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Judgment
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :
The above-captioned twin appeals preferred by the Revenue are directed against the orders passed by the Learned Commissioner of Income Tax (Appeals)-23, Delhi (hereinafter referred to as the ‘ld. CIT(A)’) under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), dated 19.09.2025 arising out of the following respective assessment orders:
Assessment Year 2016-17: Assessment orders dated 29.03.2025 passed by the Asst Commissioner of Income Tax, Central Circle 2, Delhi (in short ‘the AO’) u/s 147 r.w.s. 144 of Income Tax Act, 1961(hereinafter as Act) for A.Y. 2016-17.
Assessment Year 2017-18: Assessment orders dated 28.03.2025 passed by the Asst Commissioner of Income Tax, Central Circle 2, Delhi (in short ‘the AO’) u/s 147 r.w.s. 144 of Income Tax Act, 1961(hereinafter as Act) for A.Y. 2017-18.
Since the above captioned appeals were heard together and the facts in issues are identical, the twin appeals are being disposed of by this common order for the sake of convenience and brevity.
The grounds of appeal raised by the Revenue in ITA Nos. 8645 and 8646/Del/2025 are identical mutatis mutandis, except for the change in figures. The grounds read as under:
1.“Whether the Ld. CIT(A) erred in law and on facts of the case, in deleting the addition of Rs.3,79,70,731/- made by the Assessing Officer without appreciating the detailed findings recorded in the assessment order passed u/s 147 r.w.s. 144 of the Act.
2.Whether the Ld. CIT(A) erred in law and on facts in accepting the assessee's books of accounts despite the same being rejected by the Assessing Officer on valid grounds including discrepancies in purchases, sales, GST data, TDS records, and quantitative inventory.
3.Whether the Ld. CIT(A) erred in ignoring the fact that the assessee failed to produce organized and verifiable purchase bills for livestock/fresh meat, which is a fundamental requirement for substantiating the genuineness of purchases and for maintaining proper books of account.
4.Whether the Ld. CIT(A) erred in accepting the assessee's explanation regarding customary/traditional practices in the meat trade industry without corroborative evidence or third-party confirmations, thereby ignoring the statutory requirement of maintaining verifiable records.
5.Whether the Ld. CIT(A) erred in deleting the addition made by applying a Gross Profit rate of 5% despite the assessee's failure to justify the low declared GP rate of 2.03% with reliable documentary evidence.
6.Whether the Ld. CIT(A) erred in holding that the assessee was not given reasonable opportunity of being heard, whereas sufficient opportunities were provided during the assessment proceedings, including issuance of show cause notices.
7.That the appellant craves leave to add, amend, alter, or withdraw any ground(s) of appeal at the time of hearing.”
Brief facts of the case are that the M/s Al Zia Exports Pvt. Ltd. carrying on the business of meat export to foreign countries. A survey under section 133A was conducted on 18.01.2023 at the Delhi premises of Al Zia and its group concern, M/s Al Barkat Enterprises. Tally data revealed large procurements with minimal supporting documentation only few bills of low value were produced, lacking transport proof (GR, bilty, vehicle details). As per AO the statements of directors and staff confirmed that most purchase entries were back-calculated from job work bills, with fragmented ledger entries and no consistent PAN, address, or payment records. Physical vouchers and Aadhaar were claimed but not verifiable.
Due to these deficiencies, books were rejected under section 145(3), and assessments completed under section 147 r.w.s 144 of the Act. The AO applied a uniform GP rate of 5% as against 2.99% in AY 2016-17; and 3.20% in AY 2017-18, declared by the assessee and differential income was taxed. Penalty proceedings were initiated under sections 270A/271A and 271(1)(c) of the Act.
Aggrieved by the above, the Revenue as well as assessee filed an appeal before the ld. CIT(A), wherein the ld. CIT(A) allowed the appeal. Aggrieved the Revenue is now in this appeal before us.
The ld DR vehemently relied on the order of the AO and submitted that books of account were rejected and the AO took a comparative figure for making the addition. The ld DR submitted that assessment orders for A.Y. 2016–17, 2018–19, and 2019–20 noted major discrepancies: missing bank entries, unverifiable purchases, absence of bills and transport records, and transactions with non-filers or stop-filers. Stock registers were not maintained, and quantity mismatches were observed between purchases, exports, and closing stock.
Per contra, the ld AR relied on the CIT(A) and submitted that the assessee involved in the business of meat export and operates in a cash-intensive, unorganized sector, many suppliers do not issue formal bills. While most purchases are claimed to be bank-routed, a small portion is in cash, purportedly covered under Rule 6DD read with section 40A(3) of the Act. The ld AR stated that the books of account of the assessee were audited in terms of section 44AB of the Act.
We have heard the rival submissions and perused the material available on record. In the instant case, we find that the assessee has shown gross profit ratio in terms of Turnover, of 2.99% in AY 2016-17 and a GP of 3.20 in AY 2017-18. We find that the said GP rate is arrived when the indirect expenses such as Terminal Handling charges; Export related charges; Clearing and forwarding charges and Cold storage charges, for the period, is treated as direct expense. However, when the said expenses are treated as indirect expense, the Gross profit ratio comes to 4.84% for AY 2016-17 and 4.85% for AY 2017-18 which is comparable to industry standards. On the other hand, the Revenue found, in the course of survey, several discrepancies such as missing bank entries, unverifiable purchases, absence of bills and transport records, and transactions with non-filers or stop-filers; non maintenance of Stock registers.
We find that although the assessee, prima facie, appears to have partially discharged its onus of explaining its gross profit ratio, it’s contentions to prove the correctness of its books of account, hardly deserves to be accepted in entirety. On the other hand, the Revenue’s endeavour to disbelieve the assessee’s contention that gross profit is not comparable to the industry standard and his action to estimate the gross profit at the rate of 5% of total turnover, cannot be fully justified. In this factual matrix, there is some element of failure to explain some of the GP rate to turnover, cannot be ruled out. Be that as it may, it is deemed appropriate, in larger interest of justice, that a lump-sum addition of 5% of gross profit of the turnover as against gross profit of 4.84% for AY 2016-17 and GP of 4.85% for AY 2017-18, declared by the assessee, would be just and proper with a rider that the same shall not be treated as a precedent, so as to cover all loopholes. Needless to add that the calculation of gross profit be made after correct classification of Direct and indirect expenses for the period. The grounds of appeal are partly allowed.
In the result, the two appeals filed by the Revenue in ITA Nos. 8645 & 8646/Del/2025 are partly allowed.