Income Tax Appellate Tribunal - Chandigarh
Acit, Cc-2, Chandigarh vs Shri Karaj Singh, Yamuna Nagar on 8 October, 2025
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IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH, CHANDIGARH
HYBRID HEARING
BEFORE HON'BLE SHRI RAJPAL YADAV, VICE PRESIDENT
AND
HON'BLE SHRI MANOJ KUMAR AGGARWAL, AM
1. आयकर अपील सं ./ ITA No. 726/CHANDI/2022
(िनधारण वष / Assessment Year: 2018-19)
ACIT-Central Circle 2 Shri Karaj Singh
CR Building Sector 17 बनाम/ H. No 1379, Modern Colony, Near ITI
Chandigarh 160017 Vs. Yamuna Nagar (Haryana)
ायीलेखासं./जीआइआरसं./PAN/GIR No. ATUPS-5528-A
(अपीलाथ /Appellant) : ( थ / Respondent)
&
2. CO. No. 16/Chandi/2024
[In ITA No. 726/CHANDI/2022
(िनधारण वष / Assessment Year: 2018-19)
Shri Karaj Singh ACIT-Central Circle 2
H. No 1379, Modern Colony, Near ITI, बनाम/ CR Building Sector 17
Yamuna Nagar (Haryana) Vs. Chandigarh 160017
ायीलेखासं./जीआइआरसं./PAN/GIR No. ATUPS-5528-A
(Cross-Objector) : (Respondent)
Revenue by : Smt. Kusum Bansal (CIT) - Ld. DR
Assessee by : Shri Dhruv Goel (CA) - Ld. AR
सुनवाईकीतारीख/Date of Hearing : 18-09-2025
घोषणाकीतारीख /Date of Pronouncement : 08/10/2025
आदे श / O R D E R
Manoj Kumar Aggarwal (Accountant Member)
1.1 Aforesaid appeal by revenue for Assessment Year (AY) 2018-19
arises out of an order of learned Commissioner of Income Tax (Appeals)-
3, Gurgaon [CIT(A)] dated 26-09-2022 in the matter of an assessment
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framed by Ld. Assessing Officer [AO] u/s. 153A of the Act on 23-06-2021
making certain additions in the hands of the assessee. The grounds of
appeal read as under: -
(i) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A)
is right in giving the benefits of various expenses to the assessee without any corroborative
evidences while estimating the NP rate?
(ii) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A)
is right in restricting NP rate from 25% to 18% by considering an expense categorized as
"Discount' to the tune of Rs.153,35,21,146/- extracted from the Pen Drive seized during the
course of search action without verifying its allowability and examining the genuineness of
nature and scope of such discounts?
(iii) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A)
is right in allowing the expenses by referring two seized documents containing a completely
different value of same expense categorized under the head "Discount" without bringing
any corroborative evidences on records and without justifying the nature and scope of these
discounts?
(iv) Whether on the facts and in the circumstances of the case and in law the Ld.
CIT(A) is right in not appreciating the facts that the creditworthiness of the persons from
whom unsecured loan of Rs.16,00,000/- received was not proved as their accounts have
been credit by some other parties prior to advancing such loan to the assessee?
(v) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A)
is right in allowing the appeal of the assessee on the issue of unsecured loan holding that
creditworthiness of the person advancing such loan is proved by overlooking the facts that
return of loss was furnished by such person during the year?
(vi) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A)
is right in allowing the appeal of the assessee on the issue of restricting agriculture income
by not appreciating the facts that the assessee did not furnish complete documents in
support of agriculture income declared in ITR?
1.2 The assessee has filed cross-objection which has subsequently
been modified. The final grounds taken by the assessee read as under:
1. That the Learned CIT(A) has erred in law and on facts in assessing undisclosed business
profit at 18% of business turnover of Rs.21,82,60,541/- as against profit declared by
assessee in revised ITR and thereby confirming additions to extent of Rs.86,27,520/-.
2. That the learned CIT(A) has erred in confirming the additions of Rs.86,27,520/- on account
of undisclosed business profit on basis of estimates and suspicious drawn on material found
during search.
3. That the learned CIT(A) has erred in law and on facts in confirming additions u/s 68 of
Rs.10 lakhs on account of unsecured loans.
4. That the assessment order u/s 153A r.w.s. 143(3) dated 23.06.2021 is null, void ab initio
and without jurisdiction in so far as it has been passed pursuant to a mechanical and non-
speaking approval granted by Ld. Additional CIT u/s 153-D of the Act.
5. That the approval u/s 153D granted by the Ld. Additional CIT is null, void ab initio and
without jurisdiction as the same is in violation of CBDT Circular No 189/2019 requiring DIN
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therefore order of assessment dated 23.06.2021 u/s 153A of the Act read with section 143(3)
of the Act read with Section 143(3) of the Act deserve to be quashed as such.
6. That the authorities below have erred in making/confirming additions without providing
adequate opportunity of being heard to the assessee and without adhering to the principles
of natural justice.
7. The assessee craves leave to add, amend, alter, substitute or revise any of the
above-mentioned grounds before the disposal of appeal.
