Income Tax Appellate Tribunal - Chennai
Southern Agrifurane Industries Pvt. ... vs Acit, Central Circle-2(2), Chennai on 1 December, 2025
आयकर अपीलीय अिधकरण, 'सी' यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH: CHENNAI ी एबी टी. वक , ाियक सद एवं ी अिमताभ शु ा, लेखा सद के सम BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकरअपीलसं./ITA Nos. 1613 to 1615/Chny/2025 िनधा रणवष /Assessment Years: 2018-19 & 2019-20 The DCIT, v. M/s. Southern Agrifurane -
Central Circle-2(2), Industries Pvt. Ltd.,
Chennai. MGM Centre No.1,
9th Cross Street,
Dr. Radhakrishnan Salai,
Mylapore,
Chennai - 600 004.
[PAN: AAGCS 9705 F]
(अपीलाथ /Appellant) ( यथ /Respondent)
आयकरअपीलसं./ITA Nos. 1547 & 1548/Chny/2025 िनधा रणवष /Assessment Years: 2018-19 & 2019-20 M/s. Southern Agrifurane- v. The DCIT, Industries Pvt. Ltd., Central Circle-2(2), MGM Centre No.1, Chennai.
9th Cross Street, Dr. Radhakrishnan Salai, Mylapore, Chennai - 600 004.
[PAN: AAGCS 9705 F]
(अपीलाथ /Appellant) ( यथ /Respondent)
Department by : Mrs. C. Yamuna, CIT &
Mr. Bipin, CIT
Assessee by : Mr. N. Arjun Raj, Advocate
सुनवाईक तारीख/Date of Hearing : 08.10.2025
घोषणाक तारीख /Date of Pronouncement : 01.12.2025
ITA Nos.1613
1613 to 1615 /Chny/2025
&
ITA Nos.1547 & 1548/Chny/2025
(AYss 2018-19
2018 & 2019-20)
M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
:: 2 ::
आदेश / O R D E R PER BENCH:
These appeals preferred by the assessee and the Revenue are against the orders of the Learned Commissioner of Income Tax (Appeals)-
(Appeals) 19, (hereinafter referred to as 'Ld.CIT(A)'), Chennai, all dated 29.03.2025 for the Assessment Years(hereinafter Years(hereinafter referred to as 'AY') 2014-15 2014 to 2019-20 20 u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act').
2. Before we advert to the grounds taken taken in these appeals, it would first be relevant to cull out the basic facts of o the case and effect of law in brief in respect of these AYs. Briefly stated, the facts of the case are that, the assessee is a private limited company which is engaged in the business of manufacturing and sale of Indian made foreign liquor. A search earch u/s 132 of the Act was conducted against SNJ Group on 06.08.2019, i.e., AY 2020-21.
2020 21. As a sequel to this search, search the business premises of one M/s. Crystal Bottles located at Coimbatore was also subjected to search. According to the Revenue, the seized material which was found in the course of search at M/s Crystal Bottles contained information relating to the assessee and it was deduced that M/s. Crystal Bottles had facilitated inflation of expenses debited by the assessee, by raising bogus invoices for supply of old empty bottles and that the ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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payments received by M/s. Crystal Bottles against such bogus invoices was returned back to the assessee in cash after deducting their commission @ 6% on the bogus bill value.
value. The Ld. CIT(A) had noted that, the seized materiall was handed over to the AO of the assessee on 18-06- 18 2021 and that the satisfaction note was recorded by the AO on 24-06- 2021 i.e., AY 2022-23;
23; and on the same date, notice(s) notice u/s 153C of the Act was issued upon the assessee for AYs 2018-19 19 to 2019-20.
2019 According to the AO, ordinarily having regard to the date of search i.e. 06-08-2019, he was within his jurisdiction to issue notices u/s 153C of the Act in respect of six assessment years preceding the assessment year of search i.e. in the present case search took place, so, ordinarily the AO was empowered u/s. 153C of the Act to reopen six preceding assessment years preceding the searched assessment year and those AY's were AYs2014-15 to 2019-20.
20. It is not in dispute that, the income-tax income assessments of the assessee sessee for the impugned AYs 2018-
2018-19 to 2019-20 were either completed u/s 143(1)/143(3) of the Act and/or the time limit for issue of notice u/s 143(2) of the Act had expired. Accordingly, the income-tax assessments for AYs 2018-19 to 2019-20 weren't pending pendin before AO on the date of search, therefore, those years didn't abate consequent to the search. Post the issue of notice u/s 153C of the Act for these unabated AYs 2018-19 2018 to 2019-20,, the AO is noted to have ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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completed both the income-tax income assessments u/s 153C/143(3) 53C/143(3) of the Act by orders dated 28.03.2023 after making addition(s) on account of bogus purchases. Apart from the foregoing, the AO is also noted to have made addition(s)/disallowance(s) on account of deduction(s) claimed u/s 80G / 80GGB, disallowance e u/s 14A of the Act and disallowance of certain items of expenses.
3. Aggrieved by the above order(s) of the AO, the assessee preferred appeal before the Ld. CIT(A). The assessee is noted to have challenged the validity of the notice issued u/s 153C of the the Act. It is seen that the Ld. CIT(A) had upheld the validity of satisfaction note recorded by the AO prior to issuance of notice u/s 153C of the Act by observing as under: -
"6.7.3 The undersigned has carefully examined the issue under consideration. As evident evident in the assessment order, it can be seen that the AO based upon the findings of the search in the case of m/s. SNJ Group of concerns has recorded reasons that the appellant company has made bogus purchases by inflating the purchase expenses related to to purchase of old bottles from its vendors. The satisfaction arrived by the AO is only a prima facie satisfaction. The AO on the basis of the incriminating materials found and seized at the third party premise and on receipt of the satisfaction recorded by the AO of the searched party formed reasons to believe that the seized material has a bearing in the determination of the total income of the appellant company for the years under consideration.
6.7.4 Therefore, the AO has rightly assumed jurisdiction u/s u/ 153C of the Act for the years under consideration..."
ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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4. Thereafter, the Ld. CIT(A) proceeded to adjudicate the appeals for these AYs 2018-19 19 & 2019-20 2019 20 on their merits. The Ld. CIT(A) CIT( was of the view that the AO's action of making addition of the entire value of purchases alleged to be bogus, was not justified. After considering the submissions of the assessee along with the gamut of given facts of the case, the Ld. CIT(A) is noted to to have rejected the books of accounts by invoking provisions of Section 145(3) of the Act and estimated the overall profit of the assessee at 10% of the turnover. The Ld. CIT(A) thus partly sustained the addition made by the AO on account of bogus purchases.
purchase Consequent to the rejection of books of accounts and estimation of profits, the Ld. CIT(A) deleted all other separate disallowance(s)/ addition(s) on account of Section 14A & sales promotion expenses made by the AO. Further, in AY 2018-19, 2018 the disallowance nce made by the AO on account of deduction claimed u/s 80G of the Act was deleted and the claim made u/s 80GGB of the Act was dismissed.
