Case Number: ITA 5175/DEL/2019
Appellant: ACIT Central Circle, Panipat
Respondent: Kundan Rice Mills Ltd., Panipat
Assessment Year: 2008-09
Result: 2008-09
Case Filed On: 2019-06-06
Order Type: Final Tribunal Order
Date of Order: 2023-05-16
Pronounced On: 2023-05-16
The Income Tax Appellate Tribunal, Delhi Bench, ‘H’ New Delhi, heard the case involving Kundan Rice Mills Ltd., an entity engaged in various business activities including the import and export of precious stones, pulses, pharma, polymers, dyes, chemicals, and the manufacture and trading of rice. The case concerns several assessment years, including the year 2008-09, during which the Assessing Officer had made additions due to alleged bogus sales.
The appellant, ACIT Central Circle, Panipat, challenged the additions made by the Assessing Officer. These additions were based on a search and seizure operation conducted on 16.03.2011, which led to an investigation into sales made to M/s. Dee Kay Trade Centre and M/s. J.S. Enterprises. The Assessing Officer found that these parties were non-existent or untraceable, leading to the conclusion that the sales were bogus.
The Assessing Officer compared the gross profit rates (GP rates) shown by the assessee with the GP rates prevalent in the industry. The GP rates of the assessee were significantly lower than the industry standard, prompting the Assessing Officer to make additions to the profit based on an estimated GP rate of 6.75% for the sales made to the questioned parties.
The Commissioner of Income Tax (Appeals) partially upheld the Assessing Officer’s findings but reduced the additions. The Tribunal was tasked with reviewing the decision of the Commissioner (Appeals) and addressing both the assessee’s and the Revenue’s grievances.
The assessee argued that the additions were based on estimates and not on incriminating material found during the search. They cited the Supreme Court’s decision in PCIT Vs. Abhisar Buildwell Pvt. Ltd., which emphasized that for completed assessments, no addition can be made in the absence of incriminating material from the search.
The Revenue contended that the inability to trace the parties involved constituted incriminating material. They argued that the sales to M/s. Dee Kay Trade Centre and M/s. J.S. Enterprises were non-genuine and that the Assessing Officer was justified in applying a different GP rate.
The Tribunal concluded that for assessments where no incriminating material was found during the search, no additions could be made in the absence of such material. It reiterated that completed or unabated assessments could not be reopened based on estimates alone, and the Revenue’s powers to reassess were limited to cases where incriminating material was found during the search.
Thus, the Tribunal directed that the additions made by the Assessing Officer should be restricted to the extent where genuine material was available. The additions sustained by the Commissioner (Appeals) were upheld for the sales made to the non-existent parties but adjusted as per the Tribunal’s findings.
The key legal principle emphasized in this case is that under Section 153A of the Income Tax Act, for completed assessments, additions cannot be made unless incriminating material is found during the search. The Tribunal reinforced that the object of Section 153A is to bring undisclosed income to tax, and assessments cannot be reopened based on mere estimates.
The decision aligns with the Supreme Court’s ruling in PCIT Vs. Abhisar Buildwell Pvt. Ltd., which underscores that only pending assessments can be abated, and completed assessments require concrete incriminating evidence for any additions.
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