Income Tax Appellate Tribunal - Chennai
Southern Agrifurane Industries Pvt. ... vs Acit, Central Circle-2(2), Chennai on 21 November, 2025
आयकर अपीलीय अिधकरण, 'सी' ायपीठ,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 आयकर अपीलसं./ITA Nos. 1817 to 1819/Chny/2025 िनधारण वष/Assessment Years: 2020-21 to 2022-23 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.1550 to 1552/Chny/2025 िनधारणवष/Assessment Years: 2020-21 to 2022-23 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 तार ख/Date of Hearing : 08.10.2025 घोषणाक तार ख /Date of Pronouncement : 21.11.2025 ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::2 ::
आदे श / O R D E R PER BENCH:
These appeals preferred by the assessee and the Revenue are against the order of the Learned Commissioner of Income Tax (Appeals)-
(Appeals) 19, (hereinafter hereinafter referred to as 'Ld.CIT(A)'), Chennai, all dated 04.04.2025 for the Assessment Years Year (hereinafter referred to as 'AY') 2020-21 2020 to 2022-23 23 u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act').
2. 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 made foreign liquor. For AYs 2020-21, 2020 2021-22 & 2022-23, 23, the assessee had filed return(s) of income u/s 139 of the Act declaring total income of Rs.53,36,75,280/-, Rs.53,36,75,280/ , Rs.47,04,60,043/-
Rs.47,04,60,043/ and Rs.34,98,31,681/- respectively. It is noted that, a search action was conducted ducted upon SNJ Group on 06-08-2019 06 2019 and 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, it was inferred that, they had facilitated inflation of expenses of the assessee by providing bogus invoices of purchase of old bottles.
During the pendency of the assessment proceedings which was initiated u/s 153C of the Act, a search search u/s 132 of the Act was conducted upon the ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::3 ::
assessee on 15-06-2022, 2022, in the course of which several materials viz., books of accounts, documents & electronic data, loose sheets, note books etc. was found and seized. According to the AO, the seized material mater inter alia contained details of suppression of income by the assessee by debiting bogus purchases from vendors of old liquor bottles and transportation & logistics services. Consequent to the search action, the income-tax tax assessments for AYs 2020-21 2020 to 2022-23 23 was selected for complete scrutiny by issue of notice(s) u/s 143(2) of the Act and the assessment(s) were completed u/s 143(3) assessing the total income for AYs 2020-21, 2021--22 & 2022-23 at Rs 95,03,99,772/ 95,03,99,772/-, Rs 108,50,73,297/-,, Rs 94,94,33,711/-
94,94,33,711/ respectively, after making the following addition(s)/disallowance(s).
(in Rs.)
Sl Particulars 2020-21 2021
2021-22 2022-23
No
1 Addition on a/c of old bottle purchases 41,11,59,615 56,41,82,236 58,23,45,992
2 Disallowance of data center expenses 55,64,877 61,36,677 1,29,61,697
3 Addition on a/c of unaccounted sale of NA 42,94,341 42,94,341
scrap
4 Addition on a/c of bogus CSR contribution NA 4,00,00,000 NA
3. It is noted that the reasoning given by the AO for making the aboveadditions/disallowances /disallowances were verbatim same across all AYs. Hence, forthe sake of convenience, and to avoid repetition of facts; we deem it fit ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::4 ::
to adjudicate each of the common issues across all AYs before us together.
4. As noted above, the first issue is common across all the AYs before us and therefore with the consent of both the parties, we take up and discuss the facts relating to AY 2020-21 as the lead case and our findings so rendered shall mutatis mutandis apply to all other AYs. Having perused the assessment order for AY 2020-21, 2020 it is noted that the Investigating authorities had seized a silver color pen drive from the residential premises of Shri S Varatharaj, Deputy Manager of the assessee company which contained an Excel File comprising of several several excel sheets titled 'ENA Schedule'. These excel sheets were printed and seized as Annexure ANN/ARS/SAFL/Loose Sheets/S-1, Sheets/S 1, Pages 1 to 66. It is noted that, this excel file comprised of five(5)sheets five( which comprised of data relating to purchase of old bottles ttles for three-month month period in the year 2020.
2020 The AO is noted to have tabulated sample data from this excel file at Para 4.1.4 of the assessment order. It is 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 wise column-wise column wise notings of several figures against five vendors. According to the AO, these excel files were actually a summary ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::5 ::
of the bogus invoices obtained by the assessee from these vendors and that the date-wise wise details were the notings of cash amounts due from them. It is observed that, this analogy of the Revenue 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 Augsutine Paulraj.. These employees had explained that, the column 'Others' in the 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 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, though these vendors vendors were actually supplying old bottles for which genuine invoices were being raised, but these same vendors were also providing bogus invoices to facilitate inflation of expenses of the assessee. This inference was drawn from the purchase ledgers, which according ording to the AO, contained entries both for genuine old bottle purchases and bogus old bottle purchases. In the Revenue's opinion, the actual old bottles purchased were accompanied by Goods Receipt Note (herein herein after 'GRN/GRNs') ' whereas the same was lacking lacki in bogus old bottle purchases. The AO accordingly deduced that, in case of bogus purchases, the bills were processed without GRN entry. The AO ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::6 ::
thereafter elaborately discussed the accounting processes followed by the assessee upon purchase of old bottles bottles with screenshots of SAP system, invoices in light of the statements obtained from the accounts & audit staff. The AO inferred 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. To support his theory, the AO is noted to have undertaken sample analysis of holograms label supplied by Excise Department which are required to be used on the final bottles dispatched for sale. According to AO, ideally the total number of hologram labels supplied by the Excise Department should match with the total number of bottles consumed in production. The AO however observed that, the purchases booked in the SAP software was much higher than the actual bottles utilized as per the hologram details and thus concluded that, the excess number of old bottle purchases as per SAP actually represented bogus purchases. Thereafter, the AO is noted to have extensively reproduced the statements of several employees of the assessee viz., Shri S Varatharaj, Shri Augsutine sutine Paulraj etc., recorded across 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 ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::7 ::