5. Being aggrieved by the above order(s) of the Ld. CIT(A), both the Revenue and the assessee are in appeal before us. It is noted that, that the satisfaction note recorded by the AO and the reasoning given by him for making addition(s) on account of bogus purchases were identical in both the AYs 2018-19 19 & 2019-20 2019 impugned before us. Both the parties have also argued these appeals eals together. Hence, for the sake of convenience, ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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and to avoid repetition of facts; we deem it fit to adjudicate each of the common issues across these AYs before us together.
6. Since the grounds raised in the assessee's appeal inter alia involve legal challenge hallenge to the validity of initiation proceedings u/s 153C of the Act, we consider it prudent to take this up first.
7. The Ld. AR has contended that, the 'satisfaction note' was vague and did not meet the pre-requisite pre requisite of section153C to usurp jurisdiction jurisdicti to frame assessment under Section 153C of the Act.. Taking us through the satisfaction note(s), he pointed out that, the AO had recorded a common satisfaction note for both the years and that such action had been disapproved by the Hon'ble Supreme Court in the case of CIT Vs Singhad Technical Education Society (397 (397 ITR 344).
344 The Ld. AR submitted that, the 'seized material' relied upon by the AO in the satisfaction note that, the assessee had inflated their expenses by means of bogus purchases from M/s Crystal bottles, bottles, was not incriminating in nature. The Ld. AR claimed that the law requires a high threshold of satisfaction to issue notice u/s.153C of the Act, Act, which according to him, was absent in the present case. He thus urged that, the usurpation usurp of jurisdiction by the AO u/s 153C of the Act suffered from fundamental ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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infirmity on account of failure to record a valid satisfaction note and he wants us to quash the order(s) for these AYs 2018-19 2018 19 to 2019-20.2019
8. Per contra, the Ld. CIT, DR appearing appearing for the Revenue submitted that, the AO had elaborately discussed the specific details of the incriminating material handed over by the AO of the searched person to the AO of the assessee and thereafter also quantified the amounts which in his view had a bearing on the total income for AYs 2018-
2018-19 & 2019-20.
According to her therefore, the AO had validly recorded ed the satisfaction before assuming jurisdiction u/s 153Cof the Act.
Act. She also invited our attention the notice issued by the AO u/s 142(1) of the Act Act dated 14-01- 14 2023 in the course of assessment proceedings conducted u/s 153C of the Act and pointed out that, the AO had identified the specific seized material was found from the premises of M/s Crystal Bottles which contained information relating to the the assessee. The Ld. CIT, DR submitted that, the AO had also elucidated in that notice, the inference which was sought to be drawn from such seized material against the assessee. She further pointed out that, later on, a search action was conducted upon the assessee on 15-06-2022 2022 when the impugned assessment(s) were pending and that the findings / material seized in the course of direct search on the assessee corroborated the information unearthed in the course of search at M/s Crystal Bottles. According to her all these facts considered ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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cumulatively showed that, there was sufficient seized material in possession of the AO demonstrating impact on the determination of the income of the assessee and thus the AO had validly usurped jurisdiction u/s 153C of the Act.
ct. She thus vehemently supported the Ld. CIT(A)'s order dismissing this legal plea of the assessee.
9. The Ld. AR in his rejoinder submitted that, the assessee had repelled the purported seized material found from the premises of M/s Crystal Bottles, in the course of assessment proceedings and it was shown that neither was such material of incriminating nature nor did it have any bearing on their total income. According to him, the AO while passing the impugned orders did not refer to or rely upon any of the material seized from the premises of M/s Crystal Bottles to justify the addition(s) made on account of bogus purchases. Instead, the addition of bogus purchases was made by relying on the material seized and statement(s) recorded in the direct search conducted onducted at the premises of the assessee, which was much later to the date of recording of satisfaction. The Ld. AR submitted that, the fact that the AO did not rely on any material which was seized from the premises of M/s SNJ Distilleries or M/s Crystal Bottles in the course of their search conducted on 06-08-2019, 06 2019, for making addition(s) in the impugned assessment order(s), bolstered the assessee's case that, the satisfaction note was recorded by the AO in a scanty, vague and ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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mechanical manner without demonstrating demonstrating any live link between the material seized from the premises of third party with the quantum of income alleged to be escaping tax in these AYs.
10. We have heard both the parties and perused the material placed before us. It is well settled in law by now that, the recording of satisfaction note constitutes constitute a jurisdictional fact, in the absence of which no notice u/s 153C of the Act can be validly issued. Accordingly, the t 'satisfaction note' forms the foundational basis to assume jurisdiction u/s 153C of the Act. The law requires the AO of the assessee to arrive at a 'satisfaction' that the seized material handed over by the AO of the searched person belongs to or pertains to or relates to the other person [assessee, in this case] and further, thatt such material is incriminating in nature leading to the conclusion of undisclosed income. There here has to be a contemporaneous recording of satisfaction by the AO linking the seized material to the assessee. The satisfaction note should demonstrate the live nexus ascertained upon examination of the seized material which contained information relating to the assessee which has a bearing on its total income. Having perused the 'satisfaction note' for AYs 2018-19 2018 & 2019-20, 20, it is seen that, the AO had demonstrated a linkage between the material seized from the premises of M/s Crystal Bottles with the assessee and has also set out document-wise document wise correlation with the specific ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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assessment year and also quantified the amount(s) believed to be escaping tax in AYs 2018-19 2018 & 2019-20.
20. The AO had set out the specific contents of certain loose sheets containing details of invoices vis-a-vis vis filling status pertaining to the old bottle purchases made by the assessee.
The AO is found to have also referred to specific excel sheets, ledger etc. seized from the premises of M/s Crystal Bottles, which contained information relating to the assessee. The AO has also pointed out that, the key person of M/s Crystal Bottles in his statement statement recorded u/s 132(4) of the Act had admitted to bogus purchases facilitated for the assessee. We thus note that, the AO of the assessee has objectively analyze e and compartmentalize compartmentali e the incriminating material year-wise, year as received from the AO of the searched searc person, and arrive at a categoric determination as to the year to which the incriminating material relates and issue notices only for those years.
years. In our opinion therefore, the satisfaction note recorded by the AO in these AYs meets the requirement laid d down by the Hon'ble Supreme Court in the case of CIT Vs Singhad Technical Education Society (supra).