1.3 As is evident, the issues in revenue's appeals are- (i) Estimation of
Net profit Rate; (ii) Deletion of addition of Unsecured loans for Rs.16 Lacs;
(iii) Deletion of addition of Agricultural income. The issues in assessee's
cross-objections are - (i) Estimation of Net profit Rate; (ii) Addition of
Unsecured loans for Rs.10 Lacs; (iii) Mechanical approval u/s 153D. The
Ld. AR has not pressed for remaining grounds in the appeal and
accordingly, these ground stands dismissed as not pressed.
1.4 The Ld. CIT-DR advanced arguments and supported the
assessment order of Ld. AO. The Ld. AR, on the other hand, controverted
the arguments of Ld. CIT-DR and pleaded for acceptance of additional
income as offered by the assessee in its revised return of income. The Ld.
AR also advanced arguments on legal grounds. The written submissions
have been filed along with paper-book and case laws which have duly
been considered while adjudicating the issues. Having heard rival
submissions and upon perusal of case records, our adjudication would be
as under.
Assessment Proceedings
2.1 The impugned assessment has been framed pursuant to search
action by the department on assessee-group u/s 132 on 05-04-2018.
During search, certain incriminating documents were found which form
the very basis of impugned additions in the hands of the assessee. The
assessee being resident individual is stated to be belonging to M/s Majha
Group of cases. The regular return of income for this year was filed by
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the assessee on 31-03-2019 declaring income of Rs.48.60 Lacs and the
same return was offered in response to notice issued by Ld. AO u/s 153A
on 21-02-2020. During the course of assessment proceedings, notices
were issued u/s 142(1) from time to time calling for various details /
documents / explanations from the assessee which were duly been
responded to by the assessee. Based on the same, impugned
assessment was framed against the assessee.
2.2 The assessee and its group entities are stated to be engaged in
mining business under license from Director of Mining, Haryana. In the
audited financial statements, the assessee reflected gross profit rate of
25.16% and net profit rate of 5.85% on turnover of Rs.4.81 Crores.
However, the dispute arose on account of unaccounted sales since
during search, two pen-drives were found from Corporate Office bearing
No.1060, Sector-17, HUDA, Jagadhari, Yamuna Nagar. Upon analysis of
the same, it was found that the same contained consolidated financials /
books of accounts in the name of paper / dummy concerns under the
name and style of M/s GM & Co. and M/s Jay Krishna & Co. The data
contained consolidated financial data of all the group entities. The same
allegedly contained details of sales which were not fully recorded in the
regular books of accounts of the nine mining concerns related to Majha
Group including the assessee. The pen-drives (seized as Annexure A-1)
contained financial documents in the name of M/s GM & Co. (for FYs
2016-17 and 2017-18) whereas the other pen-drive contained financial
statements & documents in the name of M/s Jay Krishna & Co. (for the
period from 01-04-2018 to 03-04-2018 i.e., pertaining to three days of FY
2018-19). These have already been extracted by Ld. AO in the
assessment order on sample basis. The cash-in-hand as found in the
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pen-drive matched with the seized day book and accordingly, this data
was used to make additions in the hands of the assessee-group.
2.3 The above data was confronted to Shri Naresh Chand (Accountant
of Majha Group) from whose custody the documents were found and
seized. It transpired that these two entities viz. M/s GM & Co. and M/s
Jay Krishna & Co. where paper / dummy concerns. The data found
contained aggregate of sales made and expenses incurred by various
concerns of the group which were engaged in mining activities. The
sworn statement was also recorded from Shri Nirmal Roy who was
working as Manager in the accounts department of Majha Group. He was
controlling and managing the accounted as well as alleged unaccounted
sales generated through mining activities of various concerns of the
group. His statement corroborated the statement of Shri Naresh Chand
with regard to extracted financial of M/s GM & Co. and M/s Jay Krishna &
Co. During post search proceedings, summons was issued to Shri
Rajinder Singh (principal person of the group) requiring him to furnish the
nature, ledger account and mode of expenses incurred and debited in the
receipt and expenditure account of M/s GM & Co. Though the assessee
claimed to have allowed discount to its customers on sales and denied
making unaccounted sales but the same largely remained
unsubstantiated. The position remained the same for rehabilitation
charges stated to be recovered in cash from the customers. Finally, Ld.
AO quantified quantum of alleged unaccounted sales for the group as a
whole and the assessee was show-caused during assessment
proceedings.
2.4 The assessee furnished various replies in response to notices
issued by Ld. AO u/s 142(1). In reply dated 22-04-2021, the assessee
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stated that there was a substantial loss in the mining business as per
data found maintained in the name of M/s GM & Co. However, to put a
quietus to the issue, the assessee-group filed revised return of income on
08-06-2021 by disclosing profit rate in the range of 14% to 15% in
various entities as tabulated below: -
(Figure in Rs.)
