Universal Distributors vs The Income Tax Officer, Ward-54(1), Delhi

“1.

The learned First Appellate Authority has erred in his findings that there is no merit in the claim by the appellant that the assessment order has been passed without providing due, reasonable and adequate opportunity of being heard to the assessee and thereby violating the principle of natural justice and equity. The findings of the First Appellate Authority is arbitrary, biased and against the facts and circumstances of the case.

2.

The learned first appellate Authority has erred in confirming the addition of Rs. 104,02,03,800/- in the returned income being unexplained capital contribution and unsecured loan from the partners u/s 68 of the Income Tax Act, 1961, which is unjustified, arbitrary, against the facts and circumstances of the case as well as against the principle of natural justice and equity as well as against the provision of law.

3.

The learned first appellate Authority has erred in confirming the addition of Rs. 32,38,06,363/- in the returned income being unexplained loans from the related parties u/s 68 of the Income Tax Act, 1961, which is unjustified, arbitrary, against the facts and circumstances of the case as well as against the principle of natural justice and equity as well as against the provision of law.

4.

The learned first appellate Authority has erred in confirming the addition of Rs. 6,87,44,088/- in the returned income being undisclosed income, by applying flat NP rate of 2.5 on the turnover which is unjustified, arbitrary, against the facts and circumstances of the case as well as against the principle of natural justice and equity as well as against the provision of law.”

“5.2.4

On careful consideration of the assessment order and submission of the appellant, I find that the Ld. A.O. had accorded opportunities of hearing to the appellant on six occasions details of which are duly mentioned in the body of the assessment order at page no.2. I also find that out of the above six opportunities, the appellant failed to make response to the notices of the Ld. A.O. on four occasions. I further find that the first response was made by the appellant on 19.01.2024 i.e. after expiry of more than two months from the issuance of notice u/s 142(1) of the Act dated 23.11.2023. Had the appellant responded to the notice u/s 142(1) of the Act dated 23.11.2023 on time, the A.O. would have got more than four months for conducting detailed scrutiny to the documents submitted by the appellant. Since the appellant submitted its first response on 19.01.2024, Ld. A.O. got less than two and half months for such scrutiny. The above facts imply that the appellant wasted almost two months of precious time of the Ld. A.O. as the case was going to be barred by time limitation on 31.03.2024. The appellant has not offered any explanation for its late response either during the course of the assessment proceedings or before the undersigned.

Secondly, Ld. A.O. has made detailed observations to the documents furnished by the appellant at page no. of the assessment order relevant contents of which are reproduced below:

"3.5.4.

The submission as well as the supporting documents have been perused and it is found that

1.

Although the assessee claimed, yet, filed copy of ITR-V/Ack. of the ITR, instead of copy of the ITR.

2.

In order to prove 'whether the source income was offered to tax in current or years' copy of the ITR along with computation of income, profit and loss balance sheet required, however, the assessee filed merely copy of ITR-V/Ack. of the ITR.

3.

Copy of the ledger and relevant page of the bank statement filed (even in some cases only relevant entries filed), however, copy of bank statement for the entire FY alongwith the ITR were required to prove whether the source income was offered to tax in current or earlier years'.

4.

(iv) Barring 2-3 cases, in all the cases, vary blurred copy of the relevant pages the bank accounts have been filed.

5.

The details and the supporting documents regarding source of the capital of partners and the unsecured loans were sought on 08.11.02023, fixing for 23.11.2023, however, the assessee compelled to make the compliance, belatedly that too after receipt of the SCN dated 12.03.2024, proposing variations."

In contention to the above observations of the Ld. A.O., the appellant has claimed that if documents as filed by the assessee were not clear the same should have been communicated to the assessee which has not been done in the present case by the A.O. The appellant has further claimed that the A.O. has not brought on record and defect in any of the paper or confirmation or ITR or bank statement filed by the assessee during the assessment proceedings and without providing any opportunity to the assessee, the assessment has been completed without pointing out any defect or any short coming in the papers filed by the assessee.

I have considered the above contention of the appellant. Even if, the above contention of the appellant is accepted, this fact cannot be denied that vide the impugned assessment order, Ld. A.O. had specifically pointed out a number of defects in the documents furnished by the appellant during the assessment proceedings. Even during the present appellate proceedings, the appellant had got plenty of time to eradicate such defects but unfortunately, the appellant has filed/uploaded the samedocuments even in response to notice u/s 250 issued during the course of present appellate proceedings.

1.

In spite of the above observations of the Ld. A.O. in the impugned assessment order, the appellant has failed to file/upload complete copy of ITRs in respect of partners or the respective persons related to the partners of the appellant firm and kept on uploading only copy of ITR-V acknowledgment of the said ITRs. Even in a single case, complete copy of ITR has not been filed/uploaded.