(supra)
11. The requirement of law for a valid assumption of jurisdiction is the satisfaction of the AO of the assessee that the material handed over to him by the he AO of the searched person impacts the determination of income of the assessee. In the facts of the present case, there is no doubt ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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that the material in possession of the AO sufficiently demonstrated demonstrat the impact on the determination of the income of the assessee assessee for the impugned AYs before us. The argument of the assessee to the effect of the satisfaction recorded being vague and that th the seized material received from the AO of the searched person [M/s Crystal Bottles, in the present case] was not ultimately ultimately relied upon to make the addition(s) in the assessment order(s) are, we find, of no consequence in the light of our finding that, the satisfaction recorded was to be considered in light of the seized material and statements in the possession of the AO, AO which admittedly prima facie were adverse to the assessee. The fact that, later on a direct search was conducted upon the assessee which led to discovery of additional material & evidence basis which the AO primarily justified the addition, cannot be fatal to the recording of satisfaction note. According to us, there here is no doubt that the AO was in possession of material which could have led to no other satisfaction but that of the material impacting the determination of income of the assessee.
assessee The case laws relied upon by the Ld. AR of the assessee are clearly distinguishable on facts, since in the facts of the present case the satisfaction of the AO is evident from the material gathered during search conducted upon M/s Crystal Bottles. In view of the foregoing,, we do not find any merit in the legal grounds raised by the assessee challenging the validity of ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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jurisdiction assumed by the AO u/s 153C of the Act and therefore dismiss the same.
12. We now turn our attention to the merits of the addition(s) made in the he impugned AYs 2018-19 2018 & 2019-20.
20. The first issue involved in both these appeals relates to the addition(s) made by the AO on account of bogus old bottle purchases. The facts as noted are that, a search action was conducted upon SNJ Group on 06-08-2019 06 and d in connection with the same, the business premises of M/s Crystal Bottles was also searched where incriminating material relating to the assessee was seized. On analysis of the seized material found from the premises of M/s Crystal Bottles along with the statement given by the key person of M/s Crystal Bottles u/s 132(4) of the Act, it was inferred that, they had facilitated inflation of expenses of the assessee by providing bogus invoices of purchase of old bottles. Relying upon the material seized from the premises of M/s Crystal Bottles which contained information relating to the assessee, the AO had reopened the assessment(s) of the assessee u/s 153C of the Act for AYs 2018-19 2018 & 2019-20.
20. During the pendency of the assessment proceedings which was initiated initiated u/s 153C of the Act, a search u/s 132 of the Act was conducted upon the assessee on 15-06-2022, 15 in the course of which several material viz., books of accounts, documents & electronic data, loose sheets, note books etc. was found and seized.
ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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According to the AO, the seized material inter alia contained details of suppression of income by the assessee by debiting bogus purchases from several vendors of old liquor bottles including M/s Crystal Bottles. Consequent to the completion of direct search, the assessee assessee is found to have also filed a letter with the AO, in the course of assessment proceedings, admitting additional income in the impugned AYs 2018-19 2018 & 2019-20.
20. It is noted from the assessment order(s) that, the AO had initially referred to the material material which was seized from the premises of M/s Crystal Bottles at the beginning of the assessment order but thereafter he primarily based his findings on the material unearthed in the course of direct search upon the assessee, which took place during the pendency dency of the assessment proceedings.
13. The AO is noted to have relied upon the contents of a silver color pen drive seized from the residential premises of Shri S Varatharaj, Deputy Manager of the assessee company which contained an Excel File comprising g of several excel sheets titled 'ENA Schedule'. These excel sheets were printed and seized as Annexure ANN/ARS/SAFL/Loose Sheets/S-1, 1, Pages 1 to 66. It is noted that, this excel file comprised of five(5) Sheets which comprised of data relating to purchase of old bottles for three-month month period in the year 2020.
2020. The AO is noted to have tabulated sample data from this excel file in this assessment order. It is ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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seen that, this data comprised of month wise details of the old bottles purchased from certain vendors.
vendors. It inter alia contained the date of invoice, manner of payment, date of cheque, invoice amount, GST, other charges & total. Another excel sheet, is noted to contain date-wise date column-wise wise notings of several figures against five vendors. According to the AO, these excel files were actually a summary of the bogus invoices obtained by the assessee from these vendors inter alia including M/s Crystal Bottles and that the date-wise date wise details were the notings of cash amounts due from them. It is observed that this this analogy of the AO was based on the statement(s) obtained from key employees of the assessee i.e., Shri S Varatharaj [from whose possession the pen drive was found] and Shri Austine Paulraj. These employees had explained that, the column 'Others' in the excel excel file represented the commission retained by the vendors for facilitating bogus invoices and that the column 'Total' denoted the cash which was to be returned back by the vendors against the cheques paid to them in lieu of bogus invoices. The AO thereafter therea extracted the data of old-bottle old supplier-wise wise purchase ledgers from the SAP software along with their off-set off set accounts of old bottle purchases. According to the AO, these vendors were not only supplying old bottles for which genuine invoices were being being raised, but these same vendors were also providing bogus invoices to facilitate inflation of expenses of the ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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assessee. This inference was drawn from the purchase ledgers, which according to the AO, contained entries both for genuine old bottle purchases and bogus old bottle purchases. In the AO's opinion, the actual old bottles purchased were accompanied by GRNs whereas the same was lacking in old bottle purchases. The AO accordingly deduced that, in case of bogus purchases, the bills were processed without without GRN entry. The AO thereafter elaborately discussed the accounting processes followed by the assessee upon purchase of old bottles with screenshots of SAP system, invoices in light of the statements obtained from the accounts & audit staff. The AO inferred red that wherever the purchases invoices were bogus, there was no movement from top to bottom for accounting and payment.
According to AO, the assessee would simply collect cash from the old bottle suppliers in lieu of payments made towards bogus purchase invoices after deducting commission retained by these suppliers for facilitating such bogus bills. The AO is noted to have extensively reproduced the statements of several employees of the assessee viz., Shri S Varatharaj, Shri Austine Paulraj etc., recorded recorded across several dates in the assessment order, wherein they had admitted that, the invoices which did not carry seal or GRN details were bogus purchases. It is observed that, Shri Austine Paulraj had identified eight (8) regular suppliers including M/s Crystal rystal Bottles who were inter alia providing these bogus ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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invoices. According to the employees, the vendors would return back the cash in lieu of the payments made against such bogus invoices after deducting their commission and that such cash was utilized to meet other cash expenses of the assessee. The AO also reproduced the statement of the Managing Director of the assessee, Shri M Anand who had confirmed the statements given by Shri S Varatharaj & Shri Austine Paulraj.
Thereafter, the AO at Para 6 of his order elaborately set out the findings unearthed upon conducting search and examination of these suppliers including M/s Crystal Bottles. To sum up, according to the AO, these suppliers had also corroborated the statements of the employee(s) that they had facilitated inflation of expenses by providing bogus invoices. The AO is thus noted to have added the entire value of the bogus old bottle purchases, as quantified by him in the Table at Para 8.1.2 of his assessment order, in both the impugned AYs 2018-19 2018 & 2019-20.2019
14. Aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A). It is seen that, the Ld. CIT(A) after considering the submissions of the assessee in light of the findings of the AO, had ultimately rejected the books of of accounts of the assessee and estimated the profits at 10% of the turnover. Being aggrieved by the order of the Ld. CIT(A), both the assessee and Revenue are in appeal before us.
ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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15. Heard both the parties. It is seen that the reasons given by the AO for making the impugned addition(s) and the findings rendered by the Ld. CIT(A) for rejecting the books of accounts and estimating the profit at 10% is verbatim same to that of the orders passed by the lower authorities in assessee's own case for AYs 2020-21 2020 to o 2022-23.
2022 While adjudicating the cross appeals of the assessee and Revenue in ITA Nos.
1550-1552 &1817-1819 1819/Chny/2025 for AYs 2020-21 21 to 2022-23, 2022 we have sustained the Ld. CIT(A)'s order rejecting the books of accounts u/s 145(3) and the action of estimation estimation of profits at 10%, by observing as under:-
12. Overall therefore, we are in agreement with the Ld. CIT(A) CIT( that, there are indeed discrepancies in the books of accounts as rightly highlighted by the lower authorities, but it cannot be alleged that the entire value of purchases lacking GRNs, made from these genuine suppliers were bogus. The Ld. AR for the assessee assessee has also tacitly acknowledged before us that, there were accounting anomalies in maintaining the books of accounts, but he contended that, these accounting anomalies cannot be ipso facto assumed to be falsification of entries, which requires strict proof p of mens-rea,, which is absent. He pointed out that the AO in the assessment order erroneously treated these accounting deficiencies to tantamount to false entries and thereby initiated penal action u/s 271AAD of the Act. At this juncture, it is imperative ive for us to clarify that the accounting deficiencies seen in the ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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books of accounts cannot be equated with falsification of entries in the books of accounts. In our opinion, in a given case, if corroborated, the statements recorded during the course of the the search can be used to make addition(s) in the hands of the assessee, but it cannot alone be taken as conclusive proof to allege falsification of entries in the books of accounts. In our view, the case of falsification of entries sought to be made out by the AO in the assessment order cannot be said to be established from the seized records. Hence, it is observed in the given facts discussed supra that such conclusions drawn by the Assessing Officer on falsification of entries in books of accounts is untenable.
unten Having said so, we maintain that, there are deficiencies in the books of accounts maintained by the Assessee leading to the difficulties in determining the correct assessable income considering the complex nature of the business carried out by the assessee.
assessee. We find that this similar aspect was considered by the jurisdictional High Court in the case of Empee Distilleries Ltd Vs. ACIT (187 Taxman 188),
188) which was also involved in the same line of business as that of the assessee and similar allegation was was levelled in relation to their old bottle purchases. It is seen that, the Hon'ble High Court had denounced the AO's action of adding the entire value of purchases and instead estimated the disallowance at 10%. Following the decision (supra), we countenance e the Ld CIT(A) action to the extent that there were accounting deficiencies in the books of accounts viz (i) SAP entries were not properly handled, (ii) standard accounting procedures were not fully followed and (iii) the purchases without GRNs lacked proper ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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documentation, and therefore on these counts sustain the action of the Ld. CIT(A) in rejecting the books of accounts and estimating the profits of the assessee. The relevant findings of Ld.CIT(A) as partly countenanced by us supra, are are as under:-
under:
"6.2.19 During the course of the appellate proceedings, the AR, along with the representatives of the appellant company, provided an explanation of the actual events and the accounting process related to the purchase of old bottles from the vendors. The old bottles are purchased routinely in the regular course of business. The use of these bottle undergo reconditioning for reuse, involves several steps to ensure that the bottles meet industry standards for hygiene, safety, and regulatory compliance.
compliance. The bottles are sorted to separate those that are still in good condition from those that are damaged and cannot be reused. The bottles undergo an inspection process to assess their condition. Bottles with cracks, chips, or other defects are discarded.
discarded. Bottles that pass the inspection are cleaned and sanitized before re-use.
re use. This ensures that there are no foreign substances or contamination inside the bottles. The bottles are washed to remove any remaining liquids, labels, or external dirt. This is usually done through a mechanical washing process. The bottles are then sanitized to remove any bacteria or contaminants. This is typically done using high-pressure high water, steam, or chemical sanitizers that are safe for food-grade food grade packaging.
After cleaning ing and sanitizing, the bottles are thoroughly dried to avoid any moisture retention that could affect the new contents.
6.2.20 In this process, there are instances where the bottles, being fragile, break, resulting in a significant reduction in the number number of bottles available for refilling. This, in turn, impacts the overall production estimates. In such situations, to meet the marketing demand, the appellant company is compelled to replace the rejected bottles by sourcing additional old bottles from their the vendors on emergency situations. This was done by overlooking the usual purchase procedures to fulfil the daily production requirements. In view of this recurrent event happening in this line of business, the AR has contended that emergency purchases effected effected by the appellant company was only to meet its business requirements. Therefore, it has been claimed that these kinds of purchases cannot be termed as "bogus" and further claimed that the disallowance of Rs. 3,13,75,315/-
3,13,75,315/ & Rs. 37,97,84,300/- for the AY 2020-21 2020 and Rs.56,41,82,236/- & Rs. 58,23,45,992/-for the AY(s) 2021-22 22 & 2022-23 2022 in the hands of the appellant company is not justified. Further, the AR stated that, the alleged Old Bottle purchases were properly debited to stock account and issues for production were credited. Also, the AR stated that, the bottles that were said to be bogus were also consumed in production.
production. Further, the AR submitted that even though the bottles were purchased without following the regular procedures which are said to be bogus, whereas in reality, these were consumed in production requiring no disallowance.
6.2.21 The undersigned has carefully carefully considered the written submission, supporting documents and arguments advanced by the AR during the course of ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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appellate proceedings, with respect to the process involved in the bottle purchase in the regular course as well as sourced on emergency basis.
basi As seen from the documents presented before the undersigned that the purchase of bottles either following the normal process or sourced on emergency basis without GRN, both were reflected as debit entry in stock in the SAP Software, although it was a manual manual entry in the SAP software in the case of bottles purchased without GRN numbers. The appellant's contention is that the stock debits were made for both kind of purchases in the SAP, evidences that the same were consumed in the production and hence cannot cannot be rejected in toto. On the other hand, there seems to be accounting anomalies in as much as classification of incorrect offset account such as "Stock_PackMtrl Bottle", "Consumption-Bottles"
Bottles" and "Cost of Goods Sold-FG,"
Sold FG," On observing these accounting anomalies, omalies, it can be reasonable construed that the books does not reflect the true affairs of the appellant company.