No. Name of the Gross sales as Net sales as Business Business % NP as per
entity (M/s) per seized per books of profit as profit as per revised
document account per revised return
original return
return
1 JSM Food Pvt Ltd 14,93,68,071 10,29,42,179 -23,32,926 2,00,72,285 13.44
2 Mubarikpur 63,38,32,815 21,56,14,964 1,01,78,269 9,50,60,051 15.00
Royalty Co
3 Delhi Royalty Co 20,40,.94,625 6,89,73,800 48,98,075 3,04,92,528 14.94
4 Karaj Singh 21,82,60,541 4,81,47,611 48,78,075 3,04,92,528 14.05
5 Northern Royalty 36,78,14,720 10,91,07,210 1,20,33,815 5,49,79,869 14.95
Co.
6 Yamuna Inf. Pvt. 16,0029,000 7,78,70,000 Not Not available Not available
Ltd. available
7 Development 15,96,31,779 4,74,16,917 20,89,777 2,39,44,764 15.00
Strategic Pvt. Ltd.
8 Routes & Journeys 20,35,68,151 5,94,79,423 38,92,313 3,05,35,226 15.00
9 Paramjeet Singh 21,12,96,850 4,48,19,500 38,72,070 2,98,14,718 14.11
Total 2,30,78,95,752 77,43,75,607 3,74,11,777 31,55,58,816
It could be seen that the gross sales of the group, for this year, were
determined as Rs.230.78 Crores and all the entities filed revised return of
income by offering additional income. The assessee offered profit of
14.05% on its respective turnover of Rs.21.82 Crores. However, Ld. AO
disputed this profit rate and went on to make further additions in the
hands of the assessee by enhancing this profit rate.
2.5 In Para 11.1 of the order, Ld. AO noted that the assessee furnished
its books of accounts which were examined on test check basis. The
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perusal of the same revealed that the assessee did not maintain
complete bills and vouchers for receipts and expenses as shown in the
books of accounts found maintained in the name of M/s GM & Co. The
substantial expenses were shown in cash which were not fully vouched
and not verifiable. The violation of Sec. 40A(3) and 40(a)(ia) were also
noted. Accordingly, the trading results as shown by the assessee were
rejected u/s 145(3) and Ld. AO proceeded to estimate the income of the
assessee on sales attributable to him.
2.6 The assessee, while estimating profit rate of 14.05%, considered
two comparable entities having mean profit rate of 13.40%. As against
this, Ld. AO considered three comparable entities having mean profit rate
of 23.21% which has been tabulated on Page-59 of the assessment
order. Considering the fact that various discrepancies were noted in
audited books of account as well as in the books of accounts found
maintained in the name of M/s GM & Co. and large expenses were
incurred in cash which were not verifiable / not completely vouched, Ld.
AO rejected assessee's offer of revised profit rate and eventually applied
net profit rate of 25% on the gross receipts which resulted into an
addition of Rs.218.26 Lacs in the hands of the assessee.
2.7 The Ld. AO also made another addition of Rs.26 Lacs for
unsecured loans as taken by the assessee from 3 parties which are
tabulated at Page 64 of the paper-book. The assessee furnished
confirmation from Shree Guru Nanak Stone Crusher from whom loan of
Rs.1 Lacs was taken. However, the assessee did not furnish its Income
Tax Return (ITR) and financial statements. For loan taken from Smt.
Mandeep Kaur for Rs.5 Lacs, the assessee furnished confirmation of
lender, copy of ITR and its bank account. Similar documents were
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furnished for loan of Rs.20 Lacs as taken from Shri Rajbeer Singh.
However, since substantial credits were noted in the accounts of both the
lenders prior to grant of loan to the assessee, Ld. AO rejected the
explanation of the assessee and made addition of Rs.26 Lacs u/s 68
r.w.s. 115BBE of the Act.
2.8 The assessee reflected agricultural income of Rs.19.85 Lacs
against ownership of 22.76 acres of agricultural land. The same was
doubted by Ld. AO for want of complete documentary evidences. The
assessee had furnished copies of "J" Form as issued by the commission
agent which contained details of agricultural produce as sold by the
assessee. The assessee also furnished copies of Khasra and Khatauni
of the agricultural land on sample basis. However, Ld. AO estimated
income of Rs.50,000/- per acre and accepted agricultural income to the
extent of Rs.11.38 Lacs whereas the remaining income of Rs.9.47 Lacs
was considered as 'income from other sources'.
2.9 Finally, the assessment was framed determining total income of
Rs.580.12 Lacs and accepting agricultural income of Rs.11.38 Lacs.
Appellate Proceedings
3.1 The assessee assailed assessment proceedings on the ground that
the approval as required u/s 153D by approving authority i.e., Addl. CIT
was a mechanical approval. The assessee also challenged quantum
additions on merits. The Ld. CIT(A) analyzed the factual matrix and
rendered its findings from para-4 onwards of the impugned order.
3.2 The Ld. CIT(A) held that the entities of the assessee-group had
suppressed gross sales in their books of accounts. Upon perusal of
seized documents, it could be observed that these entities incurred
various expenses which were not accounted for in the regular books of
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accounts. The substantial transactions were undertaken outside the
books of accounts. The regular books were found to be incorrect and
incomplete and such books did not represent true state of affairs of
business activities being undertaken by such entities. The books were
manipulated substantially and therefore, rightly rejected u/s 145(3).
