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Judgment
PER MANISH AGARWAL, AM:
This appeal is filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals)-23, Delhi [CIT(A) in short] in Appeal No. CIT(A), Delhi-23/10048/2022-23 dated 16.01.2026 passed u/s 250 of the Income Tax Act, 1961 (the Act, in short) arising out of the assessment order dated 23.03.2025 passed u/s 143(3) of the Act for Assessment Year 2023-24.
Brief facts of the case are that the assessee has filed his return of income on 23.10.2023 declaring total income of Rs.13,88,190/-. The case was selected for scrutiny. The AO observed that a search and seizure action was carried in the case of M/s Rajdhani Flour Miils Ltd. (RFML) and Ors. on 21.01.2023 and it was found that assessee is one of the parties transacted with the Rajdhani Group where the purchases were inflated to reduce the profits. The AO referred the statements of various persons including the directors of the companies of Rajdhani group and by invoking the provisions of section 145(3) of the Act rejected the trading results declared and has estimated the profit by applying the rate of 2% including GP rate declared by the assessee @ 0.48% and made the addition of Rs.96,04,670/-.
Against the said order, assessee filed an appeal before the Ld. CIT(A) who reduced the Profit rate to 1% in addition to the G.P. rate of 0.48% declared by the assessee and confirmed the addition of Rs.63,18,860/- and balance addition of Rs.32,85,810/- was deleted.
Aggrieved by the order of ld. CIT(A), assessee filed the present appeal before the Tribunal wherein various grounds of appeal are taken as stated in the appeal memo. It is observed that in all the grounds of appeal taken by the assessee, the addition of Rs.63,18,860/- confirmed by ld. CIT(A) is challenged, however, inadvertently the amount of addition is stated at Rs.32,85,810/- i.e. the amount of addition deleted by Ld. CIT(A) thus it is prayed by ld. AR to take the correct figure of addition sustained at Rs. 63,18,860/- as against Rs. 32,85,810/-.
Heard both the parties at length and carefully perused the materials available on record. In the instant case, it is the undisputed the fact that assessee has transacted with the Rajdhani Group for purchase and sales. The turnover of the assessee for the year under appeal and in the immediate preceding two assessment years ranges between Rs.61 crores to 65 crores however, the GP remained almost static. It is also a matter of fact that Rajdhani Group has used the assessee to reduce its profits by making sales at lower rates and purchases at higher rates and circular trading was done to give effect such planning. The assessee has purchased goods from the companies of Rajdhani group. The AO concluded that by making purchase at higher rates, assessee has reduced its profits and therefore, he rejected the books of account by applying the provisions of section 145(3) of the Act and applied 2% profit rate subject tot eh GP declared which was reduced to 1% by ld. CIT(A) which is over and above declared GP rate. The relevant observations of Ld. CIT(A) as contained in 7.2 to 7.16 are as under:
“7.2I have carefully considered the rival submissions, the assessment order, the detailed written submissions of the appellant, statements recorded during search and post-search proceedings, and the material brought on record. The core issues arising for adjudication under these grounds are:
(i)whether rejection of books of account under section 145(3) was justified, and
(ii)whether estimation of gross profit at 2% of total turnover is reasonable and sustainable in law.
7.3The AO has rejected the books of account primarily on the basis of findings emanating from the search conducted in the case of Rajdhani Group and statements recorded from various persons under sections 132(4) and 131(1A), including the appellant himself. The investigation has unearthed a well-documented modus operando wherein purchases were routed through intermediary/entry-providing entities for the purpose of generating cash to procure food grains directly from farmers outside the mandi system, thereby avoiding mandi taxes and levies.
7.4It is not in dispute that:
a. the appellant supplied substantial quantities of food grains to RFML during the relevant year,
b. such supplies could not have been effected without corresponding procurement of goods; and
c. the appellant, in his statement recorded u/s 131(1A) dated 25.05.2023, admitted to availing the services of entry-provider entities to facilitate cash purchases from farmers and to save mandi levies.