6.2.22 Further, the the undersigned observes that neither the Investigation Officer nor the AO has made any specific findings that the appellant company has utilised the unaccounted income generated through alleged bogus purchases of old bottles in the form of unaccounted application of such income. During the course of the search conducted in the case of the appellant company and all other connected ted entities including the Managing Director and other key persons who were also subjected to search, the search team quantified an approximate amount of Rs. 392 Crores as bogus purchases made by the appellant during the FY(s) 2012-1313 to 2022-23.
2022 It is significant nificant to bring on record that neither the Investigation officer nor the AO were able to identify the corresponding application of the quantified bogus purchases in the form of any unaccounted asset or unaccounted expenditure or unaccounted investments. As evident in the assessment order, the AO has treated the purchases being held as bogus and disallowed the same. As per the discussion made supra, the appellant was able to demonstrate the necessity to purchase old bottles by overlooking the regular purchase ase procedures. Therefore, the purchases made by overlooking the regular procedure also requires to be regularised. As per the evidences found, it cannot be ruled out that, there existed purchases not utilised for business purposes too.
6.2.23 As evident evident in the order passed by the AO, it can be seen that the AO treated the amount(s) of Rs. 3, 13,75,315/- & Rs. 37,97,84,300/-
37,97,84,300/ for the AY 2020-21 21 and Rs.56,41,82,236/-
Rs.56,41,82,236/ & Rs. 58,23,45,992/-for for the AY(s) 2021-22 2021 & 2022-23 being the bogus purchases as income of the appellant. The AR contended that if the disallowance of alleged bogus purchases made by the AO is considered, the resultant net profit would be an unreasonable net profit which cannot be achieved in the kind of business of the appellant company. The AR has drawn the attention of the undersigned to the fact that the appellant company had already admitted a higher net profit by comparing with companies in the same line of business.
6.2.24 The undersigned on account of the detailed discussion made supra, supr is of the view that as the actual profits cannot be reliably determined due to these discrepancies in the books, the taxable income cannot be accurately determined based on the current books of accounts. The non-compliance non compliance with basic ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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accounting norms, such such as proper documentation and accurate entry of invoices, further substantiates the claim that the books do not reflect true income.
income Therefore, the books of accounts in this case should indeed be rejected under Section 145(3) for the following reasons:
Inconsistent nconsistent accounting treatments, treatments, such as the use of incorrect offset accounts for bogus transactions.
Handling of SAP entries to process invoices without valid supporting documentation (e.g., missing GRN, no purchase orders). Failure to comply with standard stand accounting procedures for genuine purchases.
The inability to substantiate purchases with proper documentation, documentation which significantly impacts the reliability of the accounts.
6.2.25 Based on the above factors, the undersigned holds that the current books of accounts cannot be considered reliable for determining the true taxable income for the relevant assessment years. Therefore, as per the provisions of section 145(3) of the Act, the undersigned has the authority to reject these books of accounts and determine ermine the taxable income to ascertain the true taxable income of the appellant company for the year under consideration. The undersigned, in order to set right the issues related in determination of the profit element embedded in such purchases rejects the the books of accounts in accordance to section 145(3) of the Act.
6.2.26 At this juncture it is appropriate to rely upon the decisions rendered by the Hon'ble Allahabad High Court in the case of Shri Venkteshwar Sugar Mills v. CIT(A) (2012) 341 ITR 588 (All) (All wherein the Hon'ble High Court has concurred with the decision of the ITAT in upholding the rejection of books of account maintained by the assessee when the same are not properly maintained. The relevant para of the judgment is extracted below for ready reference:
"12. For the assessment year under consideration, the assessee has shown the G.P. rate 16.20 per cent. as against 33.44 per cent. in the previous assessment year. Thus, during the assessment year under consideration, the G.P. rate was low. The Commissioner of Income-tax Income tax (Appeals) discussed the facts and circumstances pertaining to the manufacturing cost and selling price. The Assessing Officer has taken the G.P. rate at 27 per cent. on the estimated sale, which is lower in comparison to earlier year i.e. 33.44 per cent. When the books of account were not properly maintained and the vouchers pertaining to the consumable items were not available for verification, then we find justification for rejection of the books of accounts by the Assessing Officer Officer Once the books of account rejected, then there is no option before the Assessing Officer except to estimate the sale and G. P. rate which he determined by taking by comparative figure of the assessee for the previous assessment year. The Tribunal has already given the partial relief and in the facts and circumstances of the case, there is no scope to give any further relief specially when the estimation is a question of fact. The Tribunal is a final fact finding authority as per the ratio laid ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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down in the case of Kamala Ganapathy Subramaniam v. Collector of Estate Duty [2002] 253 ITR 692/121 Taxman 615 (SC) .
13. In the instant case, the addition is made on the estimate basis, which is a question of fact as per the ratio laid down in the case of Utkal Road Lines v. Registrar, ITAT [2011] 336 ITR 149 (Orissa) , wherein it was observed that the application of G.P. rate on estimate basis is a question of fact. The hon'ble Supreme Court in the case of CIT v. Indo Nippon Chemicals Co.
Ltd . [2003] 261 ITR 275/130 Taxman 179 (SC) observed that valuation of raw material for the purpose of tax on estimate basis is a question of fact. Similar views were expressed in the following cases :
....
14. In view of the above, no substantial question of law is emerging from the impugned order. Hence, we find no reason to interfere with the impugned order passed by the Tribunal which is hereby sustained along with reasons mentioned therein."
6.2.27 Further her the Hon'ble Punjab & Haryana High Court in the case of Mahavir Rice Mills v. CIT (2023) 153 taxmann.com 686 (P&H) has upheld the estimation made, by rejecting the books of account of the assessee in the absence of details of stock. The relevant para of the judgment is extracted below for ready reference:
"9. As per above Section, the income has to be computed in accordance with the method of accountancy followed by an assessee i.e. cash or mercantile. Such method has to be followed keeping in view the accounting standard notified by the Central Government from time to time. In the absence of qualitative details, it is quite difficult to examine the sales of the assessee. The higher quality of a rice can be shown as sold at a lower rate in the bills. There There was flaw in the maintenance of the details. Thus, the addition of Rs. 2,00,000/-
2,00,000/ on account of sale of rice has rightly been made.
10. Thus, order dated 28-3-2013 28 (A-3) passed by Income--tax Appellate Tribunal, Chandigarh Bench 'F does not require any interference interference by this Court."
6.2.28 In addition the Hon'ble Calcutta High Court in the case of Amiya Kumar Roy v. CIT (1994) 206 ITR 306 (Cal) has held that non maintenance of stock accounts is a substantial defect justifying an inference that the accounts account were maintained in a manner from which the true and correct profits were not deducible. Relevant para of the judgment is extracted below for ready reference:
"We would have been impressed with the contentions if the assessee had maintained the stock book book showing stock tally. In that case, the accounts being fool proof, no addition could be warranted. There are certain trades, specially in the retail market, where stock tally may be impracticable and the assessee can reasonably advance the plea that the accounts accounts have been maintained in the best manner possible in the special circumstances of the case. But such is not the case with the assessee. The assessee deals in wholesale spices. Failure to ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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maintain stock accounts is a substantial defect in the accounts accounts justifying an inference that the accounts are maintained in a manner from which the true and correct profits are not deducible. Nor is it contended at any stage that the gross profit rate shown is the market norm.