3.3 While estimating additional income, the assessee adopted two
comparable entities viz. LSC Infratech Ltd. and ASI Industries Ltd. having
mean profit of 13.40%. However, M/s LSC Infratech did not carry out any
crushing activity and therefore, it was not a comparable entity. Similarly,
M/s ASI Industries Ltd. was engaged in mining of Kota stones by using
diamond cutting tool for cutting and shaping natural stones and therefore,
it could also not be held to be a comparable entity. The Ld. AO had
adopted three comparable entities having mean profit rate of 23.21%.
These were M/s Pokarana Ltd., M/s Gujarat Mineral Development Corp.
Ltd and M/s Fortune Stone Ltd. However, M/s Pokarana Ltd. was dealing
in different products line and moreover, it had 60% export turnover and
therefore, not comparable entity. M/s Gujarat Mineral Development Corp.
was owned by State Govt. and its maximum revenue was from mining
and sales of lignite and therefore, not a comparable entity. Similarly, M/s
Fortune Stone Ltd. was stated to be engaged in different product line. In
other words, all the three comparable entities of Ld. AO were also not
comparable on operational and financial basis. Therefore, their financials
could also not be held to be a reliable basis to estimate the profit of the
assessee-group from mining activities.
3.4 The Ld. CIT(A) further observed that neither the assessee nor Ld.
AO could substantiate their respective NP rates. The most reliable basis
to compute the profits would be seized documents which represent
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actual state of affairs of business activities as undertaken during the
year. The Ld. AO relied on seized document to arrive at sales of
Rs.230.78 Crores for the group and therefore, on the same reasoning,
remaining transaction in respect of expenses as recorded in the same
seized document was to be considered in totality to compute business
profits. The same was supported by provisions of Sec.132(4A) r.w.s.
292C raising presumption of truthfulness of seized documents.
Therefore, the reasonable basis to estimate the business profit would be
on the basis of transactions found recorded in the seized document.
3.5 As per seized document, the entities made total sales of Rs.230.78
Crores. The mining entities allowed discount of Rs.153.35 Crores and
recovered rehabilitation charges of Rs.76.60 Crores. There was
reference of discount and compensation paid to farmers as well as
various others expenses such as diesel, Diwali, land compensation,
machine rent etc. in the seized document which has been extracted in
the impugned order on Pages 101 to 104. The Ld. CIT(A), at para 6.8 of
the impugned order, by considering various components of expenditure,
tabulated the profits as per seized document and arrived at business
profit of Rs.39.61 Crores on total gross receipts including rehabilitation
charges recovered. The annual contract money as payable by nine
entities for Rs.70.69 Crores was allowed as expenditure while computing
the same. The profit was also adjusted for capital expenditure etc. and
finally profit of Rs.42.51 Crores was computed on turnover of Rs.230.78
Crores which translated into profit rate of 17.16%. The same was further
adjusted to arrive at profit rate of 18% which was directed to be applied.
The same reduced the impugned addition to the extent of Rs.86.27 Lacs.
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The same has led to revenue's appeal as well as assessee's cross-
objection before us.
3.6 On the issue of agricultural income, the approach of Ld. AO was
held to be adhoc and mechanical in nature and therefore, the
disallowance of agricultural income of Rs.9.47 Lacs was deleted.
3.7 On the issue of unsecured loans additions u/s 68, the assessee
stated that it had duly discharged its primary onus of explaining the
nature and source of unsecured loans as received from the lenders by
furnishing PAN details, Copy of ITRs, financial statements, bank
statement and confirmation from the lenders. The Ld. CIT(A) tabulated
the documents furnished by the assessee in para 11.3 of the impugned
order. The assessee had furnished satisfactory document with respect to
M/s Guru Nanak Stone Crusher and therefore, the addition of Rs.1 Lacs
was deleted. With respect to loan of Rs.5 Lacs from Smt. Mandeep Kaur,
the explanation was rejected on the ground that there was immediate
cash deposit before advancing such amount to the assessee. Similarly,
there was cash deposit of Rs.5 Lacs in the account of Shri Rajbeer Singh
before advancing the same to the assessee. Therefore, out of Rs.20
Lacs, addition of Rs.5 Lacs was confirmed whereas the addition of Rs.15
Lacs was confirmed. In other words, addition was confirmed to the extent
of Rs.10 Lacs out of total addition of Rs.26 Lacs as made by Ld. AO.
Aggrieved, the revenue as well as the assessee is in further appeal
before us.
3.8 On the issue of approval u/s 153D, Ld. CIT(A) noted that Ld. AO
sent the draft assessment order along with assessment record to Addl.
