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Judgment
PER AMITABH SHUKLA, AM
This bunch of three appeals filed by the assessee are directed against the separate orders of Ld. Commissioner of Income Tax (Appeals)-23, New Delhi, dated 11.03.2026 arising out of separate assessment orders passed by the Assistant Commissioner of Income tax, Central Circle-3, Delhi ('the AO') passed u/s 147 r.w.s. 144 of the Act, dated 19.03.2025, 15.01.2026 and 18.03.2025 for Assessment Year 2019-20, 2020-21 and 2023-24, respectively. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
Since, all the above appeals are of the same assessee therefore the same were heard together and for the purposes of convenience are being adjudicated by this common order. For the purposes of this order, we will take facts and figures for AY 2019-20 pertaining to ITA No.4199/Del/2026 and treat the same as lead year. Since, facts for AYs 2020-21 and 2023-24 per ITA No.4200/Del/2025, ITA No.4201/Del/2026, are identical, decision taken in AY ITA No.4199/Del/2026 shall apply mutatis mutandis to all the aforesaid appeals.
ITA No.4199/Del/2026
The assessee has raised following grounds of appeal for AY 2019-20 in ITA No.4199/Del/2026:-
1.Opportunity of Being Heard: That the Ld. CIT (A) erred in law and on facts by sustaining a part of the addition, failing to appreciate that the Assessing Officer (AO) passed the assessment order without giving a proper and meaningful opportunity of being heard to the appellant.
2.Lack of Show Cause for Rejection of Books: That the Ld. CIT (A) erred in law and on facts by confirming the rejection of the books of accounts, ignoring that the AO failed to provide a specific show cause notice to that effect, which is a mandatory requirement of law.
3.Vague Grounds for Rejection: That the Ld. CIT(A) erred in law and on facts by sustaining the rejection of audited books of accounts on vague and improper grounds, without the lower authorities pointed out any specific defect, deficiency, or shortcoming in the transactions recorded.
4.Arbitrary Profit Estimation: That the Ld. CIT(A) erred in law and on facts by sustaining an ad-hoc profit margin 1.77% on challenged purchases without any sound basis or application of mind, which is against the spirit of law and settled jurisprudence of various courts.
5.Application on Entire vs. Challenged Sales: That the Ld. CIT(A) erred in not deleting the addition in full, failing to appreciate that the AO erroneously applied an estimated rate on the entire sales/purchases, whereas only a specific part of the same was challenged.
6.Contradictory Reliance on Rejected Books: That the Ld. CIT (A) erred in law and on facts by sustaining the action of the AO, who first rejected the books of accounts and then inconsistently applied an estimated profit rate on the very same sales reported in those rejected books.
7.Cherry-Picking of Evidence: That the Ld. CIT(A) erred in law and on facts by sustaining an order where the AO partially relied upon the statement of the appellant, leading to "cherry-picking" of evidence and violating the principle of accepting evidence as a whole.
8.Incorrect Ratio Application: That the Ld. CIT(A) erred in law and on facts by sustaining the addition despite the AO incorrectly estimating the profit even as per the ratio laid down by the AO himself in the assessment order.
9.Mandi Tax Misconception: That the Ld. CIT(A) erred in law and on facts by making additions based on the alleged "savings of Mandi Tax," ignoring his own view and making addition on challenged purchases that no such Mandi Tax or Levy is applicable on transactions conducted in the Lawrence Road Market, Delhi.
10 False Attribution of Statements: That the Ld. CIT(A) erred in law and on facts by sustaining an order where the AO illegally and arbitrarily stated that the appellant received cash or distributed profit from Mandi Tax savings-statements which were never made and were repeatedly denied by the appellant moreover Cit Appeal itself has recorded in his order that no unaccounted cash has travelled to the Appellant in Para 29.
11.Disregard of Statement on Oath: That the Ld. CIT(A) erred in law and on facts by not accepting the version stated on oath by the appellant that the entire profit earned on each and every transaction had been duly reported in the books of accounts.
12.That the Ld. CIT(A) erred in law and on facts by failing to quash the assessment order passed u/s 147, which is 'patently bad in law' and 'without jurisdiction, as the impugned notice u/s 148 was issued by an Assistant Commissioner of Income Tax (ACIT) despite the jurisdiction of the case being specifically and exclusively transferred to the Deputy Commissioner of Income Tax (DCIT), Central Circle-3, Delhi, vide order u/s 127(2) dated 19.07.2023."
13.Failure to Point Out Specific Defects: That the Ld. CIT(A) erred in law and on facts by confirming the rejection of books of accounts u/s 145(3) without the AO pointing out even a single specific defect or discrepancy in the documented records.