that, Shri Austine Paulraj had identified eight (8) regular suppliers who were inter alia providing oviding these bogus invoices to the assessee, apart from actual supply of old bottles and quantified the bogus transactions at Rs.390 crores for the past ten years. According to the employees, the vendors would return back the cash in lieu of the payments made against such bogus invoices after deducting deducting their commission and 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 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/survey action on these suppliers. 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 found to have summarized the evidences unearthed with respect to old bottle purchases at Para 8 of his order, which is extracted ex below:-
"During During the course of search, the following evidences have been unearthed with respect to bogus old bottle purchase invoices booked by M/s SAFL:
a) During the course of search at the residence of Shri.S.Varatharaj, DGM (Finance) M/s SAFL, it it was found that he was systematically maintaining month wise details of bogus expenses, booked in the guise of purchase of old bottles, in an excel workbook named "ENA Schedule"
in a silver colour pen drive (Neel Max 32 GB). He has explained the evidences found in an elaborate manner, the modus operandi of booking ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::8 ::
the bogus expenses and accepted that M/s SAFL booked bogus old bottle purchases against payments through banking channel and received back the amount corresponding to the bogus invoices in cash. The evidences found at his residence reveal Ans. Sir, As I stated earlier, I accept that we were generating unaccounted income through bogus invoices and by accommodation entries. M/s Southern Agrifurane industries Pvt. Ltd has hooked bogus Invoices for purchase urchase old liquor bottles from its suppliers viz. M/s Sree Ramachandra Bottle Stores, M/s Lotus Bottle Suppliers, M/s Niha International Private Limited, M/s GLR Holdings, M/s GLR Holding Private Limited, M/s Crystal Bottles, M/s Kovai Sri Ganapathy Traders Trade and M/s Sri Pachaivazhaiamman Traders for the FY 2012-13 20 13 to FY 2022-23.2022
The modus operandi is that the old bottle suppliers have raised bogus invoices to M/s Southern Agrifurane Pvt. Ltd for purchase of cleaned old bottles. In turn, M/s SAFL has initiated initiated RTGS payments against these bogus invoices. After receiving the RTGS, the bottle suppliers had withdrawn cash from bank accounts and handed over the cash, payments corresponding to bogus bills, to Shri. M. Raman after taking their commission. I accept that M/s Sree Ramachandra Bottle Stores, M/s Lotus Bottle Suppliers, M/s Niha International Private Limited, M/s GLR Holdings, M/s GLR Holding Private Limited, M/s Crystal Bottles, M/s Koval Sri Ganapathy Traders and M/s Sri Pochaivazhaiamman Traders have raised bogus invoices to the tune of Rs. 390,72,59,061/-
390,72,59,061/ to M/s SAFL for purchase of old bottles for the FY 2012-13 2012 13 to FY 2022-23.
2022 In this process, M/s SAFL had generated unaccounted cash income and the bottle suppliers have earned certain percentage of commission commission income in the years in which they have raised bogus invoices, I accept that I will offer this unaccounted cash income generated through bogus invoices, for taxation for F.Y. 2012-13 2012 to F.Y. 2022-23.
Further, M/s Anand Transport Pvt. Ltd. has booked book bogus accommodation expenses in the name entities introduced by Shri. Narendra Jain. The company has raised unaccounted income of Rs.
36.42 crore for the FY 2013-14 2013 to FY 2017-18.
18. Further, M/s SAFL has claimed bogus CSR expenses through accommodation entry en providing institutions for claiming bogus CSR expenses and this transaction was mediated by shri. Narendra Jain.
Hence, in order to avoid litigation and buy peace I hereby offer Rs.230,00,00,000/ as undisclosed income earned through above Rs.230,00,00,000/-
entities for various financial years and I will pay the taxes accordingly. However, as of now I could not derive year wise exact quantum of unaccounted income earned in each entity. I request you to provide ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::9 ::
two-week week time to arrive that M/s SAFL had paid 8% commission on basic value of invoice, le without GST and TDS/TCS, to the old bottle suppliers for raising bogus old purchase invoices.
b) Shri. Augustine Paulraj Vice President (Finance) M/s SAFL, vide his sworn statement, recorded at his residence, deposed that M/s SAFL had booked bogus/ excess invoicing to the tune of Rs.390,72,59,061/-
Rs.390,72,59,061/ from FY 2012-13 13 to FY 2022-23 2022 23 to meet certain hidden overhead expenses, which were not allowable all expenses under I.T. Act.
c) Shri.M.Mani, Accounts Officer at M/s.SAFL, testified that he processed old bottle purchase invoices without GRN in SAP software under the directions of Shri. Augustine Paulraj. He also clarified that, those genuine invoices received at the factory processed in SAP had the GRN details and purchase order number, whereas whereas the bogus invoices had no GRN details in remarks section of SAP.
d) Based on the clarifications provided by Shri.S.Varatharaj on the evidences found, vide his sworn statement recorded u/s 132(4) of the Act at the business premises of M/s SAFL, it is gathered that there were no purchase orders raised for bogus purchases and as per the direction of Shri. Augustine Paulraj, the bogus invoices were directly delivered to Shri. Augustine Paulraj. Shri. Augustine Paulraj in turn had sent the bogus invoices to Shri. S.Varatharaj and Shri. Mani, who had processed the bogus invoices manually in "A/P Invoice" module of SAP. Further, from his deposition it is seen that 'off-set 'off set account name' given for actual purchase was "allocation account" and 'off-set 'off account name' given for bogus purchase was "Stock-pack-Mtrl-Bottle"
"Stock Bottle" and for earlier years, it was "consumption-
"consumption bottles" and "cost of goods sold-FG". FG". During the course of search, the ledgers of 'off-set 'off set accounts' of bogus old bottle purchases were seized vide annexure:
anne ANN/TM/SAFL/LS/S-2 2 to 5-9.5
e) Shri.J.Ramesh, Chief Manager of Internal Audit in MGM Group, deposed in his sworn statement that two types of invoices had been processed by internal audit unit, one with supporting documents, such as purchase orders, supplier supplier bills, GRN from store, DC, Security gate pass and another type of bills were not having any of these supporting documents. Further, he stated that on the instruction of Shri. Augustine Paulraj, he had approved the invoices without any supporting su documents uments for payment.
f) The cashier of M/s SAFL, Shri.M.Raman, in his sworn statement accepted that he collected a sum of Rs.2 to 3 Crores (approx.) in cash every month from the old bottle suppliers and kept the cash in the safe lockers maintained with M/s Kothari Safe Deposits Ltd. Such cash was ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::10 ::
seized vide annexure: ANN/AK/MGM/Cash/Seizure. During the course of search, a set of loose sheets seized vide annexure:
ANN/AS/MGMC/LS/S 1, which were written by him and having the ANN/AS/MGMC/LS/S-1, details of cash collected from old bottle suppliers. This established that M/s SAFL received back cash from the old bottle suppliers.
g) From the statement of Shri. Augustine Paulraj, it was gathered that on his direction Shri.M.Mani raised bogus invoices in SAP and forwarded the same for authorization of Shri.S.Varatharaj and Shri.S.Varatharaj in turn had forwarded the invoices physically to him for approval. After approval, Shri. Augustine Paulraj had sent them back to Shri.S.Varatharaj, who forwarded the same to Shri. Ramesh for audit approval.