Therefore, in our view, the Tribunal was was right in holding that the estimate which was made in the case and the addition made on such estimate was quite reasonable and fair taking a cumulative view of all the factors the case presents. Moreover, the Tribunal's finding that the assessee's rate of gross profit is below the market rate which is ten per cent. is a finding of fact which the assessee has not challenged."
6.2.29 The Hon'ble jurisdictional High Court has held in the case of CIT v. Marg Ltd. [2017] 84 taxmann.com 52 (Madras) has held that the AO's disallowance of expenses was not justified without rejecting the books of accounts under Section 145(3).
6.2.30 he jurisdictional tribunal vide its order in ITA No 366/Chny/2023 The dated 09.08.2023 .2023 has upheld the decision of the Commissioner of Income Tax (Appeal) in rejecting the books of accounts in the case of M/s. Beach Mineraals Company. The ratio of the above judgments are squarely applicable to the facts of the Appellant's case."
13. In light of our finding rendered at para 12 supra, we now turn our attention to the estimation of the profits. It is seen that the turnover is the only undisputed figure between the parties and therefore in our thoughtful consideration, it would be suitable e to adopt and apply reasonable profit ratio to the turnover reported in the audited financials for arriving at the assessable income of the assessee. For this, the Ld. AR urged us to consider the comparative analysis of other similarly placed entities and also the average profits earned by the assessee itself in the comparable years. It is seen that, similarly placed entities such as KALS Distilleries Ltd, Enrica Enterprises Pvt Ltd, Shiva Tillers Pvt Ltd had reported net profit margins in the range of 1% to 6% and the profits reported by the assessee ranged between AYs 2019-20 to 2022-23 23 ranged from 5.38% to 7.69%. The Ld. AR further pleaded that, there was a significant reduction in profit margins in this industry on account ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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of the nationwide lockdown imposed imposed during the breakout of COVID pandemic which affected both the production as well as sales reduction in the prices of IMFL (Indian Made Foreign Liquor) by the purchasing agency, TASMAC, and therefore wants us to estimate the profits at 8% of the turnover.
turnover. We find that, the Ld. CIT(A) had examined the foregoing figures & data along with the contentions of the assessee and having regard to the decision of jurisdictional High Court in the case of Empee Distilleries Ltd Vs. ACIT (supra), he had estimated the e profit at 10%. The relevant findings of the Ld. CIT(A) are noted to be as under:-
under:
"6.2.31 Now, after having rejected the books of accounts, the issue before the undersigned is,, the next question that arise is what will be the profits that can be attributable utable as income of the appellant company for the purpose of taxation with respect to the disallowance of bogus expenses relating the purchase of old bottles.
6.2.32 At this juncture, it is significant to rely upon the decision of the jurisdictional tribunal in the case of ACIT Central Circle -1(2) 1(2) Vs. M/s. Empee Distilleries Ltd (a company that is in the same line of business as that of the appellant company) vide its order in ITA No. 506, 507, 627, 628,686,629,684,630, 688/Mds/2007 dated 29.08.2008 wherein the Hon'ble ITAT Chennai has held as under.
"Next, Next, we will consider the appeals of the Revenue and the assessee for the assessment year 1999-2000 1999 2000 in I.T.A. No. 507/Mds/2007 and I.T.A. No. 628/Mds/2007 respectively. Similar to the assessment year 1998-99, the common issue raised by the Revenue as well as by the assessee for the impugned assessment year 1999-2000 1999 2000 is the addition made and sustained against the purchase of old bottles. The Assessing Officer has made a disallowance and addition of Rs.3,58,19,987/-
Rs.3 which is modified to Rs 85,41,680/- by the CIT(Appeals). The CIT(Appeals) has modified disallowance to 10% of the purchase of old bottles, as done for earlier assessment year 1998-99.
1998 99. The issue is discussed by the IN COME Assessing Officer in para 5 of his order. The facts and circumstances relating to the issue are just the same considered for the earlier assessment year 1998-99. 1998 On a careful consideration of the issue, we have upheld the order of the CIT(Appeals) for the preceding assessment year 1998-99,99, thereby confirming the disallowance of 10%. Following our findings and order for the said earlier assessment year, we uphold the decision of CIT (Appeals) on the point and reject the grounds raised by the Revenue as well as by the assessee".
assessee 6.2.33 Further, the Hon'ble Madras High Court in the above case M/s. Empee Distilleries Ltd Vs. ACIT, Central Circle1(2) [2010]187 Taxman 188 (Madras) has held as under with respect to the inflation of purchase expenditure as under.
ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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"In respect of the first first question, the inflation of the purchase expenditure of the old bottles, though for the sake of claim the relief was disputed before the authorities, yet the fact remained that such huge inflation had been accepted by the managing director of the company, company, who offered a sum of Rs.
74.50 lakhs for taxation. It was also proved by the authorities below that a very huge purchase of old bottles had been made by the assessee through its employees. However, when questioned the employees had categorically admitted d before the authorities that they were forced to sign on the dotted lines and, as such, there was no proof for such huge purchase forthcoming from the assessee. The proof adduced had been rejected as stated above. The Commissioner (Appeals) had rejected the the claim of wastage of 4.50 per cent as on the higher side, however, it was found with the available material that it was not possible to quantify the purchase inflation of old bottles with accurate precision and the disallowance of 10 per cent would meet the ends of justice, and granted the relief in favour of the assessee barring the 10 per cent of disallowance."
6.2.34 In the light of the decision of the jurisdictional High Court and the consistent decision taken for the earlier years by the undersigned in the appellate order(s) passed u/s 250 of the Act for the AY(s) 2017-18, 2017 18, 2018-19 2018 & 2019-20, 20, the undersigned is of the view that the disallowance to the extent of 10% would meet the ends of justice. At the outset, the profit percentage in the business of manufacturing and sale of Indian Made Foreign Liquor (IMFL) can vary significantly based on several factors, including the type of liquor, brand positioning, production efficiency, distribution strategies, and regulatory conditions. During the course of appellate proceedings, the AR has provided the details of the net profit to turnover ratio as admitted in the financial statements of the appellant company for the AY(s) 2020-21 2020 to 2022-23, 23, the extract of the same is reproduced here as under.