14.Non-Supply of Relied Upon Documents: That the Ld. CIT (A) erred in law and on facts by sustaining the assessment despite the AO not providing the appellant with copies of the documents relied upon for framing the assessment.
15.Denial of Cross-Examination: That the Ld. CIT(A) erred in law and on facts by sustaining the addition based on third-party statements (Rajdhani Group) without providing the appellant an opportunity to cross-examine such persons, violating the principles of natural justice.
16.Mechanical Passing of Order: That the Ld. CIT(A) erred in law and on facts by sustaining an order passed in a mechanical manner with a pre-determined mind to make/sustain additions.
17.Illegal Levy of Interest: That the Ld. CIT(A) erred in law and on facts by sustaining the illegal and arbitrary levy of interest u/s 234B and 234C, which is against the jurisprudence laid down by the Hon'ble Supreme Court.
18.Penalty Proceedings: That the Ld. CIT(A) erred in law and on facts by sustaining the order where the AO erroneously initiated penalty proceedings.
Brief factual matrix of the case is that the assessee had filed its original return of Income on 16.10.2019 declaring total income of Rs.23,55,880/-. A search and seizure operation u/s 132 was conducted in Rajdhani Flour Mills Group. It was noted that the assessee was indulging in undisclosed transactions with the entities involved in suspicious transactions with reference to the said Rajdhani Group. Thus, allegations of bogus purchases and sales were made which were routed through web of shell entities. The ld. Assessing Officer reopened the case of the assessee through notice u/s 148 dated 17.04.2023. The assessee filed a return in response to notice 148 repeating the income disclosed. The ld. Assessing Officer extensively examined the enquiries and investigation conducted by the Investigation Unit, statements recorded before the Investigation Authorities and proceeded to form an opinion that the assessee was indeed indulging in sham transactions. He observed on para 5.31.7 of his order that the books of accounts of the assessee were not correctly and completely disclosing its true financial affairs and therefore he rejected the same u/s 145(3) of the Act. Resorting to a best judgment assessment, the ld. Assessing Officer concluded that the true gross profit of the assessee would be at 2%. Accordingly, the ld. Assessing Officer estimated profits @2% of total sales. While doing so, the ld. Assessing Officer gave the assessee credit of percentage of gross profit of @0.23% hitherto disclosed. The Assessing Officer thus, made impugned addition of Rs.1,85,74,598/-. The assessee preferred an appeal before the ld. CIT(A), who concurred with the findings of the Assessing Officer on the issue of rejection of books of accounts u/s 145(3). As regards the estimation of profit, the ld. CIT(A) held that the assessee ought to have estimated the new GP ratio only qua purchases which were held to be from suspicious parties. Accordingly, he gave the corresponding relief to the ld. Assessing Officer by restricting the addition for the year under consideration to Rs.25,33,248/-. The assessee had raised couple of legal issues which after consideration, were dismissed by the ld. CIT(A).
We have heard rival submissions in the light of material placed on records.
The first issue raised by the ld. Counsel of the assessee through its grounds of appeal(supra) is regarding the challenge raised to the notice u/s 148 and the assessment order. The ld. Counsel submitted that the notice u/s 148 was dated 17.04.2023 was issued by an officer having designation of Assistant Commissioner of Income Tax. It was submitted that the impugned notice was without jurisdiction since vide order u/s 127(2) dated 19.07.2023, its case was transferred to Deputy Commissioner of Income Tax, Central Circle-Delhi. The ld. Counsel argued that a Deputy Commissioner of Income Tax is different than and Assistant Commissioner of Income Tax and that therefore the notice was devoid of any jurisdiction.
The ld. DR submitted that the argument are not correct and that ACIT and DCIT are same authorities.
We have noted that as per the provisions of Income Tax Act, the notices are to be issued by an Assessing Officer. Section 2(7A) of the Act while defining an Assessing Officer reads as under:-
Section -2 (7A)
(7A) "Assessing Officer" means the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act, and the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act ;
Thus, we have noted the clear stipulation of law that the definition of an Assessing Officer includes an Assistant Commissioner as well as a Deputy Commissioner and there is no difference between the two. Actually, as per hierarchy chart of Income Tax Department, an Assistant Commissioner as well as a Deputy Commissioner are both entrusted to do the same level of duties and the only difference between them is salary and the allowances drawn. Accordingly, the argument of the assessee has been found to be untenable. The grounds of appeal contesting the jurisdiction of an ACIT to issue notice u/s 148 is therefore dismissed.
Another issue raised by the appellant assessee through grounds of appeal (supra) is regarding the invalid rejection of books of accounts by the ld. Assessing Officer u/s 145(3) of the Act. It is the case of the assessee that the ld. Assessing Officer has rejected its books of accounts without giving an opportunity of being heard to the assessee. It was contested that the rights of natural justice of the assessee has thus been violated. It was accordingly submitted that as the addition is based upon an invalid rejection of books of accounts, the same cannot be sustained and deserves to be deleted.