proval. After the approval of audit team, Shri.M.Mani from accounts office processed the payments towards the bogus invoices and the corresponding amount in cash was received by Shri. Raman from the suppliers and in order to track this payment, Shri. Varatharaj Varatharaj prepared a monthly report towards such bogus payment, which was seized at his residence. Further, from his statement it is also gathered that Shri. Augustine Paulraj handed over the monthly payments report to Shri.M.Raman for payment tracking which also also was seized along with hand written noting of Shri. M Raman with respect to the payments received from the supplier. It is pertinent to mention here that the 'modus operandi' of raising bogus old bottle purchase explained by Shri. Augustine Paulraj has been accepted by all the key people of M/s SAFL involved in raising and processing of bogus invoices, making payments and collecting the corresponding corresp cash from the suppliers.
h) Based on the findings and evidences gathered during the course of search, a sworn worn statement u/s 132(4) of I.T. Act, 1961 was recorded from Shri.Manuel Gnana Muthu Anand, MD, M/s SAFL, wherein he had categorically accepted that M/s SAFL had booked bogus old bottle purchases against payment through banking channel and received back the he amount corresponding to bogus bills, in cash. Further, after confirming the depositions made by Shri. S Varatharaj, Shri. Augustine Paulraj and Shri. M Raman, he testified that these people were responsible for booking this bogus expense, maintaining payment payment details and collecting cash from the old battle suppliers.
i) Shri.Gottam Rami Reddy, Proprietor of M/s. Sree Durga Devee Traders, deposed on oath that he raised bogus old bottle purchase invoices against cheque payment to M/s SAFL and returned back the amount corresponding to bogus invoices in cash. The same was accepted by Shri. Bandi Venkat Kumar, Deputy Manager (Accounts & Finance) M/S SAFL.
ITA Nos.1817
1817 to 1819/Chny/2025
1819 &
ITA Nos.1550
1550 to 1552 /Chny/2025
(AYs 2020-21
2020 to 2022-23)
M/s.Southern
Southern Agrifurane Industries Pvt.
Pvt Ltd.
::11 ::
j) The ex-group group president of MGM, Shri.P.S.Mahadevan testified that he was aware of the fact that M/s SAFL was generating unaccounted cash through excess billing to meet meet certain business compulsions.
k) During the course of search proceedings at the production plant of M/s SAFL, Shri. Y Victor Vasantha Kumar provided the hologram label consumption data, which is is exactly matching with production and dispatch details provided by Shri. Sanjeev Yash Roy. This shows that data given by these two people are the actual number of bottles consumed for production. But, on comparison of SAP data with the data provided by Shri.ri. Y.Victor Vasantha Kumar and Shri. Sanjeev Yash Roy, it is established beyond doubt that assessee company had booked huge amount of bogus expensed in the guise of old bottle bottle purchases.
l) Shri.M.Raman, in his sworn statement recorded on 10.08.2022, provided ided the name of the persons of old bottle suppliers who had handed over cash to him. This is exactly matching with the sworn statement provided by the key persons of old bottle suppliers. Further, Shri. Augustine Paulraj in his sworn statement recorded on 02.09.2022 testified that 6% commission on the base value of invoice was provided to old bottle supplier for raising bogus invoices and further testified after GST induction and due to continuous demand from the bottle suppliers, the commission was revised revised from 6% to 8% w.e.f 01.08.2017. Further, Shri. Manuel Gnana Muthu Anand, after reconfirming the statement of Shri.S.Vartharaj, Shri. Augustine Paulraj and Shri. M Raman and statements of various old bottle suppliers, had accepted that M/s SAFL booked bogus us purchases to the tune of Rs.390,72,59,061/-
Rs.390,72,59,061/ from FY 2012-1313 to FY 2022-23 2022 23 and offered the undisclosed income earned by MGM group to the tune of Rs.230 crores for FYs:2012-13 FYs:201 13 to 2022-23.
2022m) The comparative analysis of hologram consumption data maintained by Shri.Y.Victor Vasantha kumar, production and dispatch details provided by Shri. Sanjeev Yash Roy, old bottle utilization details maintained by Shri K.Parathasarathy at factory premises of M/s SAFL and actual books of accounts of M/s SAFL, it is established established beyond doubt that M/s SAFL had booked bogus old bottle purchase invoices overo and above actual purchases.
n) The evidence found during the course of search proceedings at the business premises of M/s Lotus Bottle Suppliers, established that M/s Lotus Bottle Suppliers had raised bogus old bottle purchase Invoices to M/s SAFL and returned back the amount corresponding to bogus invoices in cash after taking its commission. Further, the evidences established that the entity had booked bogus bought note cash cas purchases in random names and bogus purchase invoices from ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::12 ::
accommodation parties in order to compensate the bogus sales made to M/s SAFL. Shri. ND Venkatesan has accepted the above modus and the same was accepted on oath by Shri. R Palanivelu, Proprietor of M/s Lotus Bottle Suppliers. Further, Shri. R Palanivelu reconfirmed the statement given by Shri. Augustine Paulraj, Shri. M Raman and Shri. S Varatharaj and stated that his entity has raised bogus old bottle purchase invoices to the tune of Rs.123,44,01,832/-
Rs.123,44,0 to M/s SAFL during
the FYs: 2012-13
13 to 2022-23
2022 and offered the undisclosed
losed commission
income to tax.
o) The evidence found during the course of search proceedings at the business premises of M/s Niha International Pvt. Ltd., M/s GLR Holding Pvt. Ltd.
d. and M/s GLR Holding and the sworn statement recorded from Smt. Sornavalli, accountant, established that these entities had raised bogus old bottle purchase invoices to M/s SAFL against cheque or RTGS payments and returned the amount corresponding to bogus bogus invoices in cash, after taking their commission. Further, in order to compensate the bogus sale made to M/s SAFL, these entities had booked bogus bought note cash purchases in random cities name. Further, Shri. S Rajendran had accepted the deposition made made by Smt. Sornavalli and confirmed the statements of Shri. Augustine Paulraj, Shri. M Raman and Shri. S.Varatharaj. On comparison of cash book of Niha group seized during the course of search with "ENA Schedule" excel workbook maintained by Shri. S.Varatharaj, araj, it is found that the cash payment entries of the cash books are exactly matching with cash receipt entries in the excel workbook, which shows that the entities had returned back the amount corresponding to bogus invoices in cash to M/s SAFL. Further, from the production register maintained at cleaning facility of Niha Group, it is quantified that 74,03,824 number of old bottles were cleaned and sent to M/s SAFL for FY 2021-22, 2021 22, which is matching with details of old bottle the factory premises of SAFL utilised utilised for production, maintained by Shri K Parthasarathy Whereas the total number of old bottle purchases from Niha group, booked in M/s SAFL for the year was 6,83.39,600 which proves that. Niha group entities had raised bogus sale invoices. Further, Shri. i. S Rajendran accepted on oath that Niha group entities raised bogus old bottle Invoices the tune of Rs.69,78,04,742/-
Rs.69,78,04,742/ during the FYs:
2012-13 to 2022--23 and offered the undisclosed commission income for taxation.
