Income Tax Appellate Tribunal - Rajkot
Lion Paper Industries,Veraval vs Ito, Ward-4, Veraval, Veraval on 2 April, 2026
आयकर अपील य अ धकरण, राजकोट यायपीठ, राजकोट।
IN THE INCOME TAX APPELLATE TRIBUNAL, "SMC"
RAJKOT BENCH, RAJKOT
BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT
MEMBER
आयकर अपील सं./ITA No. 582/RJT/2025
िनधारण वष /Assessment Year: (2018-19)
Lion Paper Industries, The Income-tax Officer, Ward - 4,
Junagadh Road, बनाम/ Veraval,
Veraval - Gujrat 362266 Vs. Aayakar Bhavan, Ambaji Mandir
Road, Veraval - 362265
ायीले खासं / .जीआइआरसं / .PAN/GIR No.: AACFL5762C
(Assessee) (Respondent)
िनधा रती की ओर से/Assessee by : Shri Mehul Ranpura, Ld. AR
राज की ओर से/Respondent by : Shri Dheeraj Kumar Gupta, Ld. Sr. DR
सु नवाई की तारीख/Date of Hearing : 06/02/2026
घोषणा की तारीख/Date of Pronouncement : 02/04/2026
आदे श /ORDER
Per Dr. Arjun Lal Saini, AM:
Captioned appeals filed by the assessee, pertaining to assessment year (AY) 2018-19, is directed against the order passed under section 250 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') dated 15.07.2025 by the National Faceless Appeal Centre (NFAC), Delhi/ Commissioner of Income Tax (Appeals) [in short 'Ld.CIT(A)'] which in turn arises out of an assessment order passed by the Assessing Officer (in short 'AO') u/s. 147 read with section 144B of the Act dated 24.03.2023.
2. The grounds of appeal raised by the assessee are as follows:
1. The grounds of appeal mentioned hereunder are without prejudice to one another.
2. The Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi (hereinafter referred to as the "CIT(A)"] erred on facts as also in law in rejecting the ground of appeal related to validity of notice issued u/s 148 of the Income tax Act, 1961. That on facts as also in law, initiation of action u/s. 147 of the Act is invalid and assessment made on such invalid initiation deserves to be quashed and may kindly be quashed.ITA No. 582/Rjt/2026
Lion Paper Industries
3. The Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred as to the "CIT(A)"] erred on facts as also in law in upholding the action of AO in making addition without rejecting books of account. The Action of AO is totally unjustified on facts as also in law.
4. That on the facts and in the circumstances of the case and in law, the learned CIT(A) has grossly erred in dismissing the appeal of the Assessee without properly the detailed written appreciating submissions, evidences and arguments placed on record, thereby rendering the order perverse, arbitrary and bad in law.
5. The Ld. CIT(A) erred on facts as also in law in confirming addition of Rs. 37,39,386/-made by AO by estimation profit at the rate 12.50% on alleged bogus purchase of Rs.2,99,15,093/- from M/s. Kushal Tradelink Pvt. Ltd. The addition made and confirmed is bad in law as also on facts therefore the same may kindly be deleted.
