Bhoora vs Income Tax Officer Ward-1 (3)

PER VIKAS AWASTHY, JUDICIAL MEMBER:

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)’] dated 12.03.2026, for Assessment Year 2017-18.

Shri Saubhagya Agarwal, appearing on behalf of the assessee narrating facts of the case submitted that the assessee is engaged in the business of sale of fire wood under the name and style of Kohenoor Timber. The assessee sells firewood to Greenply Industries Ltd. The fire wood is used for making core veneer. The ld. Counsel explains that core veneer is a thin underlying layer of wood used to form inner layers of plywood. The ld. Counsel submits that admittedly, the assessee has not filed regular return of income for the impugned assessment year. The assessee receives payment for supply of firewood to Greenply and Greenply Industries Ltd. through banking channels. The aggregate of payment received for supply of firewood to the aforesaid company is more than Rs.4 crores. The assessee withdraws cash from his bank account to make payments to the persons who collect wood from the forest and for making salary payments. The Assessing Officer (AO) disbelieved the business model of the assessee as the assessee could not furnish documentary evidences in the form of invoices, delivery challans and other document to establish expenditure and sale of wood. The AO issued notice u/s.133(6) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) to M/s. Greenply Industries Ltd. In response to the said notice, the company confirmed that the payments were made to the assessee in consideration for purchase of ‘core veneer’ from the assessee. The said company also furnished copy of ledger and bank statements. The AO in the first instance questioned the material supplied by the assessee to M/s. Greenply Industries Ltd. as the assessee had mentioned that it is supplying firewood and the company used the correct nomenclature for the product purchased from the assessee as ‘core veneer’. The ld. Counsel explains that the wood purchased from the assessee by the company is input material for making core veneer. The AO finally estimated profit margin @10% of the gross receipts of Rs.3,69,63,176/- and made addition of Rs.33,99,575/-. Aggrieved by the assessment order dated 06.03.2025, the assessee carried the issue in appeal before the CIT(A). The CIT(A) upheld the addition and dismissed appeal of the assessee.

The ld. Counsel submits that the net profit margin estimated by the AO @10% is very much on higher side. He placed on record a copy of the order passed by the CIT(A) dated 26.11.2025 in the case of Daudipharim. The ld. Counsel stated that the assessee is from same area. The assessee is also carrying similar business in similar manner. The CIT(A) has estimated profit @ 2.5% of the total turnover.

Per contra, Shri Manoj Kumar, representing the department vehemently defended the impugned order. The ld. DR submits that the assessee has not furnished any documentary evidences to substantiate business carried out by the assessee. No month-wise sales and purchases, invoices, delivery challans or other documentary evidences furnished were by the assessee to show that the assessee had in fact supplied firewood to Greenply Industries Ltd. Further no documentary evidences were placed by the assessee to discharge his onus to prove expenditure claimed by the assessee. Therefore, the AO has rightly estimated net profit @10% on the total turnover. He thus, prayed for sustaining the addition and dismissing appeal of the assessee.

Both sides heard, orders of the authorities below examined. The limited issue for consideration in the instant appeal is estimation of profit considering nature of business carried by the assessee. The assessee has been supplying firewood to M/s. Greenply Industries Ltd. For supply of firewood the assessee receives payment through banking channel. To verify aforesaid transaction between assessee and M/s. Greenply Industries Ltd., the AO had issued notice u/s.133(6) of the Act to M/s. Greenply Industries Ltd. The said company vide reply dated 13.01.2024 admitted that the company has been purchasing core veneer from the assessee. The ld. Counsel for the assessee has explained that firewood supplied by the assessee is a raw material for making ‘core veneer’ which is used for manufacturing plywood. The assessee withdraws cash from bank to make payments to the persons collecting firewood from forest for the assessee. It is also contended that other business expenditure is also made by assessee in cash. Undisputedly, no material is placed on record by the assessee to substantiate business expenditure. The AO has estimated profits @10% of total credits in the bank account. The ld. Counsel for the assessee submitted that estimation of profits @10% is very much on the higher side and prayed for restricting it to 2.5%. In so far as, sale of firewood to M/s. Greenply Industries Ltd. by the assessee, the same has been established from the reply of M/s. Greenply Industries Ltd. u/s.133(6) of the Act. The entire controversy now boils down to the estimation of profits. Except for one order of CIT(A) in the case of Daudipharim, who was carrying on similar business of supplying firewood no other material is furnished to substantiate the profit margin in such unorganized, rural trade. As regards cash payments/expenditure, it is not uncommon in unorganized sector to make payments in cash. Rather, cash payments sometimes, becomes inevitable in rural and backward areas where people insist for cash in lieu of services rendered. To meet the end of justice, the profit is estimated @3.5% of net credits i.e. Rs.3,69,63,176/-. The, ground no. 3 of appeal is partly allowed in the above said terms.

In ground no. 1 and 2 of appeal, the assessee has assailed initiation of reassessment proceedings u/s.148 of the Act. No submissions were made by the AR of the assessee on the said grounds, accordingly, ground no. 1 and 2 of appeal are dismissed.

In the result, appeal of the assessee is partly allowed.