p) From the statement of Shri. Murugan andand Shri. B Siva and evidence gathered during the course of search action at the business premises of M/s Sri Pachaivazhiamman Traders, it is established beyond doubt that the entity had raised bogus invoices to M/s SAFL. Further, the year wise amount of bogusus invoices raised by M/s Sri Pachaivazhiamman Traders provided by Shri. R Murugan is exactly matching with bogus invoice ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::13 ::
ledger, 'Stock-Pack Pack MtrI-Bottle', MtrI Bottle', extracted from the SAP software of M/s SAFL. The number of old bottles supplied by M/s Sri Pachaivazhiamman Pachaivaz Traders to M/s SAFL for FY 2019-20 2019 and 2020-21, 21, extracted from the excel sheets found in HP metal 16GB pen drive, is matching with details of old bottle utilised for production, maintained by Shri. K Parthasarathy at the factory premises of SAFL. Whereas Whereas the total number of old bottle purchases from M/s Sri Pachaivazhiamman Traders, booked in M/s SAFL for these financial years was much more than the above quantification. This proved that M/s Sri Pachaivazhiamman Traders had raised bogus old bottle purchase urchase invoices to M/s SAFL against RTGS/ cheque payments to the tune of Rs.26,29,58,828/-
Rs.26,29,58,828/ for the FYs:2019-20 FYs:2019 to 2022-23 23 and returned back this amount in cash(corresponding cash(corresponding to bogus invoices), after deducting its commission.
q) The evidence gathered at the business premises of M/s Crystal Bottles and M/s KSGT, it was established that these entities had raised bogus old bottle purchase invoices to M/s SAFL against cheques/RTGS payments and returned the amount corresponding to bogusbogu invoices in cash after deducting their commission. Further, the evidence established that these entities had booked bogus bought note cash purchases in random names in order to compensate bogus sales made to M/s SAFL. Further, the excel sheets found from Smt. K Kasturi's desktop established that these entities had raised bogus invoices in excess of actual bottles supplied to M/s SAFL and prepared bogus bought notes with predetermined combination of quantities and rate. Therefore, It is established that M/s M/s Crystal Battles and M/s KSGT raised bogus involcesto M/s SAFL for purchase of old bottles to the tune of Rs.13,70,60,915/ and Rs.12,89,04,614/- respectively for Rs.13,70,60,915/- f the FYs:
2012-13 to 2022--23.
r) During the course of search proceeding at the business premises premi of M/s.Sree Ramachandra Bottle Stores, Shri. Arun Kumar K and Shri. S Muralidharan deposed that on the instruction of the partners of the firm they had prepared bogus delivery challan and invoices for sale of old bottles to M/s SAFL Further, Shri. K Krishna Krishna Kumar, one of the partners of the firm, testified that in order to receive contract for supply of old bottles and sustained revenue and on the direction of Shri.S. Varatharaj, he engaged M/s SRBS In raising bogus old bottle purchase Invoices to M/s SAFL AFL and returned back the amount corresponding to bogus invoices in cash after deducting its commission. Further, after confirming the statement of Shri. S Varatharaj, Shri. Augustine Paulraj and Shri. M Raman, on oath he accepted that the firm had raised bogus old bottle invoices to M/s SAFL to the tune of Rs. 144,61,26,131 during the FYs:
2012-13 13 to 2022-23 2022 23 and offered the unaccounted commission income earned through accommodation entries for taxation.
ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::14 ::
8.1.2 In view of the above discussions and evidence gathered g during the course of search, it is categorically established that M/s SAFL had booked bogus old bottle purchase invoices in its regular books of accounts, through old bottle suppliers, against RTGS / cheque payments and received back the amount corresponding corresponding to bogus invoices in cash from the bottle suppliers after giving them 6% to 8% of commission..."
commission
5. In light of the above findings, the AO is 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 all the impugned year(s) before us. Aggrieved by the order(s) of the AO, the assessee preferred appeal before the Ld. CIT(A). It is seen that, the Ld. CIT(A) after considering the submissions put forth by the assessee assessee in light of the findings of the AO, had ultimately rejected the books 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.
6. We have heard both the parties, perused the findings of the lower authorities and considered the material placed before us.
us It is noted that, the assessee is engaged in the business of manufacture and sale of liquor.
The books of accounts in relation to this business are noted to have been maintained in the SAP accounting software. The facts as noted above reveals that, in the course of search, a pen drive was found from the possession of one employee which inter alia contained an excel file. This excel file comprised of five excel sheets which contained tabulation of ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::15 ::
purchases made from five different vendors pertaining to three-month three period of 2020. The Ld. AR showed us that, if these excel sheet(s) are read on stand-alone alone basis, which has also been extensively extensively extracted in the assessment order, it shall be observed that, no prudent person could have deduced that, the details of purchases noted therein represented entries of bogus purchases or receipt of unaccounted cash in lieu of bogus purchases by the assessee. Rather, he pointed out that, the entries consisted of date-wise wise and bill-wise bill wise details of the purchases along with the invoiced amount, GST, date of payment, cheque details etc., which in his opinion, cannot be alleged to be incriminating in nature.
nature. Having gone through the same, there is merit in the assessee's contention that, these excel sheets, if considered alone, cannot be said to suggest that the assessee had inflated their expenses by booking bogus purchases from these suppliers.
7. It is however noticed that, the case made out by the AO emanated from the statement(s) recorded from several employee(s) of the assessee, particularly Mr. Varatharaj (Dy. General Manager - Finance), Mr. Augustine Paulraj (Vice President), Mr. M. Raman (Cashier) and Mr. MGM Anand (Director) wherein they had inter alia admitted to have made bogus purchases from the regular old bottle suppliers of the assessee.
