarding the increase of expenses by Rs. 92,23,471-, during the financial year 2013-14 because of the various reasons namely Income tax expense, Demat Delivery charges, Professional and legal fees paid, Godown rent, Insurance expenses and Future trade loss. All these expenses are verifiable with necessary supporting evidences and no adverse observation was made by auditor while furnishing the audit report in Form 3CD under section 44AB of the Act. Therefore no adverse inference should be drawn, books of account cannot be rejected on the basis of the above reasons. I.T(SS.A No. 54 & 55/Ahd/2018 A.Y. 2012-13 &2013-14 Page No DCIT vs. M/s. Kedarnath Agri Tradelink Pvt. Ltd. and Ors. 5 3. The Assessing Officer considered the above submissions of the assessee and held that there was difference in closing stock as per books and as per physical stock as on the date of search and survey on 27.09.2012. The admission of Shri Manoj Agrawal, the main person of the group of this difference in stock in his Settlement application further confirmed the discrepancy in the stock. Accordingly the addition of Rs. 5,38,26,869/- being the difference between gross profit shown by the assessee and computed @ 4% of sales as per the trading results declared by the assessee for the Assessment year 2012-13. 4. Aggrieved against the Assessment Order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Ld. CIT(A) considered the submissions of the assessee namely rejection of books of account and estimation of gross profit @ 4%. After considering various details and records and estimated, the gross profit @ 2% as reasonable one. Thus out of the total addition of Rs. 5,38,26,869/- made by the Assessing Officer and Ld. CIT(A) partly allowed the appeal as follows: 4.7 Considering the facts mentioned herein above, it is observed that AO has rejected books of account and estimated gross profit @ 4% on observations discussed afore. It is observed that though the appellant had produced farmers for verification, complete details regarding quality of goods, signature of farmers on purchase vouchers along with the fact that each Group concern is showing different gross profit even though they are dealing in similar agricultural produces. The contention of the AO that purchase bills maintained by the appellant are self-serving vouchers if considered in strict sense, as there is no signature of sellers on these bills or other any other receipts in lieu of making payment to sellers against purchases claimed to be made from them supports the view of the AO that the appellant has not prepared books of account correctly. But in the totally of circumstances the AO was not on a very sound footing in rejecting such books of account under Section 145(3) of the Act. I.T(SS.A No. 54 & 55/Ahd/2018 A.Y. 2012-13 &2013-14 Page No DCIT vs. M/s. Kedarnath Agri Tradelink Pvt. Ltd. and Ors. 6 4.8 So far as estimation of gross profit at the rate 4% is concerned, AO has not given any comparable instances wherein similar firms have earned such profit. The AO has referred to profitability shown by four group concerns being Kedarnath Agri Tradelink Limited (one year), BB Trade Link Agro Pvt. Limited (2 years) Kedarnath Corporation (5 years) and Mahaveer Trading Company (5 years) and he found that BB Trade Link Agro Pvt. Limited has shown GP @ 3.25% only in one year i.e. 2013-14. IL is observed that Kedarnath Corporation and Mahaveer Trading Company are showing profit in the range of 1% to 2 % hence the AO was incorrect in choosing base rate of GP at the rate 3.25% (even though finally he estimated 4% for entire group) only on the ground that higher profit is shown by such concerns and same was reasonable. Considering the agricultural produce trading activity, estimation of gross @ 4% is significantly higher and cannot be considered as correct rate more particularly when no correct comparable third party evidences are brought on record. It is observed that Kedarnath Agri Tradelink Pvt. Limited has shown profit @ 1.41% in A.Y. 2015-16 and the AO has accepted such profit while passing the Assessment Order under Section 143(3) of the Act on 29* September, 2017. It is also observed that Shri Rajeshkumar B. Agrawal- HUF, one of the group concerns Appellant has shown gross profit @ 1.76% in A.Y. 2014-15 and on similar facts the AO has passed an order under Section 143(3) of the Act on 19th December, 2016 estimating gross profit @ 2% as reasonable profit and observed as under: "Now the question arises that what amount of profit should be estimated. It seen that in the applications before the Hon'ble Income Tax Settlement Commission, Mumbai, the Karta of this Assessee HUF, in his own individual case had offered 2%gross profit and hence, it being the same line of business, this is accepted as most reasonable percentage. Accordingly Rs.2,98,44,681 is taken as Gross Profit @2% of sales as against Rs.2,62,63,320 shown by Assessee." It can be seen from above order that Mr. Rajesh B. Agrawal, who has filed settlement petition for search carried out in his case along with the appellant, has offered income considering gross profit @ 2% before Hon'ble Settlement Commission and same was accepted. Even the AO in the case of Rajesh B. Agrawal-HUF (Prop: Mahaveer Trading Company) for A.Y. 2014-15 has considered gross profit @ 2% as reasonable profit. Considering the order passed by the Hon'ble Settlement Commission as well as subsequent order passed by the AO, it appears appropriate that reasonable gross profit for entire Group required to be estimated should be @ 2% for all the Assessment Years. It is observed that as the appellant has already shown gross profit @ 3.25 percent, in Assessment Year 2013-14, addition made by the AO for Rs.87,66,182/- is ordered to be deleted. Further, in A.Y. 2012-13, AO has made addition of Rs.5,38,26,869/- based upon estimation of gross profit @ 4% and after considering I.T(SS.A No. 54 & 55/Ahd/2018 A.Y. 2012-13 &2013-14 Page No DCIT vs. M/s. Kedarnath Agri Tradelink Pvt. Ltd. and Ors. 7 reasonable gross profit at the rate of 2%,addition of Rs.1,68,32,458/- is confirmed out of total addition of Rs.5,38,26,869/-made by the AO. These grounds of appeal are partly allowed. 