CIT on 18-06-2021 and Ld. Addl. CIT recorded his approval on 19-06-
2021. Thus, prior approval as required u/s 153D was obtained by Ld. AO.
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The Ld. AO proposed to make addition of business income from mining
activities in the draft assessment order and forwarded the assessment
record with the same. The Addl. CIT considered the issue involved in the
draft assessment order in the light of relevant material on record and
made perusal of assessment record. The allegation that approval was a
mechanical approval was without any basis. In Central charges, all
search and seizure assessments are regularly supervised and monitored
by the range heads. One copy of appraisal report prepared by the
investigation wing after conducting post search enquiries along with
copies of the core seized documents is forwarded to Addl. CIT by the
investigation wing. Thus, Addl. CIT was in possession of the relevant
seized documents along with the copy of appraisal report right from
beginning of the assessment proceedings in the case. The AO and the
range heard both followed the instruction / guidelines of the Board for
completion of search and seizure assessments and the assessment
order was finalized by Ld. AO after obtaining prior approval u/s 153D
from range head. Both the officers were located at same station and
Addl. CIT was actively involved in assessment of all such cases from the
beginning and at all stages of search and seizure assessment. The AO
would discuss and seek his guidance periodically. Thus, the approval
was accorded after due examination of relevant record and with due
application of mind by range head. Further, the approval was in the
nature of administrative power. The Range head do not examine or
adjudicate upon rights and obligations of the assessee but only consider
whether AO has fulfilled the requirement of Sec.153A or not. Reference
was made to the decision of Hon'ble Karnataka High Court in the case of
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Rishabchand Bhansali (267 ITR 577) to support the conclusion. Finally,
this legal ground as urged by the assessee was rejected.
3.9 In yet another legal ground, the assessee pleaded that in the
absence of incriminating material no such addition could have been
made. The same was rejected on the ground that that the addition was
made on the basis of incriminating document found and seized during the
course of search at centralized premises of the assessee. Moreover, the
search happened on 05-04-2018 and due date to file return of income for
this year had not expired. Therefore, this plea was also rejected. Finally,
the appeal was partly allowed. Aggrieved, the assessee as well as
revenue is in further appeal before us.
Our Findings and Adjudication
4. From the facts, it emerges that the assessee-group having nine
entities is engaged in mining activities. These nine entities are holding
separate mining licenses from state government and are preparing
separate books of accounts reporting separate profits. However,
consolidated financial data was being maintained for all these nine
entities. The assessee-group was subjected to search action on 05-04-
2018 wherein various loose papers as well as accounting data relating to
business of assessee as well as other mining entities in physical form
and pen-drive was found and seized from the corporate office at #1060,
Sector-17, HUDA, Jagadhari. Considering the same, the assessee-group
filed return of income declaring business income. The present assessee
declared income of Rs.48.60 Lacs including business income of Rs.28.16
Lacs. However, during the course of assessment proceedings, the
assessee agreed to offer additional income and filed revised return of
income despite its claim that such additional income was never actually
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realized by them. The Ld. AO enhanced the declaration so made by the
assessee to 25%, inter-alia, by considering three comparable entities.
However, Ld. CIT(A) observed that the entities selected by Ld. AO were
not comparable entities and Ld. CIT(A) worked out NP rate of 17.16% by
making various adjustments to the profits on the basis of entries found
noted in the seized document. Finally, Ld. CIT(A) upheld application of
Net Profit Rate of 18% is impugned before us. The issue before us, thus,
is in a narrow compass and related with determination of estimated profit
rate earned by the assessee in the background of material seized during
search action. At the outset, we concur with the approach of Ld. CIT(A) in
rejecting comparable entities of the assessee as well as selected by Ld.
AO since the additions are to be based on seized material as found
during the search and the same could not be estimated by taking mean
profit rate of other entities as disclosed by them in their audited financial
statements. It is another fact that the comparable entities as selected by
the assessee as well as by Ld. AO are not even otherwise functionally
comparable with the functions of the assessee and therefore, the
approach of Ld. CIT(A), to that extent, could not be faulted with.
5. The undisputed fact that emerges is that though Ld. CIT(A) has
computed NP rate of 17.16% but, finally, it has applied NP rate of 18%.
This is in sharp contrast to the fact that for immediately preceding AY
2017-18, Ld. CIT(A) himself estimated substantially lower NP rate of the
assessee at 2.28% whereas there is no change in assessee's business
model. The approach of Ld. CIT(A) is contradictory to the rule of
consistency and such vast variation in NP rates of two consecutive years,
under identical business conditions, could not be sustained in law. The
assessee initially reflected NP rate of 5.85% which has later been
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substantially enhanced to 14.05% despite the fact that the assessee is
having much lower profit as per seized document.
6. It has been stated by Ld. AR that to estimate the NP rates, Ld.
CIT(A) has made computations from combined seized material which
include Profit & Loss Account as found in the pen-drive in the name of
M/s GM & Co. and mining details as noted in the loose papers. However,
there is no entity-wise bifurcation of financial data separately for each of
the nine entities. The prime grievance of the assessee is that even by
considering the seized material as found during the search, the profit rate
would only be 1.47% and not 17.16% as computed by Ld. CIT(A). As
against this, the assessee has already declared substantially higher profit
rate of more than 14% to put a quietus to the issue. As per Ld. AR, the
Ld. CIT(A) erred in not allowing actual expenses such as Mining fees
paid to Government, VAT paid, new mining point setup expenses as
noted in the seized material as well as Labour welfare expenses,
environment protection expenses etc. as recorded in regular audited
books of accounts. The Ld. AR further contended that when the income
is estimated, no such adjustment is to be made for probable
disallowances u/s 40A(3) / 40(a)(ia) in terms of decision of Jurisdictional
High Court in the case of Smt. Santosh Jain (296 ITR 324) & Aggarwal
Engg. Co. (302 ITR 246). Another argument is that there is no
unaccounted profit earned on unaccounted sales. The combined regular
sales of mining entities were Rs.77.43 Crores which substantially
matches with the seized material after making allowance of discount as
offered by the assessee group to its customers. On these facts, Ld. AR
asserted that the additional profit already offered by the assessee is
much in excess of profit emerging from seized materials found during
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search and impugned addition as sustained in the impugned order
deserve to be deleted. On the issue of allowance of discount expenses of
Rs.153.55 Crores while estimating business profit at 18%, Ld. AR stated
that when Ld. AO assessed profit at 25%, he himself allowed the
discount while estimating the profit and thus, the same could not be
disputed by revenue. If discount is excluded from the computations, the
same would yield unrealistic profit rate of 84% which is not, at all,
possible in this line of business.