Further, Mr. Varatharaj from whose possession this excel file was found ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::16 ::
had averred that, the details of purchases purchases noted therein were summary of bogus purchases. Relying on these statements, the AO deduced that these vendors, apart from making genuine supplies to the assessee, were also raising bogus invoices at the behest of the assessee and that the payments made in lieu of such bogus invoices was being returned back by these vendors in cash. It is observed that, to identify the purported bogus invoices, the Revenue had analyzed the accounting entries being made by the assessee. The purchases made from these vendors were divided by the AO into two categories viz., (a) genuine supplies which were supported by GRN details in the software and (b) bogus supplies wherein only invoices were recorded without GRN because there was no actual movement of goods. In support support of this inference, the AO also undertook extensive analysis of hologram utilization across the years and relied upon the statement(s) obtained from the key persons of these vendors in the course of the search/survey action conducted upon them. The Ld. CIT, IT, DR thus wants us to consider all these material, statement(s) and analysis made out by the AO cumulatively, which according to her, proved that the old bottle purchases to the tune as quantified by the AO was indeed bogus.
8. After considering the gamut gamut of facts placed before us, it is noted that, the foundational basis of the impugned addition was the excel file ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::17 ::
comprising of fivesheets heets which contained details of old bottle purchases only for a three-month month period in the year 2020. The Ld. AR pointed out that, when the Investigating authorities required Shri Varatharaj to explain the contents of this excel file, he had averred that the details of invoices tabulated in this excel file comprised of bogus purchases. It was brought to our ur notice that, the quantum of purchases noted in this excel file was minimal compared to the aggregate purchases made by the assessee. The Ld. AR accordingly claimed that, the AO's action of proceeding on an assumption that the assessee was making similar bogus purchases across all months in all the years and, thereby extrapolating the figures found noted for the three-month month period in the year 2020 and estimating the bogus purchases across all the years, was unjustified. He contended that, the entire exercise exercise conducted by the AO was predicated on surmises and estimations. As noted by us above, these excel files by themselves did not suggest that the invoices raised by the regular old bottle suppliers were bogus or that the assessee received back cash from them. Hence, in the facts and circumstance of this case, there is merit in the assessee's submission that the AO's action of extrapolating these notings to allege bogus purchases across all the impugned AYs was on a weak footing.
ITA Nos.1817
1817 to 1819/Chny/2025
1819 &
ITA Nos.1550
1550 to 1552 /Chny/2025
(AYs 2020-21
2020 to 2022-23)
M/s.Southern
Southern Agrifurane Industries Pvt.
Pvt Ltd.
::18 ::
9. It is also not in dispute dispute that, the vendors in question were indeed genuine old bottle suppliers and that they were regularly supplying old bottles to the assessee. The Ld. AR has rightly pointed out that, most of the purchases made from them had been accepted to be genuine by the t AO. It is seen by us that, only those purchases where GRN details were not found in the accounting software were alleged to be bogus by the Revenue. What the AO has done is that, he first attempted to correlate the entries found in the excel files with the accounting entries in SAP software and thereafter highlighted the accounting anomalies discovered regarding the purchases with GRNs and without GRNs. It is the Revenue's case that, the notings found in the excel sheet for the three-month three period of 2020 correlated with purchase entries having no GRN details and therefore it was assumed that all the purchases which lacked GRNs across all the years was bogus. At the time of hearing, the Ld. AR for the assessee furnished a written note explaining the modus operandi of the liquor business and the activity involving purchase of both new bottles and old bottles. He submitted that, ordinarily the he new bottle used generally goes for 5 to 6 cycles as old bottles and therefore when the old bottle is procured for usage, usa the bottles may belong to different life cycles. Consequently, the old bottles so received may not be of the same quality and understandably some bottles may be covered with dust, chipped etc. and when they are double washed & inspected, at the ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::19 ::
factory,, more rejections would occur. It was explained that, the purchase of these old bottles was also divisible into two categories viz., (i) inspected washed quantity with accepted quality and (ii) uninspected u quantity chipped, dust and partially washed bottles bottles (for emergency requirements). According to the Ld. AR, the first category being already inspected, verified and of accepted quality was accepted on receipt and therefore the Goods Receipt Note (GRN) was immediately raised, as minimal wastage was expected in the production process. He took us through the details of these first categories of purchases along with the quantities of wastage and the final utilization to show that the wastage in this category was indeed minimal. It is seen that, the explanation given by the assessee regarding the inspected purchases is also supported by the statement(s) obtained from the factory staff at the time of search. In so far as the second category was concerned, the Ld. AR submitted that, depending on production requirements requirements and order(s), many a times immediately bottles are required due to which these vendors are insisted to dump the uninspected, chipped, dust and partially washed bottles into the factory to expedite the entire production process.
process. As the exact accepted quantity during production is not ascertainable at the time of receipt of goods, the assessee claimed that it would not raise GRN for such purchases and the same were routed through KWWH warehouse. It was thus submitted that, the concerned accounts staff would w maintain ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::20 ::
separate tabulation for these uninspected purchases so that, when the final usable old bottles identified from the lot, the numbers can be reconciled and appropriate GRNs can be raised in the system. The Ld. AR explained this entire activity of purchase of both inspected and uninspected bottles through the SAP entries and also provided the details of wastage generally found in different stages of production. He further submitted that, since these old bottle suppliers are unorganized segment and d it is the assessee which makes these emergency purchases, they usually press for immediately release of payments towards the old bottles, which is paid by the assessee through banking channel.
channel Accordingly, the accounts staff maintains separate records for these purchases so that excess payments made to these suppliers can be demanded back, where uninspected bottles are found to be mostly damaged. The Ld. AR further pointed out that, the hologram hologr analysis carried out by the AO proceeded on the assumption that there is no wastage in utilization of old bottles, which according to him is totally implausible. He pointed out that, the AO had omitted to consider the actual loss suffered with respect to t the old bottles as discussed in the preceding paragraphs and therefore his analysis of estimating excess old bottle purchases was incomplete and skewed.
skewed The case sought to be made out by the assessee is that, the non-recording non recording of GRNs in certain instances s was due to the complexities in the business pursued, the ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::21 ::
difficulties in the accounting of old bottle purchases including inclu for emergency requirements etc. According to him therefore, it was unjustified on the AO's part to baldly allege that, all purchases lacking GRN details were bogus.
10. Having considered the above submissions, we cannot conclusively agree with the AO that, that the material seized from the premises of the assessee would show that the assessee was indulging in availing bogus invoices from their heir old bottle suppliers across all the years.
years The data contained in the excel sheet is found to be an anecdotal sample and therefore it is not safe to use it as the basis to allege that the purchases made across ten years was bogus. The AO's action of extrapolating ex the data for three months found in an excel sheet across ten years and assuming that same modus operandi (non-recording (non recording of GRNs) would have been followed in all the years, in our opinion, cannot be entirely countenanced, particularly in absence of any direct evidence found from the assessee's premises to support such a proposition. Moreover, according to us, at first blush, the explanation given by the assessee for non-recording recording of GRNs relating to their emergency purchases is found to be plausible.
ble. At the same time however, it is observed that, the key employees had admitted that, the purchases without GRNs were bogus.