6. Your Honour's assessee craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.
3. The relevant material facts, as culled out from the material on record, are as follows. In the instant case assessee is a firm. Assessee filed its return of income for assessment year (A.Y.) 2018-19 on 07/09/2018, declaring total income at Rs. 2,00,020/-. As per the information received in insight portal in the category High Risk Transaction CRIU/VRIU, it was noticed that assessee firm carried out significant financial transactions i.e. Purchase in cash against actual goods to the tune of Rs. 18,62,269/-. Since assessee- firm made transactions/purchase of goods in cash to the tune of Rs. 18,62,269/- in cash, which attracts provisions of section 40A (3) of the I.T. Act, 1961 and moreover, audit report filed by the assessee was silent over the provisions of section 40A(3), as no disallowance has been reported under provisions of section 40A (3) of the Act in relevant column of form no. 3CB it makes apparent that assessee's alleged transaction i.e. purchase of goods in cash to the extent of Rs. 18,62,269/- has not been accounted for in the period under consideration. Therefore, the sources of the fund used to perform alleged cash transaction to the tune of Rs. 18,62,269/- remained unverified and unexplained. The assessee, was therefore asked to show cause as to why a notice u/s. 148 of the Act should not be issued on the basis of the information which suggests that income of Rs.18,60,269/- chargeable to tax has escaped assessment in assessee's case for A.Y.2018-19. An opportunity of being heard as per Page | 2 ITA No. 582/Rjt/2026 Lion Paper Industries provision of section 148A(b) of the Income Tax Act, 1961 was provided to the assessee with prior approval from the competent authority wherein the assessee was given a show cause as to why the purchase of goods in cash amounting to Rs. 18,62,269/- should not be treated as income chargeable to tax which has escaped the assessment within the meaning of provision of section 147 of the Income Tax Act, 1961 for the A.Y. 2018-19. In its reply assessee instead of giving the reply on merits and facts of the case, assessee merely tried to justify its stand that it is not involved in any such type of transaction by furnishing cash book, bank book and copy of audit report along with details of cash purchases and cash payment for purchases/expenses for the period under review. However, this put forth contention of assessee was not accepted in the light of fact as transaction in question i.e. purchase of goods in cash to the tune of Rs.18,62,269/- is out of books transaction of assessee, hence, question of recording this particular transaction in the books for the period under review never arises. Considering the above facts and analysis report of department in this regard makes it apparent that assessee carried out purchase transaction in cash to the tune of Rs. 18,62,269/-. The purchase of goods in cash to the tune of Rs. 18,62,269/- in cash, which attracts provisions of section 40A (3) of the I.T. Act, 1961. Sources of the fund used to perform this transaction remain unexplained, thus an amount to the tune of Rs. 18,62,269/- has escaped assessment for A.Y. 2018-19. Consequently, notice u/s. 148 dated 26.03.2022 was issued and served on the assessee. In response, the assessee e-filed return of income on 28.04.2022 declaring total income at Rs.2,00,020/-.
4. Thereafter, a show cause notice was issued on 28/02/2023 and in response to show cause notice the assesse had furnished its reply on 06/03/2023. The relevant portion of reply is reproduced as under.
"In spite of our repeated request (our letter dated 25-10-2022 and our letter dated 10- 11-2022), we have been never provided with the details of the alleged purchase made Page | 3 ITA No. 582/Rjt/2026 Lion Paper Industries in cash from Kushal Ltd in F. Y. for Rs. 18,62,269/-We once again request your honour to kindly provide us the evidences, if any available with department for such alleged cash purchased made by us from Kushal Limited. It also appears from the SCN that the department has also failed to collect the requisite information from the Kushal Ltd. in the captioned matter, and only relied on the investigation wing report, without having any documentary evidences, that we have made transaction in accommodation entry through M/s. Kushal Limited. We have never been provided with the particulars of the Investigation Wing Report pertaining to us, at the time of proceeding U/s. 148A, and during the assessment proceedings also. Therefore, without providing us the complete details, evidences relied upon by the department, we hereby strongly object against the proposed additions, as it is against the natural justice and is bahin law. We further state your honour that it is alleged in SCN that various entry operators have admitted in their statement recorded uls. 133A/131 by the department, that our concern was used for the purpose of giving accommodation entries without actual receipt/delivery of goods/services. However, this fact is neither mentioned in the notice u/s. 148A, nor in the order passed u/s 148A of the act. During the assessment proceedings also we have not provided with the relevant part of the statement recorded u/s. 133A/ 131 of the act. Therefore, we request your honour to kindly to provide us the copy of the relevant part of the statement of various parties recorded by the Investigation wing, on which the department has relied upon. Therefore, without providing us the complete details of the parties, their statements, and the documentary evidences relied upon by the department, we hereby strongly object against the proposed additions, as it is against the natural justice and is bad in law".