7. The Ld. AR reiterated legal ground of mechanical approval u/s
153D on the ground that the assessee had submitted voluminous replies
during the course of assessment proceedings. The Ld. AO forwarded
draft assessment order and complete assessment record to Ld. Addl. CIT
on 18-06-2021 seeking approval u/s 153D. This approval was granted on
the very next day i.e., on 19-06-2021 in a non-speaking manner and
without spelling out any reasons or comments on the findings in the draft
order or the seized material or findings of investigation wing in appraisal
report. Moreover, on the same day, Ld. Addl. CIT approved draft
assessment order in more than 20 other cases of the same group
wherein different issues, voluminous submissions and abundant seized
material was involved. This would show that Ld. Addl. CIT granted
approval u/s 153D in a non-speaking and mechanical manner without
due application of mind on the seized material and without considering
the submissions of assessee. Such an approval is bad-in-law and would
render assessment null and void. Reference has been made to the
decision of Chandigarh Tribunal in the case of SP Singla Constructions
Pvt. Ltd (ITA No.140-145/Chd/2024 dated 17-01-2025) wherein, on
similar facts, the assessment was quashed and additions were set aside.
17
Similar reliance has been placed on the decision of Delhi Tribunal in the
case of Sushen Mohan Gupta (ITA 2999/Del/2024 dated 20-05-2025)
quashing assessment on similar grounds.
8. The Ld. AR has tabulated the comparative figures as per Income
Tax Returns, seized material as per orders of lower authorities as under:-
COMPARATIVE FIGURES ASS PER ITR, SEIZED MATERIALS, AO ORDER AND CIT(a) FOR AY 2018-19
IN CASE OF ALL 9 MINING ENTITIES
No ENTITY Gross Mining Net sales Mining sales Profit as Profit Profit
sales (after as per per P&L offered for determined
considered by discount) audited P&L A/C (Refer tax by by AO (25%
CIT(A) and as per A/C ( Refer Audited assessee of Gross
A.O. on basis seized Audited P&L P&L at before Mining Sales
of Seized material at Pages 65 Pages 65 A.O.
material (PG 95 (PG 46 of to 77) to 77) (Refer PG
of CIT(A) PBK 2) 95 of
Order. CIT(A)
order)
1 Northern 367,814,720 109,107,210 109,107,210 12,226,154 54,979,869 91,853,680
Royalty Co
2 Delhi Royalty 204,094,825 68,973,800 68,973,800 5,019,766 30,492,528 51,023,706
Co
3 Routes & 203,568,151 59,479,423 59,479,423 3,892,313 30,535,226 50,892,038
Journeys
4 Development 159,631,779 47,416,917 47,416,917 1575,242 23,944,764 39,907,945
Strategies Ind
Pvt Ltd
5 Mubarikpur 633,832,815 215,614,964 219,614,964 10,193,139 95,060,051 158,458,204
Royalty Co
6 JSM Foods 149,368,071 102,942,179 102,942,179 1941,516 20,072,285 37,342,019
Private
Limited
7 Karaj Singh 218,260,541 48,147.611 48,147,611 2,816,286 ,3,0659,37 54,565,135
5
8 Paramjeet 211,296,850 44,819,500 44,819,500 2,628,173 29,814,718 52,824,213
Singh
9 Yamuna Infra 160,029,000 77,870,000 77,870,000 40,007,250
developers
Pvt Ltd
Total 2,307,896,752 774,371,604 774,371,604 36,409,558 31,409,598 57,69,74,188
The Ld. AR thus submitted that net mining sales (after discount as per
seized material) was Rs.77.43 Crores which matches with the regular
mining sales as disclosed by the nine mining entities. The Ld. AR also
18
stated that Ld. CIT(A) did not allow full mining installment of Rs.98.74
Crores as recorded in the books of accounts of nine mining entities. Out
of Rs.98.74 Crores, Ld. CIT(A) did not allow installment to the extent of
Rs.28.04 Crores as tabulated below: -
COMPARATIVE FIGURES OF MINING INSTALLMENTS AS PER P&L OF MINING ENTITIES & ALLOWED
BY CIT(A) AY 2018-19
ENTITY Mining Installment debited to Mining installment Expense not allowed
P & L A/C for A Y 18-19 (PG allowed by CIT(A) by CIT(A)
65-66)
Northern Royalty Co 10,49,90,403 70,69,50,500 28,04,68,722
Delhi Royalty Co 9,50,95,233
Routes & Journeys 7,771,40,055
Development Strategies Ind 5,19,12,518
Pvt Ltd
Mubarikpur Royalty Co 25,31,78,898
Ganga Yamuna Mining 1,36,02,771
Company
JSM Foods Private Limited 11,81,14,281
Karaj Singh 6,14,19,016
Paramjeet Singh 4,83,19,852
Yamuna Infra developers Pvt 16,36,45,695
Ltd
Total 98,74,18,722 70,69,50,000 28,04,68,722
9. In yet another tabulation, Ld. AO reconciled the consolidated Profit
as per seized material (as per assessee) with profit calculated by CIT(A)
for mining entities as under: -
PARTICULARS AMOUNT Remarks
PROFIT DETERMINED BY CIT(A) 39,61,88,233 As per page 105-106 of CITA Order
ORDER
LESS: EXPENSES RECORDED AS PER SEIZED PAPER AT PG 46 OF PBK-2 BUT NOT ALLOWED BY CIT(A) VAT (NET OF CREDITS) (2,31,20,138) As per seized material refer page 46 of PBK-2, VAT expense of Rs 4.94cr was recorded in debit side while VAT & GST Recovered of Rs. 2.63cr was recorded on credit side. CIT(A) has ignored both the items while computing profit while VAT being actual business expense deserved to be allowed.
