Case Number: ITA 5176/DEL/2019
Appellant: ACIT Central Circle, Panipat
Respondent: Kundan Rice Mills Ltd., Panipat
Assessment Year: 2009-10
Order Type: Final Tribunal Order
Date of Order: May 16, 2023
Case Filed on: June 6, 2019
Pronounced on: May 16, 2023
In the Income Tax Appellate Tribunal, Delhi Bench: ‘H’ New Delhi, the case was heard before Shri SaktiJit Dey, Judicial Member, and Shri M. Balaganesh, Accountant Member. The case numbers involved were ITA Nos. 4362 to 4366/Del/2019 and ITA Nos. 5172 to 5176/Del/2019, covering assessment years from 2005-06 to 2009-10.
The appeals in question arose from separate orders of the learned Commissioner of Income Tax (Appeals)-3, Gurgaon, for the assessment years mentioned. The appeals were consolidated due to their identical nature concerning the estimation of profit on alleged bogus sales.
Kundan Rice Mills Ltd., a resident corporate entity engaged in various business activities including the import and export of precious stones, pulses, pharma, polymers, dyes, chemicals, and the manufacture, trade, and export of rice, had filed its return of income under Section 139(1) of the Income-tax Act, 1961. For assessment years 2005-06, 2006-07, and 2008-09, assessments were completed under Section 143(3) of the Act, whereas for 2007-08 and 2009-10, returns were processed under Section 143(1) without scrutiny.
On March 16, 2011, a search and seizure operation was conducted on the assessee and related parties. During the course of the search, certain irregularities were found, including discrepancies in the existence of certain parties involved in transactions with Kundan Rice Mills Ltd. The assessing officer noted that M/s. Dee Kay Trade Centre and M/s. J.S. Enterprises, entities with which the assessee had conducted transactions, were found to be non-existent or had unverified addresses. This led to the rejection of the books of account and estimation of profit based on a general gross profit (GP) rate derived from industry data.
The assessing officer used a GP rate of 6.75% derived from capitaline database for chemical industries to compute the profit and made substantial additions to the income reported by the assessee for the relevant assessment years.
The learned Commissioner (Appeals) reduced the additions made by the assessing officer by applying the GP rate of 6.75% only to the sales made to the questionable parties, while accepting the GP rate disclosed by the assessee for other transactions.
Both the assessee and the revenue challenged the Commissioner (Appeals) decision. The assessee argued that the additions were based solely on estimates without any incriminating material, while the revenue argued that the additions were justified based on the non-existence of the parties involved in the transactions.
The Tribunal reviewed the submissions and concluded that in the absence of incriminating material found during the search with respect to the completed/unabated assessments, the additions made by the assessing officer could not be sustained. The ruling emphasized that completed assessments cannot be reopened solely based on post-search findings unless incriminating evidence is found.
The case highlights the procedural aspects and limitations concerning the reassessment of income based on search and seizure operations and the standards for estimating profit in the absence of verifiable records.
In summary, the Tribunal’s order addressed the issues of bogus sales and the proper application of GP rates, reaffirming that the re-opening of completed assessments requires clear incriminating evidence. The order provided clarity on the application of Section 153A of the Act, emphasizing the need for substantive evidence to support any additions or reassessments post-search.
ITA 5176/DEL/2019: Kundan Rice Mills Ltd. vs. ACIT Central Circle, Panipat – Final Tribunal Order
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