5. However, the assessing officer did not provide the required documents and evidences to the assessee, and made addition on different footing, observing, that the declared G.P. percentage for the year under consideration is low. The assessee has arranged bills worth Rs. 2,99,15,093/- from the hawala party as reported to suppress its true profits. It is therefore proposed to work out the estimation of profit keeping in mind the following facts:
1. The estimate is not opened up to be framed in an arbitrary manner
2. The estimate by rule of thumb is absolutely infirm.
3. The estimation of rate of profit return must necessarily vary with the nature of the business
4. There cannot be any uniform yardstick
5. An assessment to be best of judgment can only be based on the material available on record and past records and considering the totality of the facts.
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6. Only real income and neither notional income nor astronomical income (which will arise if the disallowance of full amount of purchase is made), can be taxed under the I.T. Act 1961.
Accordingly, the G.P. percentage is estimated at 12.5%, keeping in mind the principle laid down by Hon'ble Supreme Court in the case of H.M. Esufali Abdulali that the method to be adopted must be which is approximately nearer to the truth, having regard to the facts and circumstances of the case as well as Gujarat High Court decision in the case of Simit P. Sheth (2013) [356 ITR 451 (Guj.)] being the possible profit out of the purchases made through non- genuine parties known as tainted purchases and thereby, an addition of Rs. 37,39,386/- [12.5% of Rs. 2,99,15,093/-] was made by the assessing officer to the total income of the assessee.
7. Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the ld.CIT(A), who has confirmed the action of the assessing officer, therefore, assessee is in further appeal before this Tribunal.
8. We have heard, both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Learned Counsel for the assessee submitted that assessing officer recorded the reasons on different footing/issue and made the final addition in the assessment order on different issue, which is not acceptable. The assessing officer, in the reasons recorded, identified the issue that assessee carried out purchase transaction in cash to the tune of Rs. 18,62,269/-. Sources of the fund used to perform this transaction remain unexplained, thus an amount to the tune of Rs. 18,62,269/- has escaped assessment for A.Y. 2018-19. The assessing officer in Page | 5 ITA No. 582/Rjt/2026 Lion Paper Industries the reasons recorded noted that the purchase of goods in cash to the tune of Rs.18,62,269/- in cash, which attracts provisions of section 40A(3) of the I.T. Act, 1961. However, final addition was made by the assessing officer on the issue that the assessee has arranged bills worth Rs. 2,99,15,093/- from the hawala party as reported to suppress its true profits. Therefore, learned Counsel for the assessee submitted that reopening of the assessee's case was made on different issue and final addition was made in the hands of the assessee, on different issue, therefore, reassessment proceedings should be quashed.
9. The ld. Counsel further submitted that it may be seen from the reasons recorded that the prime condition laid down in section 147 to the Act that "belief of escapement of income" is missing as at the end of the reasons, it may be seen that the same are based on presumption/probability and surmises. Thus, the essence of the provisions of Section-147 is missing. The basis of reopening of assessment is only the information from Intra departmental officer. On the basis of such unverified information the AO mechanically reopened the assessment which is not permissible in law. The pre-condition for issuing notice under section 148 of the Act is satisfaction in terms of section 147 that an income chargeable to tax has escaped assessment in the relevant assessment, which is neither on record nor any other material indicating that any income chargeable to tax for the relevant assessment year had escaped assessment. It is only information wherein unverified information was recorded and the AO followed blindly. Thus, there is no direct or indirect evidence on record which shows that the assessee had made any on money payment for the purchase. It is only one sided affair. Thus, this is a case of only borrowed satisfaction/information which is not at all permissible and therefore the power u/s 147 should not be exercised mechanically or as a manner of routine manner. Hon'ble High Court of Gujarat in the case of Shree Chalthan Page | 6 ITA No. 582/Rjt/2026 Lion Paper Industries Vibhag Khand v. Deputy Commissioner of Income Tax, (2015) 376 ITR 419 (Guj.) has held that:
"on the basis of the order passed by the Commissioner of Income Tax (Appeals) in the case of some other assessees, the satisfaction of the Assessing Officer and the formation of opinion in the case of the assessee therein could not be sustained and the same could be said to be a borrowed satisfaction from another officer. Such borrowed satisfaction in the absence of any application of mind and any real finding in the case of the assessee, would not constitute valid reason to believe that the income has escaped assessment."
