HS Impex Pvt. Limited vs DCIT, Central Circle 02, Delhi

PER S. RIFAUR RAHMAN, AM :

These appeals is filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)] dated 27.09.2025 for the Assessment Year 2016-17, 2018-19 & 2019-20.

Since the issues are common and the appeals are connected, hence the same are heard together and being disposed off by this common order.

First we take up ITA Nos.8386/Del/2025 and 8388/Del/2025 for Assessment Years 2016-17 and 2019-20. For the sake of brevity, we take facts of the case from AY 2016-17.

Brief facts of the case are, the assessee filed its return of income u/s 139(1) of the Income Tax Act, 1961 (for short ‘the Act’) on 06.09.2016 declaring total income of Rs.57,20,028/-. The same was processed u/s 143(1) of the Income Tax Act, 1961. The assessee company is engaged in the business of leatherette and rexine.

A search was carried out at the residence of the of Sh. Harpreet Singh Talwar, Shaily Talwar and Inderpal Kaur as well as survey under section 133A of the Act was also conducted at business premises of the assessee at 26/29, East Patel Nagar, Delhi. During the search proceedings, a bunch of loose sheet Annexure E, Pages 1-23 was seized from the residential premises of Harpreeet Singh and Baneet Singh Talwar. Assessing Officer confronted with Baneet Talwar about these pages, who stated that these pages pertained to cash sales to the tune of Rs.32,81,499/- during F.Y. 2015-16 of Nabi Karim shop which is the retail outlet of the assessee company. He further stated that these sales had not been recorded in the books of accounts.

Based on this tangible evidence and the direct admission of suppressed sales, the AO formed a "reason to believe" that income chargeable to tax had escaped assessment. After obtaining the necessary statutory approval from the competent authority, the AO issued a notice under Section 148 of the Act to the assessee on 31.03.2021. In response, assessee filed its return of income on 27.04.2021 and submitted the originally returned income of Rs.57,20,028/-. The AO then proceeded with the reassessment, issued statutory notices under Section 143(2) and 142(1) of the Act and completed the reassessment proceedings under Section 147 r.w.s. 143(3) of the Act by making a trading addition of Rs.2,64,006/- by applying 3.9% GP ratio declared for the year under consideration, thereby assessed the total income at Rs. 59,84,030/-.

Aggrieved with the above order, assessee preferred an appeal before the ld.CIT (A) who sustained the addition made by the Assessing Officer.

Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :-

At the time of hearing ld. AR of the assessee has not pressed grounds no.1 to 3, hence the same are dismissed as not pressed.

At the time of hearing, ld. AR of the assessee submitted that the assessee is in the regular business of purchase and sale of leatherette and rexine. These purchases and sales are duly recorded in the books of accounts of the company as such. He further submitted that the assessee company is also engaged in the other business of commission agency on behalf of third parties wherein the assessee merely acts as commission agent between two parties and earns nominal commission fee of 0.5% to 1%. He submitted that in respect of agency transactions, these are not the purchase and sales of the company, there is no reason to record as the purchase and sales of the company. He submitted that the assessee company merely acts as commission agent and only earned nominal commission of 0.5% to 1%. He further submitted that in the year under consideration, there is allegation of unaccounted sales of Rs.75,78,489/-on which the lower authorities have made GP addition. He submitted that As explained above, the action of the lower authorities in treating the above amount as sales of the assessee and making GP addition is totally erroneous as the assessee company was merely acting as commission agent on these unaccounted sales and the assessee has earned commission income @ 1 %.

On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities.

Considered the rival submissions and material placed on record. We observed that the assessee is in the regular course of business of purchase and sale of leatherette and rexine and these purchase and sales are duly recorded in the books of accounts of the company as such. We further observed that the assessee company is also engaged in the other business of commission agent on behalf of third parties. We observed that in respect of these transactions, these are not the purchase and sales of the assessee, there is no requirement to record these as the purchase and sales of the assessee. We further observed that the assessee company merely acted as commission agent and only earned nominal commission of 0.5% to 1%, however assessee agreed to offer the same @ 1%.

Considering the peculiar nature of the transactions which relate to the transaction of agency business. Therefore, we are inclined to sustain 1.5% of the disputed sales as income of the assessee.

In the result, the appeal of the assessee is partly allowed as indicated above.

Since the facts in the AY 2016-17 are exactly similar to the facts in AY 2019-20, therefore, the findings rendered in AY 2016-17 are applicable mutatis mutandis and the appeal filed for AY 2019-20 is partly allowed.

In the result, the appeals for AYs 2016-17 and 2019-20 are partly allowed as above.