7.5While the appellant has argued that purchases were supported by GST invoices, e-way bills and banking channels, it is a settled position of law that mere availability of invoices and banking transactions does not conclusively establish the genuineness of purchases, when surrounding circumstances, human probabilities, and corroborative evidence suggest otherwise. The statements of multiple independent parties, recorded during search and post-search investigations, consistently point towards the same modus operandi and stand corroborated by bank statement analysis showing immediate cash withdrawals.
7.6Further, the appellant's contention that only purchases of Rs. 40,61,513/-were tainted and the remaining purchases were genuine is not acceptable. The evidence on record shows that the practice of routing purchases through accommodation entities was systemic and not confined to isolated transactions. The appellant's own admission confirms participation in the said arrangement, thereby rendering the overall purchase records unreliable.
7.7In view of the above facts, I am of the considered opinion that the AO was justified in holding that the books of account did not reflect the true and correct state of affairs of the appellant's business. Accordingly, the rejection of books of account under section 145(3) is upheld.
7.8Having upheld the rejection of books, the next issue is whether the estimation of gross profit at 2% of total turnover is fair and reasonable.
7.9The AO has estimated the GP rate by presuming that mandi tax savings of approximately 6% were generated by procuring goods outside the mandi system and that such savings were equally shared among three stakeholders Le. the miller, the intermediary (assessee), and the entry operator resulting in a 2% benefit to the assessee.
7.10While the existence of mandi tax savings is well established from statements and investigation findings, the mechanical assumption of equal sharing lacks direct evidentiary support. No material has been brought on record to demonstrate that the appellant consistently earned a margin as high as 2% from such transactions.
7.11It is also noted that:
a the appellant has been engaged in this line of business for several years;
b historical GP margins declared by the appellant range between 0.29% to 0.48%; and
c the nature of food-grain trading, especially bulk B2B supplies to large corporate entities like RFML, operates on thin margins.
7.12At the same time, the appellant's declared GP of 0.48% does not factor in the undisclosed economic benefit arising from avoided mandi taxes and levies, which is evident from the material on record. Therefore, some upward adjustment in GP is clearly warranted, but the estimation must be reasonable, fair, and based on surrounding facts rather than conjecture.
7.13The appellant's contention that the addition results in double taxation is misplaced. addition results in double taxation i The addition is not on purchases or sales per se, but on suppressed profits embedded in the trading results. Estimation of profits after rejection of books is a recognized method under the Act and does not amount to taxing the same income twice.
7.14The appellant's argument that statements recorded u/s 132(4) lack evidentiary value is also not acceptable. Such statements, when corroborated by surrounding facts, bank statement analysis, and admissions of the appellant himself, constitute valid and credible evidence. The AO has not relied on statements in isolation but has supported them with independent material.
7.15Considering the totality of circumstances including the appellant's admissions, industry margins, past results, the nature of irregularities detected and to meet the end of justice, I am of the view that estimation of GP at 1% of total turnover over and above the declared income by the appellant would meet the ends of justice.
7.16Accordingly, the addition by applying a GP rate of 1% over and above the declared income by the appellant on total sales of Rs. 63,18,86,215/- comes to Rs. 63,18,860/-, Balance addition of Rs. 32,85,810/- is deleted. Thus, Grounds No. 3 to 6 are partly allowed.
8.Remaining grounds of appeal either general or consequential/premature in nature hence the same are being adjudicated here separately.
9.In the result, the appeal of the appellant is partly allowed.”
Before us, the Ld. AR reiterated the same arguments as were made before the lower authorities and failed to controvert the findings given. Considering the overall facts and the circumstances of the case, we find no error in the order of Ld. CIT(A) where the ld. CIT(A) has already allowed substantial relief to the assessee by reducing the profit rate from 2% to 1% and thus the said order is hereby upheld. All the grounds of appeal raised by the assessee are dismissed.
In the result, the appeal of the assessee is dismissed.