We are aware that, statements alone cannot be the basis to justify any ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::22 ::
addition(s) but having perused the contents thereof, their thei persuasive value in the given facts of the present case, cannot be ruled out. Further, we observe that, even these suppliers in their statement(s) had confirmed the version of the employee(s) and admitted that the purchase invoices issued without GRNs were were bogus. According to us, these third-party third statements did support the AO's case, case but it is seen that, these statements were not tested by affording the assessee opportunity of cross-examination examination which considerably diminishes their evidentiary value and the e Hon'ble Apex Court in Andaman Timber Industries vs CCE [2015] [2015 127 DTR 241/281 CTR 241 (SC) held that failure to give the assessee the right to cross-examine examine witnesses whose statements are relied upon results in violation of natural justice and such omission omission is a serious flaw which renders the order a nullity. We are also conscious of the fact that, the old bottle suppliers were not found to be shell entities or accommodation entry providers. Instead, they were admittedly genuine vendors and most of the purchases pu made from them were also accepted to be legitimate by the AO. The dispute before us relates to only those purchases made from these genuine suppliers which were not accompanied by seal or GRNs. The fallacies pointed out by the AO in the purchases lacking acking GRNs coupled with the statement(s) of the employees and suppliers, does raise doubt on the veracity of these purchases. In our considered opinion therefore, there is indeed more than what meets ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::23 ::
the eye, but at the same time, there is no conclusive evidence basis which the entire value of purchases which lacked GRNs can be treated to be bogus and be entirely added to the total income of the assessee.
11. This may yet be viewed from another angle. If the AO's action of adding the entire value of alleged alleged bogus purchases is upheld, then it would give an incongruous picture in as much as the gross profit from this business would be abnormally high in the range of 35% to 42%, 42 which we find is not appropriate in the facts and circumstances of the case. The Ld. CIT(A) is noted to have analyzed the profitability of the assessee in light of the operating profit margins of similar players in the liquor industry. It was observed that, not only was the profits being reported by the assessee comparatively higher higher than the industry standards, but if the impugned addition is upheld, then it would result in absurd profit numbers, which is not possible in this line of business. Moreover, though the case of the Revenue is that, the entire value of purchases is bogus, but it is crucial to note that, the search team had failed to unearth corresponding value of unaccounted asset or unexplained investment or expenditure,, in the course of search which was conducted across several days across several premises of the assessee.
assessee. At the direction of this Bench, the Ld. CIT, DR for the Revenue has placed on record copies of all the panchnamas drawn at different premises of the assessee group.
ITA Nos.1817
1817 to 1819/Chny/2025
1819 &
ITA Nos.1550
1550 to 1552 /Chny/2025
(AYs 2020-21
2020 to 2022-23)
M/s.Southern
Southern Agrifurane Industries Pvt.
Pvt Ltd.
::24 ::
Having perused the same, it is observed that, only cash aggregating to Rs.2.5 crores was found & seized from different premises and no other unaccounted asset or investment was found by the Investigating authorities. Hence, it would be ludicrous to allege that the assessee inflated expenses by Rs.390 crores across several years and received back ck cash, when neither the alleged cash received back nor any corresponding asset or investment was unearthed in the course of search.
12. Overall therefore, we are in agreement with the Ld. CIT(A) that, there are indeed discrepancies in the books of accounts accou 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 has also tacitly acknowledged before us that, there were accounting anomalies in maintaining the books of accounts, accounts but he contended that, that these accounting anomalies cannot be ipso facto assumed to be falsification of entries,, which requires strict proof of mens-rea,, which is absent.
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 i is imperative for us to clarify that the accounting deficiencies seen in the books of accounts cannot be equated with falsification of entries in the ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::25 ::
books of accounts.. In our opinion, in a given case, if corroborated, the statements recorded during the course of the search can be used to make addition(s) on(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. 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.. We find that this similar aspect was considered by the jurisdictional urisdictional High Court in the case of Empee Distilleries Ltd Vs. ACIT (187 Taxman 188),, which was also involved in the same line of business as that of the assessee and similar allegation was levelled in relation to their old ld 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 the Ld CIT(A) action to the extent ext that there were accounting deficiencies in the books of accounts viz (i) SAP entries were not properly handled, (ii) standard accounting procedures ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::26 ::
were not fully followed and (iii) the purchases without GRNs lacked proper documentation, and nd therefore on these counts sustain the action of the Ld. CIT(A) in rejecting the books of accounts and estimating estimating the profits of the assessee. The relevant findings of Ld.CIT(A) as partly countenanced by us supra,, are as under:-
under:
"6.2.19 During the course of the appellate 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. The bottles are sorted to separate those that tha 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.
Bottles that pass the inspection are cleaned and and sanitized before re-use.
re 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 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 packaging. After cleaning and sanitizing, the bottles are thoroughly dried too 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 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 vendors on emergency situations. This was done by overlooking 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 by the appellant company was only to meet its business usiness requirements. Therefore, it has been claimed that these kinds of purchases cannot be termed as "bogus" and further ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::27 ::
claimed that the disallowance of Rs. 3,13,75,315/- & Rs. 37,97,84,300/-
37,97,84,300/ for the AY 2020--21 and Rs.56,41,82,236/- & Rs. 58,23,45,992/-for 58,23,45,992/ the AY(s) 2021-2222 & 2022-23 2022 23 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. 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 roduction requiring no disallowance.
6.2.21 The undersigned has carefully considered the written submission, supporting documents and arguments advanced by the AR during the course of appellate proceedings, with respect to the process involved in the bottle purchase in the regular course as well as sourced on emergency basis. 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, Software, although it was a 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 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"
"Consumption Bottles" and "Cost of Goods Sold-FG,"
FG," On observing observing these accounting anomalies, 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 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 company and all other connected 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) 2012-13 2012 to 2022-23.
23. It is significant 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 naccounted 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 ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::28 ::
demonstrate the necessity to purchase old bottles by overlooking overl the regular purchase 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 in the order passed by the AO, it can be seen that the AO treated the amount(s) of Rs. 3, 13,75,315/- 13,75,315/ & Rs.
37,97,84,300/- for the AY 2020-21 2020 21 and Rs.56,41,82,236/-
Rs.56,41,82,236/ & Rs.