The ld. DR argued in favour of the order of the ld. Assessing Officer and CIT(A). It was contended that section 145(3) does not requires specific opportunity before rejection of books of accounts.
We have noted the following statutory prescription of section 145(3) of the Act.
“Method of accounting.
145.(1) Income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee.
(2)The Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income.
(3)Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144.
We have noted from the plain reading of this section that an Assessing Officer if not satisfied with the correctness of completeness of the accounts of the assessee and/or satisfaction of any other condition is empowered to reject such financial results based upon such books of accounts and proceed to make assessment u/s 144 of the Act. This due process law has been followed by the ld. Assessing Officer. Section 145(3)(supra) does not provide for any opportunity of being heard prior to such action u/s 145(3). Accordingly, we are of the considered view that the decision of the ld. Assessing Officer and ld. CIT(A) is based upon correct understanding and interpretation of law. We therefore sustain the order of the ld. CIT(A) on this issue and dismiss the corresponding grounds of appeal raised by the appellant assessee.
The next issue raised by the appellant assessee through grounds of appeal (supra) is regarding the action of ld. CIT(A) in giving only part relief to the assessee. As per the facts discussed hereinabove, the ld. CIT(A) had calculated his addition applying a GP rate of 2% on the gross purchase of the assessee. The ld. CIT(A) restricted the addition by applying the impugned 2% GP rate only on suspicious purchase of the assessee and thus give a relief of restricting the addition from Rs.1,85,74,598/- to Rs.25,33,248/-. The ld. Counsel for the assessee has vehemently argued against the impugned additions sustained by the ld. CIT(A). It was submitted that the ld. Lower authorities have cherry picked transactions to estimate their additions.
The ld. DR placed reliance upon the order of Ld. CIT(A).
At the outset, we have noted that the revenue has not contested the part relief allowed by ld. CIT(A) through any cross appeal. We have also noted that the estimation made by the ld. Assessing Officer or even the ld. CIT(A) is not based upon any sound reasoning or evidence. The ld. Assessing Officer primarily relied upon the enquiries and investigation conducted by Investigation Wing as well as statements recorded before them. The ld. Assessing Officer has not conducted any independent enquiry has its own to support his actions. Simultaneously, it is also true that the assessee has not denied of not having financial transactions with the impugned parties of the Rajdhani Group which lie at the center of this controversy. Upon consideration of discussions made by the Ld. Assessing Officer in the order we have noted evidences alluding towards involvement of assessee in suspicious transactions qua affairs of Rajdhani group entities. The revenue has however failed to bring on record evidences to quantify and suggest direct involvement of assessee in such suspicious affairs. Needless to say, there are, though unquantified, but indications of assessee’s involvement. The assessee cannot therefore claim totally to have come out with clean hands. The ld. CIT(A) has also while estimating his addition merely made generalize statements. Though, we do concur with his view that considering appellant’s admitted role in facilitating cash based procurement, indulgence in accommodation entries and consequent suppression of purchase values some addition is warranted to plug revenues leakage. Be that as it may be, we are of the considered view that considering the overall facts of the present case in the interest of justice, it would be appropriate to restrict the addition in AY 2019-20 of Rs.25,33,248/- to 1% of the total purchases of Rs.14,31,20,975/-. Thus, addition is sustained to the extent of Rs.14,31,209/- and the balance addition is deleted. The grounds of appeal raised by the assessee are therefore partly allowed.
In the Result, the appeal of the assessee is partly allowed.
ITA No.4200/Del/2026
The grounds of appeal raised by the assessee contesting the jurisdictional insufficiency and invalid rejection of grounds, applying the principles of mutatis mutandis, stands dismissed. The addition on account of estimated GP addition applying the principles of mutatis mutandis, stands restricted to 1% of the purchases of Rs.12,68,43,780/- to Rs.12,68,437/- and the balance addition is deleted. The grounds of appeal raised by the assessee are therefore partly allowed.
In the Result, the appeal of the assessee is partly allowed.
ITA No.4201/Del/2026
The grounds of appeal raised by the assessee contesting the jurisdictional insufficiency and invalid rejection of grounds, applying the principles of mutatis mutandis, stands dismissed. The addition on account of estimated GP addition applying the principles of mutatis mutandis, stands restricted to 0.5% of the purchases of Rs.14,83,77,342/- to Rs.7,41,886/- and the balance addition is deleted. The grounds of appeal raised by the assessee are therefore partly allowed.
In the Result, the appeal of the assessee is partly allowed.
Finally, all the appeals of the assessee are partly allowed.