Sl Particulars as 2019-20 2020-21 2021-22 2022-23 No. reported u/s 139 of the Act 1 Gross turnover 4019755197 4948770663/- 4331164415 4339734105 2 Gross profit 1018627340 1342904502 1236791836 1119511678 reported 3 Net Profit 216197529 380487732 326693496 200910922 reported as per books 4 % of net profit 5.38 7.69 7.54 4.63 Average % of net 6.31 profit 6.2.35 The AR, during the course of the appellate proceedings, has pleaded that there was a fall in profit for the relevant assessment year(s) more particularly AY 2022-23, 2022 23, on account of the nationwide lockdown imposed during the breakout of COVID pandemic which which affected both the production as well as sales reduction in the prices of IMFL (Indian Made Foreign Liquor) by the purchasing agency, TASMAC, has led to a significant reduction in the profit margin for the FY 2021-22, 2021 relevant to AY 2022-23.
23. On account ofo this profit reduction, the AR has requested for consideration of a reduced percentage while ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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estimating the net profit for the AY 2022-23, 2022 23, rather than the estimated 10 % of the turnover for the earlier years in the appellant company's case. The undersigned, ed, on careful examination of this issue raised, including a review of the appellant's financial statements, observes that the turnover of Rs. 433,97,34,105/- for the year in question is consistent with that of previous years. In light of this, it is held that the plea raised by the AR that the price reduction by TASMAC has materially affected the appellant's income is not substantiated by the financial data and therefore is not considered. 6.2.36 Based on the above, it is observed that the average net profit-to-
turnover ratio for AYs 2019-20 2019 to 2022-231 231 stands at 6.31%. Having rejected the books of accounts, the undersigned by observing the judicial discipline(s) and in order to ensure equity and fairness, is of the view that an average rate of 10% of gross turnover would be appropriate to be considered as the net profit. Accordingly, the balance that requires to be considered in the hands of the appellant company for the years under consideration are quantified as under:-
under:
Particulars as 2020-21 2021-22 2022-23 Sl reported u/s 139 No. of the Act 1 Gross turnover 494,87,70,663/- 433,11,64,415/- 433,97,34,105/-
2 Gross profit 134,29,04,502/- 123,67,91,836/- 111,95,11,678/-
reported 3 Net Profit 38,04,87,732/- 32,66,93,496/- 20,09,10,922/-
reported as per books 4 % of net profit 7.69 7.54 4.63
5. Balance that requires to be 10-7.69= 2.31% 10-7.54=2.46% 10-4.63=5.37% considered
6. % of turnover to 2.31% of 2.46% of 5.37 % of be considered in 494,87,70,663 433,11,64,415 433,97,34,105 the hands of the =Rs.11,43,16,602 =Rs.11,43,16,602/- =Rs.10,65,46,645/- =Rs.23,30,43,721 Rs.23,30,43,721/-
appellant
6.2.37 Thus, for the AY(s) 2020-21,2021-22
2020 & 2022-23
23 the disallowances of
expenditure to the extent of Rs. 11,43,16,602/-
11,43,16,602/ Rs. 10,65,46,645/-
10,65,46,645/ & Rs.23,30,43,721/- only needs to considered as bogus purchases of old bottles as against the disallowances contemplated by the AO in the assessment order(s) passed by the AO for the years under consideration. Accordingly, all the grounds raised by the appellant appellant upon the issue of disallowance of expenditure towards bogus purchase of old bottles for the years under consideration are hereby treated as partly allowed and the AO is directed to delete the addition made on account of bogus old bottle purchases as under.
ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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Sl No. AY Amount added Amount sustained Amount to be towards bogus old as per the deleted bottle purchases. ( In discussions (in Rs.) Rs.) ( in Rs.) 1 2020-21 Rs. 41,11,59,615 Rs.11,43,16,602/- Rs. 29,68,43,013/-
(Rs.37,97,84,300 /-
/ + Rs.3,13,75,315/ Rs.3,13,75,315/-) 2 2021-22 Rs.56,41,82,236/ Rs.56,41,82,236/- Rs.10,65,46,645/- Rs. 45,76,35,591/-
45,76,35,591/
3. 2022-23 Rs.58,23,45,992/ Rs.58,23,45,992/- Rs.23,30,43,721/- Rs. 34,93,02,271/-
34,93,02,271/
14. In our opinion, the Ld. CIT(A) had rightly followed the ratio decidendi laid down in the above decision (supra) for rejecting the books of accounts and estimating the profits of the assessee at 10%. We therefore see no reason to interfere with the same. Since the facts involved in the lead case of AY 2020-21 21 is common in AYs 2021-22 & 2022-23, 23, our foregoing findings shall be followed mutatis mutandis in the appeals for AYs2021-22 22 & 2022-23 2022 as well. Hence, all the grounds raised by the assessee and the Revenue on this issue in AYs 2020-21 2020 to 2022-23 stands dismissed."
16. In absence of any change of facts and circumstances or position of law being pointed out by either party, we follow the above order passed by us in assessee's own case (supra) for AY 2020-21 2020 21 to 2022-23 2022 and accordingly uphold the order of the Ld. CIT(A) on this issue. Hence, the grounds raised by the assessee and Revenue on this issue stands dismissed.
ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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17. In so far as the next two issues raised by the Revenue viz., disallowance of expenses u/s 14A and sales promotion expenses is concerned, the he Ld. CIT, DR assailing ssailing the order of Ld. CIT(A) urged that, even if the books of accounts are rejected, the disallowance of these items of expenses ought to be separately adjudicated and decided upon as to whether it is to be separately added to the estimated business income.
come. According to us however, once the books of account are rejected by invoking the provisions of section 145of the Act and the income is estimated to the best of judgment as per the provisions of section 144 of the Act, the said estimate is made in substitution titution of the business income that is to be computed in accordance with the provisions contained in sections 30 to 43D as laid down in section29 of the Act. Consequently, all the deductions which are referred to in sections 30 to 43D of the Act are deemed d to have been taken into account while making such an estimate.
estimate Useful reference in this regard may be made to the decision of Hon'ble Andhra Pradesh High Court in the case of Indwell Constructions Vs. CIT (232 ITR 776) and Hon'ble Allahabad High Court in the case of CIT
229) In view of the foregoing, vs Banwari Lal Banshidhar (229 ITR 229). foregoing we do not agree with this plea of the Revenue. We thus do not see any infirmity in the order of the Ld. CIT(A) in deleting these separate additions, as the total income of the assessee had been estimated upon ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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rejection of the books of accounts. Accordingly, the grounds raised by the Revenue in this regard stands dismissed.
18. The next issue raised by the Revenue is against the deletion of disallowance of deduction claimed by the assessee u/s 80G of the Act amounting to Rs.62,50,000/-.
Rs.62,50,000/ . The facts as noted are that, during the year, the assessee had made donations of Rs.75,00,000/ Rs.75,00,000/- and Rs.50,00,000/- to M/s Prerna Foundation and M/s Radiant Institute of Technology respectively, respectively, and had claimed deduction of RS.62,50,000/-
RS.62,50,000/ [50% of Rs.1,25,00,000] by way of deduction u/s 80G of the Act. The AO observed that, as a sequel to the search conducted upon the assessee, one Shri Narendra Jain was also searched u/s 132 of the Act and from the WhatsApp chats and statement(s) recorded from him, it was gathered that, the assessee had made bogus CSR contribution of Rs. 3 crores to ASIC Trust and Aadhar Foundation in FY 2021-22.