58,23,45,992/-forfor 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 detailed discussion made supra, 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 with basic sic accounting norms, 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 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 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 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 ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::29 ::
embedded in such purchases rejects 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) CI (2012) 341 ITR 588 (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 (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 Once the books 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 th 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 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 ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::30 ::
impugned order passed by the Tribunal which is hereby sustained along with reasons mentioned therein."
6.2.27 Further 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 th 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 ounting 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 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 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 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 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 maintain stock accounts is a substantial defect in the 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 contended at any stage that the gross profit rate shown is the market norm.
Therefore, in our view, the Tribunal was right in holding that the estimate which was made in the case and the addition made on such ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::31 ::
estimate was quite reasonable and fair taking a cumulative 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 The jurisdictional tribunal vide its order in ITA No 366/Chny/2023 dated 09.08.2023 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 nts are squarely applicable to the facts of the Appellant's case."
13. In light of our finding rendered at para 12 supra, 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 rties and therefore in i our thoughtful consideration, it would be suitable 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 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 2019 20 to 2022-23 2022 ranged from 5.38% to 7.69%.
7. . The Ld. AR further pleaded that, there was ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::32 ::
a significant reduction in profit p margins in this industry on account of the nationwide lockdown 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, TA and therefore wants us to estimate the profits at 8% of the 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 urisdictional High Court in the case of Empee Distilleries Ltd Vs. ACIT (supra), he had estimated the 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, is, the next question that arise is what will be the profits that can be attributable 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) 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 507/Mds/200 and I.T.A. No. 628/Mds/2007 respectively. Similar to the assessment year 1998- 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.3,58,19,987/ which is modified to Rs 85,41,680/-
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 assessmentt 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 ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::33 ::
assessment year 1998-99.
1998 99. 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.
"In respect of the 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, authorities, yet the fact remained that such huge inflation had been accepted by the managing director of the 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 e by the assessee through its employees. However, when questioned the employees had categorically admitted 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 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 2018-1919 & 2019-20, 2019 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 21 to 2022-23, 2022 the extract of the same is reproduced here as under.
ITA Nos.1817
1817 to 1819/Chny/2025
1819 &
ITA Nos.1550
1550 to 1552 /Chny/2025
(AYs 2020-21
2020 to 2022-23)
M/s.Southern
Southern Agrifurane Industries Pvt.
Pvt Ltd.
::34 ::
Sl Particulars as 2019
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 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 the FY 2021-22, 2021 relevant to AY 2022-23.
2022 23. On account of this profit reduction, the AR has requested for consideration of a reduced percentage while estimating the net profit for the AY 2022-23, 2022 23, rather than the estimated 10 % of the turnover for the earlier years years in the appellant company's case. The undersigned, 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/-
433,97,34,105/ for the year in question is consistent with that at 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 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) discipline( and in order to ensure equity and fairness, airness, is of the view that an average rate of 10% 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:-
ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::35 ::
Sl Particulars as 2020
2020-21 2021-22 2022-23
No. reported u/s 139 of
the Act
1 Gross turnover 494,87,70,663/
494,87,70,663/- 433,11,64,415/- 433,97,34,105/-
2 Gross profit reported 134,29,04,502/
134,29,04,502/- 123,67,91,836/- 111,95,11,678/-
3 Net Profit reported 38,04,87,732/
38,04,87,732/- 32,66,93,496/- 20,09,10,922/-
as per books
4 % of net profit 7.69 7.54 4.63
5. Balance that requires
to be considered 10-7.69= 2.31%
10 10-7.54=2.46% 10-4.63=5.37%
6. % of turnover to be 2.31% of 2.46% of 5.37 % of
considered in the 494,87,70,663 433,11,64,415 433,97,34,105
hands of the =Rs.11,43,16,602
=Rs.11,43,16,602/- =Rs.10,65,46,645
appellant /- =Rs.23,30,43,721/
-
6.2.37 Thus, for the AY(s) 2020-21,2021-22
2020 & 2022-23
2022 the
disallowances of expenditure to the extent of Rs.. 11,43,16,602/-
11,43,16,602/ Rs.
10,65,46,645/- & Rs.23,30,43,721/-
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 passed by the AO for the years under consideration. Accordingly, all the grounds raised by the 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.
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/-
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/
ITA Nos.1817
1817 to 1819/Chny/2025
1819 &
ITA Nos.1550
1550 to 1552 /Chny/2025
(AYs 2020-21
2020 to 2022-23)
M/s.Southern
Southern Agrifurane Industries Pvt.
Pvt Ltd.
::36 ::
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 Si the facts involved in the lead case of AY 2020-21 is common in AYs 2021-22 & 2022-23,, 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 Revenue on this issue in AYs 2020-21 2020 to 2022-23 stands dismissed.
15. In so far as the next two issues viz., disallowance of data centre expenses and addition on account of sale of scrap is concerned, the t Ld. CIT, DR assailing the order of Ld. CIT(A) urged that, at, even if the booksof accounts are rejected, the disallowance of this item of expenditure expen and income from sale of scrap ought to be separately adjudicated and decided upon as to whether it is to be separately added to the estimated business income. 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 on 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 ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::37 ::
the deductions which are referred to in sections 30 to 43D of the Act are deemed to have ave 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 c of CIT
229) Likewise, no separate vs Banwari Lal Banshidhar (229 ITR 229).
additions by way of unexplained cash credit u/s 68 of the Act is permissible, when the books of accounts have been rejected. Our view is supported by the decision of the coordinate Bench B in the case of ACIT vs S. Moorthy, (ITAT No. 3091/CHNY/2019) wherein it was held as under:-
"If books of account of the assessee are rejected and income is estimated by applying certain profit rate, it would take care of all expenses necessarily to be incurred for earning profit and hence, when profit is estimated no separate addition can be made towards unexplained commission u/s.69 of the Act. The Ld. CIT (Appeal) after considering the relevant facts has rightly held that AO is erred in making addition on towards cash credits u/s 68 of the Act and unexplained commission u/s 69C of the Act, when the books of accounts were rejected u/s 145(3) of the Act."