Now we take up ITA No.8387/Del/2025 for AY 2018-19 wherein the assessee has taken the ground on the issue of ‘limited scrutiny’ vide Ground No.2 which read as under :-

Brief facts of the case are, the assessee filed return of income declaring total income of Rs.28,68,110/- on 31.10.2018. A search and seizure action u/s 132 of the Act was carried out in M/s. H.S Impex Group and associates on 07.12.2018. A survey proceedings u/s 133A of the Act was also initiated in the case of M/s. H.S. Impex Pvt. Ltd., 5298, Hardhiyan Singh Road, Karol Bagh, New Delhi on 07.12.2018.

The case was selected for ‘Limited Scrutiny’ under CASS. Accordingly, notice u/s 143(2) of the Act was issued and served on the assessee on 22.09.2019 through ITBA Portal. Thereafter, notice u/s 142(1) of the Act was issued and served on the assessee along with questionnaire to furnish details and documents. The AO concluded the assessment proceedings u/s 143(3) of the Act with determination of income at Rs 2,32,12,219/- by making addition of Rs.2,03,44,109/- on the basis of certain documents seized during the search and the subsequent admission by Shri Baneet Singh who looks after the day to day affairs of the assessee company.

Aggrieved, assessee preferred an appeal before the ld. CIT (A) and took the aforesaid ground before the ld. CIT (A) stating that the AO acted without jurisdiction by making a trading addition when the case was selected for 'Limited Scrutiny' on a different issue. However, after going through the submissions of the assessee, ld. CIT (A) dismissed this ground.

Aggrieved with the above order, assessee is in appeal before us on the aforesaid issue.

At the time of hearing, ld. AR of the assessee submitted that it would be pertinent to point out that the assessee’s case was selected for ‘Limited Scrutiny’ under ‘CASS’ and the issue for limited scrutiny were Exports/ Imports. He submitted that AO could not have expanded the scope of limited scrutiny proceedings without recording the reasons and not obtained the approval of Commissioner of Income-tax. He submitted that however the assessment order was passed on a totally different basis as compared to the reasons enumerated in the notice issued under section 143(2) of the Act. Accordingly, ld. AR submitted that the AO, during the course of assessment proceedings, clearly travelled beyond the scope of "limited scrutiny assessment", which is not permissible in law. Accordingly, he pleaded that thus, the assessment order passed by the AO and the addition made by the AO is liable to be deleted.

On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities.

Considered the rival submissions and material placed on record. Now, the issue raises are whether, in the instant set of facts, the assessment completed u/s 143(3) beyond the scope of notice issued under section 143(2) of the Act, we are in agreement with the contention that the assessment proceedings were initiated as "limited scrutiny assessment" and it is settled law that unless the limited scrutiny assessment is converted into full scrutiny assessment along with due approval as mandated under the Act. However, we noticed that the selection reason for Limited Scrutiny was different and without converting the Limited Scrutiny to Complete Scrutiny, Assessing Officer had completed the assessment u/s 143(3) of the Act. We noticed that the assessment order has been passed in respect of issues which were not the subject matter of "limited scrutiny assessment" notice section 143(2) of the Act. Further we observed that in the case of Commissioner Of Income Tax v. Padmavathi dated 06.10.2020 decided in Tax Case Appeal No. 359 of 2020, the Hon’ble Madras High Court held that in a limited scrutiny assessment, an Assessing Officer (AO) cannot expand the scope of the assessment beyond the specific issues identified in the initial notice. The court also limited the revisionary powers of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Act, preventing its arbitrary use to revisit an assessment that had been adequately examined within its original limited scope. Further, in the case of Chaitanya Bansibhai Nagori Vs Principal Commissioner of Income Tax (ITAT Ahmedabad) in ITA number 377/Ahd/2020, the Ahmedabad ITAT held that in limited scrutiny, AO cannot go beyond dispute raised in the notice issued u/s 143(2) of the Act. Further, in the case of Dharmin N. Thakkar v. ITO in ITA No. 1378/Ahmedabad/2019, Ahmedabad ITAT quashed the assessment order on the ground that the order was passed beyond the scope of limited scrutiny. This position of law was further elaborated by the CBDT in its Circulars on the subject.

In view of the above, we hold that since the assessment order has travelled beyond the scope of notice issued under section 143(2) of the Act, accordingly the ground raised by the assessee is allowed and the assessment is set aside. Since no other issues have been argued, the same have become academic and kept open at this stage.

In the result, ITA No.8387/Del/2025 for AY 2018-19 is allowed as discussed above.

To sum up : the appeals filed for AYs 2016-17 and 2019-20 are partly allowed and the appeal for AY 2018-19 is allowed.