19NEW POINT EXPENSES (1,54,45,530) As per seized material at ps46, new point expenses of Rs. 1,04,00,000/- New point investment and Rs. 50,45,300/- New point Jaidhari was recorded as expense. CIT(A) has wrongly considered these expenses as Capital expense on pg 108 of his order whereas these related to expenditure on setting up new mining point and thus was a revenue expenditure and not a capital expenditure LESS: EXPENSES RECORDED IN ACTUAL BOOKS OF ACCOUNTS OF MINING ENTITIES BUT ONLY ALLOWED PARTIALLY BY CIT(A) MINING INSTALLMENT (28,04,68,722) As per audited books of the 9 entities, total mining installments expense stood at Rs. 98,74,18,222/- (refer summary above). However, CIT(A) has only allowed expense of Rs.70,69,50,000/-on pg 105 of order. The amount as per books was in line with amounts payable as per mining contracts and-had accrued during the current year and was thus allowable in full.
LESS: EXPENSES RECORDED IN ACTUAL BOOKS OF ACCOUNT OF MINING ENTITIES BUT NOT ALLOWED ENTIRELY BY CIT(A) CSR EXPENSES (15,235,000) On page 106, CITA has only allowed depreciation, interest and audit fees as per actual books of accounts. On page 108, CITA observed that CSR expenses and Environment protection expense are not allowable separately as they were part of misc expenses of Rs 6.28cr already allowed as per seized books. However, there is no basis to such assumption when other expenses as per actual books have already been allowed. CSR expense and Environmental protection expense and Labour welfare expense were actually paid by assessee as per books and thus allowable while estimating profits. The figures are as per audited P&L of 9 entities at pg 65-77.
ENIVRONMENTAL PROTECTION (22,402,500) EXP LABOUR WELFARE EXP (5,613,000) PROFIT AS PER ASSESSEE 3,39,03,343 PROFIT % 1.47% (AGAINST SALES OF RS 230,78,96,752/- CONSIDERED BY CIT(A)) 7 20
In above tabulation, Ld. AR demonstrated that by considering the expenses as recorded in the seized material and expenses as debited in the regular books of accounts, the profit rate as earned by all the mining entities would only be 1.47% whereas all these entities have already declared NP rates in the range of 14% to 15% which are substantially higher than this profit.