Act
16. For the above reasons, we do not agree with this plea of the Revenue. In light of the foregoing, we e 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 rejection of the books of ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::38 ::
accounts. We thus countenance the followings findings rendered by the Ld. CIT(A) in his appellate order :-
:
"The The undersigned is of the view that the above addition / disallowance relate to income declared under the head "Income from Business or Profession" by the appellant company. The undersigned while adjudicating the issue relating to the bogus purchase of old bottles has rejected the books of accounts u/s 145(3) of the Act and determined the profits that can be attributable as income under the head "Income from business or profession" by estimating the income @ 10% of the grossg turnover by relying upon the various judicial decisions viz..
i) The Hon'ble High Court of Rajasthan in the case of CIT vs. G.K. Contractor 19 DTR 305 (Raj) hasheld that "AO AO having estimated the profit by applying a higher net profit rate to total contract contract receipt after rejecting assessee's books of account by invoking the provisions of section 14(3), no separate addition can be made on account of cash credit u/s.68, even though the assessee has failed to discharge its onus of proof in explaining the amount amount shown in the books of account"
ii) The Hon'ble High Court of Punjab and Haryana, in the case of CIT vs. Aggarwal Engg. Co., (2008) 302 ITR 0246 had considered an identical issue and held that "no "no separate addition on account of cash credit and on account ount of unexplained payments for purchases made outside the books can be made once the net profit rate is applied on contract receipts of an assessee for estimating his income from contract work"
iii) The Hon'ble High Court of Allahabad in the case of CIT vs. Banwarilal Banshidhar, (1998) 229 ITR 0229 had taken a similar view and held that where income is assessed at G.P. rate by rejecting the books of assessee u/s.145(3), no disallowance can be made separately u/s.40A(3) of the Act".
iv) The Hon'ble Andhra Pradesh High Court in the of ITA No. 3187/M/2010 in the case of Maddi Sundaram Oil Mills vs. CIT reported in 37 ITR 369 has held that when the AO rejects the books of account and estimates the income of the assessee, no further addition can be made relying g on the rejected books of account.
v) The Hon'ble ITAT Chennai in the case of ACIT vs S. Moorthy, (ITAT No. 3091/CHNY/2019) had also taken a similar view and held that "If" books of account of the assessee are rejected and income is estimated by applying certain profit rate, it would take care of all expenses ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::39 ::
necessarily to be incurred for earning profit and hence, when profit is estimated no separate addition can be made towards unexplained commission u/s.69 of the Act. The Ld. CIT (Appeal) after considering the relevant facts has rightly held that AO is erred in making addition towards cash credits u/s 68 of the Act and unexplained commission u/s 69C of the Act, when the books of accounts were rejected u/s 145(3) of the Act The Hon'ble ITAT Mumbai in the case of ITO vs. Naresh S. Shah (Prop. M.H. Builders) , (ITA No. 3187/Mum/2010 ) has also taken a similar view that when the books of accounts are rejected by the AO and the t income of the assessee is determined on estimated basis, no further addition can be made to the income so estimated by relying on the rejected books of account.
On the basis of the above judicial decisions relied upon, it can be concluded that once the business income is estimated by rejecting the books of accounts u/s 145(3) of the Act, the other disallowance(s) / addition(s) contemplated by the AO relating to the income under the head " Income from Business or Profession" will no longer hold good. Accordingly, ordingly, the grounds raised upon the above issues identified as Issue No. 2 & issue No. 3 for the AY(s) 2020-21, 2021-22 22 & 2022-23 2022 vide order(s) u/s 143(3) of the Act are hereby treated as allowed and the AO is directed to delete all the additions and disallowance allowance made upon the Issue No. 2 & issue No. 3 identified asunder."
17. For the above reasons, we w accordingly uphold the order of the Ld. CIT(A) and dismiss these grounds of the Revenue.
Revenue
18. The last issue for consideration is the disallowance of CSR contributions. According to the AO, the CSR donations of Rs.4,00,00,000/- made by the assessee in AY 2021-22 2021 22 was bogus and therefore he disallowed and added back the same to the total income.
Aggrieved, ieved, the assessee carried the matter in appeal. On appeal the Ld. CIT(A) after analyzing the seized material and the details furnished by the assessee, firstly held that, the disallowance of the donations as bogus, ITA Nos.1817 1817 to 1819/Chny/2025 1819 & ITA Nos.1550 1550 to 1552 /Chny/2025 (AYs 2020-21 2020 to 2022-23) M/s.Southern Southern Agrifurane Industries Pvt.
Pvt Ltd.
::40 ::
without further investigation into the nature of the charitable entities was unjustified. The Ld. CIT(A) further noted that, the impugned contribution of Rs.4,00,00,000/- had neither been debited by the assessee in the P&L A/c nor had been claimed as deduction in the return of income and therefore ore when the assessee itself had not claimed deduction for the impugned expenditure, the disallowance made by the AO was unwarranted. The relevant findings of the Ld. CIT(A) in this regard, are as follows:-
"6.4.9 Further, the appellant has consistently emphasized emphasized that the disputed sum of Rs. 4,00,00,000/-
4,00,00,000/ was not debited to the Profit & Loss account and therefore should not be treated as part of taxable income. The undersigned is aligned with this contention. According to accounting principles and tax laws, laws, only amounts debited to the Profit & Loss account or claimed as expenses can be included in the computation of taxable income. Since the appellant did not claim the disputed sum as a deduction in the Profit & Loss account, it cannot be treated as income for taxation purposes. The addition made by the AO, based on an amount that was never actually claimed as a deductible expense, is therefore legally untenable. The undersigned accentuates the principle of fairness in taxation, which ensures that taxpayers are taxed only on income that is properly accounted for and reported. In this case, since the disputed CSR donations were neither debited to the accounts nor claimed for tax purposes, it would be inequitable to bring the sum to tax.
19. The Ld. CIT, DR appearing appearing for the Revenue was unable to dislodge the above findings rendered by the Ld. CIT(A). Having gone through the computation of income and the income-tax income tax return for AY 2021-22, 2021 we concur with the Ld. CIT(A) that, the assessee had never claimed deduction on for the CSR expenditure of Rs.4,00,00,000/-
Rs.4,00,00,000/ in the return of
ITA Nos.1817
1817 to 1819/Chny/2025
1819 &
ITA Nos.1550
1550 to 1552 /Chny/2025
(AYs 2020-21
2020 to 2022-23)
M/s.Southern
Southern Agrifurane Industries Pvt.
Pvt Ltd.
::41 ::
income and therefore the impugned disallowance made by the AO was factually unsustainable. We accordingly dismiss this ground of the Revenue.
20. In the result, both the appeals filed by the Revenue evenue and the assessee are dismissed.
Order pronounced on the 21st day of November, 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"नई/Chennai,
'दनांक/Dated: 21st November,
November 2025.
TLN
आदे श क ितिल)प अ*े)षत/Copy
Copy to:
to
1. अपीलाथ /Appellant
2. थ /Respondent
3. आयकरआयु /CIT,, Chennai / Madurai / Salem / Coimbatore.
4. िवभागीय ितिनिध/DR
5. गाड% फाईल/GF