5. Aggrieved against this order, the Revenue is in appeal before us raising the following Grounds of Appeal: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in restricting the addition made by the AO on account of G.P. to Rs.1,68,32,458/- as against addition of Rs.5,38,26,869/-. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in applying the G.P. rate offered by another assessee before the Hon'ble Settlement Commission, which is decided on the facts particular to that case, and for a later assessment year in this case, even though each assessment year has to be deiced on its own facts. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 4. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent. 5.1. Today is the 21 st time of hearing of this appeal, none appeared on behalf of the assessee. Even on earlier occasions, in spite of service of notices to the respondent/assessee, none appeared on behalf of the assessee. So with the help of Ld. CIT-DR, we proceed to decide the case with materials available on record. 5.2. The Ld. CIT-DR Shri Vijay Kumar Jaiswal in support of the grounds of appeal submitted that the Assessing Officer made a correct estimation @4% as the gross profit of the assessee, in the absence of the proper details maintained and filed by the assessee, the same is required to be confirmed. The ld. CIT(A) is not justified in reducing the estimation of gross profit @2% and thereby pleaded to allow the Revenue’s appeal. I.T(SS.A No. 54 & 55/Ahd/2018 A.Y. 2012-13 &2013-14 Page No DCIT vs. M/s. Kedarnath Agri Tradelink Pvt. Ltd. and Ors. 8 6. We have given our thoughtful consideration and perused the materials available on record. It is seen from the Ld. CIT(A)’s order that Kedarnath Agri Tradelink Pvt. Ltd. (Assessee in IT(SS)A No. 54/Ahd/2018) has shown gross profit @ 1.41% in the assessment year 2015-16 and the A.O. has accepted such profit while passing the Assessment Order dated 29.09.2017 u/s. 143(3) of the Act. It is also observed that Shri Rajeshkumar B. Agrawal (HUF), one of the group concerns of the assessee has shown gross profit @ 1.76% in the Assessment Year 2014-15 and on similar set of facts passed the Assessment Order u/s. 143(3) on 19.12.2016 wherein the Assessing Officer estimated the gross profit @ 2% as reasonable profit observing that the Income Tax Settlement Commission in Rajeshkumar B. Agrawal individual case had offered 2% gross profit on the same line of business, which has been accepted as most reasonable percentage by the Hon’ble Settlement Commission. 6.1. Considering the order passed by the Hon’ble Settlement Commission as well as the subsequent orders passed by the Assessing Officer for the later assessment years. It is appropriate that a reasonable gross profit for entire Group required to be estimated for all the Assessment Years. The gross profit @ 2% as determined by the Ld. CIT(A) does not require any interference since he followed the same gross profit declared before Settlement Commission. Further the Ld. D.R. could not produce before us to enhance the estimation from 2% gross profit to 4% with necessary documents and evidences. In the absence of the same, we have no hesitation in confirming the order passed by the Ld. CIT(A). Thus I.T(SS.A No. 54 & 55/Ahd/2018 A.Y. 2012-13 &2013-14 Page No DCIT vs. M/s. Kedarnath Agri Tradelink Pvt. Ltd. and Ors. 9 the grounds raised by the Revenue are devoid of merits, hence the same are rejected. 7. In the result, the appeal filed by the Revenue is hereby dismissed. IT(SS)A No. 54/Ahd/2018 for Assessment Year 2013-14 8. The Grounds of Appeal raised by the Revenue are as follows: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the addition made by the AO on account of G.P. to Rs.1,92,29,069/-. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in applying the G.P. rate offered by another assessee before the Hon'ble Settlement Commission, which is decided on the facts particular to that case, and for a later assessment year in this case, even though each assessment year has to be deiced on its own facts. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O. 4. It is, therefore, prayed that the order of the Ld. CIT(A) be set aside and that of the A.O. be restored to the above extent 8.1. The facts in this appeal is similar to that of the Group concerns case namely M/s. Kedarnath Agri Tradelink Pvt. Ltd. in IT(SS)A No. 55/Ahd/2018 wherein this Bench has confirmed the gross profit @2% of sales as reasonable profit. Since identical facts have been involved in both the cases, this appeal filed by the Revenue also has no merits, therefore the grounds raised by the Revenue is hereby dismissed. I.T(SS.A No. 54 & 55/Ahd/2018 A.Y. 2012-13 &2013-14 Page No DCIT vs. M/s. Kedarnath Agri Tradelink Pvt. Ltd. and Ors. 10 9. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 30-12-2022 Sd- Sd/- (ANNAPURNA GUPTA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 30/12/2022 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद
Other Referred Cases
AC Industries reported in [2014] 43 taxmann.com 290
Laws Referred To
Income Tax Act, 1961
1:1 Consultation on Startup Compliance
₹1
Master The Pitch-Deck Game
₹0
1:1 Consultation on Salary Structuring
₹1
Non-Compete Agreement
₹0
Initial LLP Agreement
₹0
Why Lacoste Won a 20-Year Trademark Battle Against Crocodile ?
Team Counselvise - March 10, 2026
When Global Talent Meets GST: The Huawei Secondment Ruling explained
Team Counselvise - March 09, 2026
Transfer Pricing and International Tax Reforms under Finance Bill, 2026: A Practical Overview
Team Counselvise - February 07, 2026