2021 22. It is noted that, the WhatsApp chats of Shri Narendra Jain and his statement was shown to Shri Augustine Paulraj, employee of the assessee who initially averred in his statement u/s 132(4) of the Act that the donations to these two entities were genuine but later on admitted that the CSR contribution made to these two entities ent in FY 2021-22 22 was bogus. In the same statement, Shri Augustine Paulraj is noted to have stated that, the assessee had made donation of Rs.75,00,000/-
Rs.75,00,000/ to M/s Prerna Foundation, ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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which he averred was received back in cash and that the donation made to M/s /s Radiant Institute of Technology was only for education purpose. Relying on the statement of Shri Augustine Paulraj, the AO treated both the donations made to registered charitable trusts, aggregating to Rs.1,25,00,000/- to be bogus and accordingly disallowed disallowed the deduction so claimed u/s 80G of the Act.
19. Aggrieved by the action of the AO, the assessee carried the matter in appeal and the Ld. CIT(A) was pleased to deleted the same. Now the Revenue is in appeal before us.
20. Heard both the parties. From From the facts as discussed above, it is noted that, the search conducted upon Shri Narendra Jain led to unearthing of alleged bogus donations made to AISC Trust and Aadhar Foundation. There was no material or any WhatsApp evidences retrieved from the premises es of Mr. Narendra Jain which would suggest that the donations made by the assessee to M/s Prerna Foundation and M/s Radiant Institute of Technology was not genuine or that the donations made to them was received back in cash. It is also not the Revenue's case that any incriminating material concerning these impugned donations was found at the premises of the assessee. We find that the impugned disallowance was solely based on the statement of Shri Augustine Paulraj.
ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
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Having perused his statement, it is seen that nowhere had Shri Augustine Paulraj stated that the donation made to M/s Radiant Institute of Technology was bogus or that it was returned back in cash. Rather, it is observed that in his answers to Q Nos. 25 & 26, he had categorically stated that, the e assessee had paid donation to M/s Radiant Institute of Technology by cheque and that the donation was for educational purpose under their corporate social responsibility. We thus note that, there was nothing incriminating whatsoever contained in the statement stat of Shri Augustine Paulraj basis which any prudent person could construe the donation made by the assessee to M/s Radiant Institute of Technology to be not genuine. In fact, we find that, his statement supports the veracity of the impugned donation. The The Ld. AR further brought to our notice that, M/s Radiant Institute of Technology was approved by the competent authority at the time of the donation had been made,, and they held valid registration u/s 80G of the Act.
Act. For the aforesaid reasons, we find that, tha the Ld. CIT(A) had rightly allowed the deduction claimed by the assessee in relation to the donation given to M/s Radiant Institute of Technology and deleted the disallowance made by the AO u/s 80G of the Act.
21. In so far as the allowability of the donation donation made to M/s Prerna Foundation is concerned, it is seen that, the impugned disallowance was made by solely relying on the statement of Shri Augustine Paulraj. It is ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
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crucially observed that, Shri Augustine Paulraj had clearly stated that M/s Prerna Foundation undation was involved in educational activities and the assessee had donated Rs.75,00,000/-.
Rs.75,00,000/ . It was when the Investigating authority asked him whether such donation was received back in cash, that he stated that, he did not have direct knowledge of the matter matter and that he understands that the donation may have been received back in cash. It is evident that this assertion made by Shri Paulraj was predicated on surmises and assumptions and that there was no clear admission to receipt of cash in lieu of donation.
donation. Moreover, it is by now well settled in law that, no addition/disallowance can be made by solely relying on confessions made during the course of search, in absence of any corroborative material found to back the same. We gainfully refer to the CBDT Circular ular F No. 286/2/2003-IT(Inv) 286/2/2003 IT(Inv) dated 10.03.2003 and the decisions of Hon'ble Delhi High Court in the case of Pr.CIT Vs Best Infrastructure (I) Pvt Ltd (397 ITR 82) and Hon'ble Bombay High Court in the case CIT Vs Harjeev Aggarwal (241 Taxmann 199), amongst others, wherein it was held that statements recorded u/s 132(4) cannot be the sole basis to make addition(s) in the hands of the assessee.
22. The Ld. AR further brought to our notice that, nothing incriminating was found from the premises of Shri Narendra Narendra Jain in this regard nor had ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
:: 33 ::
he admitted that, the donation given by the assessee to M/s Prerna Foundation had been received back in cash. The Ld. CIT(A) has rightly observed that, the conclusion drawn by the AO was not supported by any clear statement(s)
s) and that in absence of any corroborative evidence, the impugned disallowance was unjustified. It is also not in dispute that M/s Prerna Foundation is a registered charitable trust holding valid registration u/s 80G of the Act and therefore, in our considered considered view, the deduction claimed by the assessee u/s 80G of the Act qua the donation made to this trust cannot be held to be unjustified.
23. Overall therefore, we see no reason to interfere with the order of the Ld. CIT(A) deleting the disallowance of deduction claimed u/s 80G of the Act of Rs.62,50,000/-
Rs.62,50,000/ and therefore we dismiss the grounds taken by the Revenue in this regard.
24. The last issue has been agitated by the assessee viz., disallowance of deduction claimed u/s 80GGB of the Act for AY 2018-19.
2018 Due to smallness of the amount involved, the Ld. AR appearing for the assessee did not wish to press this ground and the same is thus thus dismissed.
ITA Nos.1613 1613 to 1615 /Chny/2025 & ITA Nos.1547 & 1548/Chny/2025 (AYss 2018-19 2018 & 2019-20) M/s. Southern Agrifurane Industries Pvt.
Pvt Ltd.
:: 34 ::
25. In the result, both the appeals filed by the Revenue and the assessee are dismissed.
Order pronounced on the 01st day of December, 2025 25, in Chennai.
Sd/- Sd/
Sd/-
(एबी टी. वक ) (अिमताभ शु
ा)
(ABY
ABY T. VARKEY)
VARKEY (AMITABH SHUKLA)
याियकसद य/JUDICIAL MEMBER लेखासद य/ACCOUNTANT MEMBER
चे ई/Chennai,
दनांक/Dated: 01st December,
December 2025.
TLN
आदेश क ितिलिप अ ेिषत/Copy
Copy to:
to
1. अपीलाथ /Appellant
2. थ /Respondent
3. आयकरआयु /CIT,, Chennai / Madurai / Salem / Coimbatore.
4. िवभागीय ितिनिध/DR
5. गाडफाईल/GF