10. The ld.Counsel submitted that on the basis of such information it could not be held that the assessee had made "on money" payment in the absence of corroborative data as there is no direct of any indirect tangible materials on record. Thus, as no tangible materials is coming on the fore, showing any on money payment made by the assessee, data found at someone else's possession is not binding to the assessee in absence of any corroborative materials. The satisfaction or conclusions reached in the case of third party cannot be applicable to the applicant and it tantamount to the borrowed satisfactions. Reliance is placed on the decision of the High Court of Rajasthan in the case of CIT vs. Shree Rajasthan Syntex Ltd. 313 ITR 0231. Therefore, learned Counsel contended that reassessment proceedings initiated against the assessee may be quashed.
11. Learned Counsel also submitted that during the assessment proceedings, the assessee demanded certain information and documents from the assessing officer, however, assessing officer did not provide these documents and evidence and framed the assessment order, behind the back of the assessee, without providing information to the assessee, which is against the principle of natural justice. Hence, the reassessment initiated by the assessing officer under section 147/148 of the Income tax Act 1961, may be quashed.
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12. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
13. I have considered the submissions of both the parties. I find merit, in the submissions of learned Counsel for the assessee to the effect that reasons were recorded on different footing/issue however, made the final addition in the assessment order, on different issue, which is not acceptable and "belief of escapement of income" is missing. Besides, reasons were recorded based on the borrowed satisfaction/information which is not at all permissible.
14. I note that the principle of audi alteram partem (right to be heard) is firmly embedded in income-tax proceedings. I note that during the reassessment proceedings under section 147 of the Act, the assessee asked from the assessing officer to provide him certain documents and evidences, however, assessing officer did not provide these documents and evidences to the assessee. If the Assessing Officer (AO), relies upon documents/evidence, and does not furnish the same to the assessee, and proceeds to frame the assessment, then such action is held to be vitiated in law. If additions are made based on third-party material or adverse evidence, and the same is not supplied to the assessee, then it is violation of natural justice. Therefore, I note that use of adverse material without opportunity to the assessee, violates natural justice. Therefore, I am of the view that evidence collected at the back of the assessee cannot be used unless, disclosed to the assessee, and opportunity is given to rebut. Non-supply of material, to the assessee, relied upon by the assessing officer, renders reassessment unsustainable. Based on these facts and circumstances, I quash the re-assessment order framed by the assessing officer under section 147 of the Act dated 24.03.2023, and allow the appeal of the assessee.
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15. As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.
16. In the result, appeal filed by the assessee, is allowed.
Order is pronounced in the open court on 02/04/2026.
Sd/-
[ Dr. Arjun Lal Saini ] लेखा सद य/Accountant Member Rajkot Date: 02/04/2026 आदे श की ितिलिप अ ेिषत/ Copy of the order forwarded to :
अपीलाथ / The Assessee
थ / The Respondent
आयकर आयु / CIT
आयकर आयु (अपील)/ The CIT(A)
िवभागीय ितिनिध, आयकर अपीलीय आिधकरण, राजकोट/ DR, ITAT, RAJKOT
गाड फाईल/ Guard File
By Order
//True Copy//
Assistant Registrar/Sr. PS/PS
ITAT, Rajkot
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