10. To further support his argument, Ld. AR also tabulated comparative chart of profit computed by CIT(A) for all mining entities and as computed by the assessee for this year as under: -
COMPARITIVE CHART OF PROFIT COMPUTED BY CIT(A) AND AS PER ASSESSEE FOR AY 2018-19 (CONSOLIDATED FOR ALL 9 MINING ENTITIES) PARTICULARS AS PER CIT(A) AS PER Remarks ASSESSEE Gross sales receipt as per seized 2,307,896,752 2,307,896,752 As per pg 46 of PBK documents Rehabilitation charges recovered 766,072,879 766,072,879 As per pg 46 of PBK Misc. Income 371,552 371,552 As per audited books of accounts of all 9 entities Total Gross Receipts 3,074,341,183 3,074,341,183 Less: (-) Discount 1,533,521,146 1,533,521,146 As per pg 46 of PBK Annual contract money (payable to 706,950,000 987,418,722 As per audited books of accounts of all 9 the Govt, of Haryana for mining entities rights) Salary account 64,590,764 64,590,764 As per pg 45 of PBK Wages 40,844,566 40,844,566 As per pg 45 of PBK Diesel 44,394,113 44,394,113 As per pg 45 of PBK Diwali expenses 4,370,100 4,370,100 As per pg 45 of PBK Land compensation 110,803,555 110,803,555 As per pg 45 of PBK less Rs 76 lakhs disallowed by CITA Land on rent 24,116,384 24,116,384 As per pg 45 of PBK Other expense 20,000,000 20,000,000 As per pg 45 of PBK Misc. expenses 62,870,938 62,870,938 As per pg 45 of PBK Bank charges 373,976 373,976 As per pg 45 of PBK Crossing contract expenses 840,500 840,500 As per pg 45 of PBK Generator expenses 1,632,000 1,632,000 As per pg 45 of PBK Machine rent 26,770,458 26,770,458 As per pg 45 of PBK Fees and taxes 11,162,300 11,162,300 Including HPSCB Draft and Wildlife forest A/c as per pg 45 of PBK Insurance account 650,590 650,593 As per pg 45 of PBK Legal expenses 5,733,000 5,733,000 As per pg 45 of PBK Printing stationary 1,429,972 1,429,972 As per pg 45 of PBK 21 Road repair 9,356,588 9,356,588 As per pg 45 of PBK Depreciation 3,586,000 3,586,000 As per books of account Interest on loan 3,756,000 3,756,000 As per books of account Audit fees 400,000 400,000 As per books of account VAT (net of recovery) - 23,120,138 As per pg 45 of PBK NEW POINT EXPENSE 15,445,530 As per pg 45 of PBK CSREXPENSES - 15,235,000 As per books of account of all 9 mining entities ENVIRONMENTAL 22,402,500 As per books of account of all 9 mining entities PROTECTION EXP LABOUR WELFARE EXP 5,613,000 As per books of account of ail 9 mining entities Total expenses 2,678,152,950 3,040,437,843 Net Business Profit 396,188,233 33,903,340 PROFIT % 17.16% 1.47% The Ld. AR thus demonstrated that going by the seized document and regular books, the profit earned by the ground is merely in the range of less than 1.5%.
11. After going through above tabulations, we find substance in the plea / working of Ld. AR. It could be seen that considering the expenses found recorded in the seized material as well as in the regular books of accounts (allowed partially by Ld. CIT(A) while arriving at profit rate of 17.16%), the aggregate net profit margin for the group as a whole is less than 1.5%. If the material is considered in toto, the NP rate for all the entities work out to be 1.47% which is substantially lower than the declared profit of 14% to 15% by the assessee group in the revised return of income. This being the case, the profit declared in the revised return of income is to be accepted and in our considered opinion, no further addition is warranted in the hands of the assessee. The profit rate declared by the assessee is substantially higher. Pertinently, profit rate of less than 3% has been accepted in immediately preceding year in assessee's case and such higher estimation of 18%, under identical business conditions, could not be sustained in law. In other orders, we 22 delete the impugned addition of Rs.86.27 Lacs as sustained in the impugned order and allow the corresponding grounds of assessee's cross-objection. The revenue's ground of appeal stands dismissed.
12. On the issue of agricultural income as discarded by Ld. AO, it could be seen that the estimation of Rs.50,000/- per acre is without any supporting document on record. It is undisputed fact that the assessee was having sufficient land holding to earn the agricultural income so disclosed by the assessee. The claim of the assessee stood substantiated by copies of "J" forms and copies of Khasra and Khatauni. Therefore, the approach of Ld. CIT(A) in discarding the estimation made by Ld. AO could not be faulted with. The grounds raised by the revenue stand dismissed.
13. On issue of unsecured loans as taken by the assessee from three parties, it could be seen that the assessee had furnished sufficient documents with respect to M/s Guru Nanak Stone Crusher as required in terms of Sec.68. With respect to loan as taken from Smt. Mandeep Kaur and Shri Rajbeer Singh, the assessee duly filed confirmation letters from the lenders along with their respective PAN details, copies of ITRs etc. The same has been disbelieved only because some immediate cash has been found to be deposited in their respective bank accounts. However, no verification has been done by Ld. AO from these two lenders. The assessee had filed confirmatory letters as well as income tax details of all the lenders and duly discharged the primary onus as required u/s 68. Therefore, the deletion of addition of Rs.16 Lacs by Ld. CIT(A) is upheld. The remaining addition of Rs.10 Lacs as sustained in the impugned order stand deleted. We order so. The corresponding grounds of revenue's 23 appeal stand dismissed. The corresponding ground in assessee's cross- objection stand allowed.
14. The assessee has raised issue of mechanical approval u/s 153D by Ld. Addl. CIT. This legal issue has been rendered infructuous since we have dismissed revenue's grounds on merits and allowed assessee's cross-objections on merits.
Conclusion
15. In the result, the revenue's appeal ITA No.726/Chandi/2022 stands dismissed. The assessee's cross-objection CO. 16/Chandi/2024 stand partly allowed.
Order pronounced on 08/10/2025
Sd/- Sd/-
(RAJPAL YADAV) (MANOJ KUMAR AGGARWAL)
VICE PRESIDENT ACCOUNTANT MEMBER
Dated: 08/10/2025
आदे श की ितिलिप अ ेिषत /Copy of the Order forwarded to :
1. अपीलाथ /Appellant
2. थ /Respondent
3. आयकरआयु /CIT
4. िवभागीय ितिनिध/DR
5. गाडफाईल/GF ASSISTANT REGISTRAR ITAT CHANDIGARH