2.

Most of the documents except copy of ledger uploaded by the appellant are still illegible.”

Ground No. 2:

“3.6.1.

It is noticed from perusal of the balance sheet that there is unsecured loan of Rs.30,08,58,507/- from the related party of the partners, as at 31.03.2022. In this regard, vide query no. 9 of the notice u/s 142(1), the assessee was asked to file the documentary evidences to substantiate the identity and creditworthiness of the lenders as well as the genuineness of the transactions. However, no such details and supporting documents have been filed by the assessee, till the date of the compliance. Therefore, vide letter dated 12.03.2024, the assessee was show-caused as to why the unsecured loans totaling to Rs. 30,08,58,507/-be not be added to the income of the assessee, by treating the same as unexplained.

3.6.2.

In response to the aforesaid SCN, the assessee filed written submission on 15.03.2024 and 19.03.2024 and filed copy of the ITR-V/Ack. of the ITR, ledger, relevant page of the bank account highlighting the debit entries and confirmed copy of the account. The perusal of the supporting documents reveals that there are copies of ITR-V, ledger account and relevant pages of the bank statement of the lenders. The copy of almost all the bank statements are not legible being blurred (intriguely, the attached ledger and Ack. of the ITR were quite clear). With much efforts, it is seen from perusal of the entries in the respective bank statements of the lenders that most of lenders were receiving funds from somewhere else and within few days the same were getting transferred to the assessee as loan, as such the funds were not the accumulated funds of the lenders which proved that the funds lend were the bogus funds. Thus the assessee has failed to provide any documentary evidence insupport of the creditworthiness of the lenders since, the total income of a person is not the sole criterion to prove the creditworthiness of that person. Similarly, the confirmed copy of accounts from the lenders have no evidentiary values, alone, being related parties of the partners. In fact, in order to prove all the limbs, the assessee should have filed the copy of the ITR alongwith computation of income, profit and loss account and balance sheet and bank statement for the entire year, at least, in order to prove the identity and creditworthiness of the lenders and genuineness of the transactions. It is reiterated here that in compliance to the SCN dated 12.03.2024, the assessee filed voluminous enclosures (that too in a disjoint manner) on 14.03.2024, 15.03.2024, 19.03.2024 and 20.03.2024. However, the assessee has failed to file point-wise formal written submission. Further, not only the incomplete reply/documents have been filed, but, the core documents are blurred and not legible. Furthermore, despite claiming, copy of PAN Card, Aadhar Card and ITR of the lenders have not been filed. It is also not out of place to mention here that the assessee himself sought a VC on 17.03.2024 (at the fag end of the year), which was scheduled for 19.03.2024, however, the assessee chosen not to participate in it and there was no reason(s) mentioned, in the reply filed, subsequently, vide submissions dated 19.03.204 and 20.03.2024. Thus, it is established that during the entire proceedings, the assessee remained evasive and choosy in the manner of filing the submissions and the documents for the apparent reasons.”

“5.3.4

I have gone through entire gamut of the case. The undisputed facts emerging after due consideration of the assessment order, grounds of appeal, statement of facts, written submission of the appellant and other materials available on record are that during the previous year under consideration, the appellant was engaged in trading of Indian made foreign liquors (IMFL) for which the license was granted by the Govt. of NCT, Delhi on 18.08.2021 (i.e. during the previous year 2020-21) and it was allotted two zones in the NCT of Delhi. It is also not under dispute that during the previous year under consideration, the partners of the appellant firm introduced capital of Rs. 30,00,00,000/- and unsecured loans of Rs. 74,02,03,800/-. It is also not under dispute that an amount ofRs.32,38,06,363/- was received in this case as unsecured loans from the persons related to the partners of the appellant firm. The matter under dispute is that, whether the appellant discharged its primary onus to offer satisfactory explanation with regard to the nature and source of the above transactions and creditworthiness of the partners and other related persons to introduce the above sum under consideration.

I find that the appellant had filed/uploaded copy of ledgers, bank statements, ITR-V acknowledgements of the return of income etc. during the course of the assessment proceedings (or say; at the fag end of the time barring date of the assessment proceedings) to explain the nature and source of the above transactions and creditworthiness of the partners and other related persons. Ld. A.O., after due consideration of the above documents, has made detailed observations at page no. 6 of the assessment order relevant contents of which are reproduced below:

"3.5.4.

The submission as well as the supporting documents have been perused and it is found that

1.

Although the assessee claimed, yet, filed copy of ITR-V/Ack. of the ITR, instead of copy of the ITR.

2.

In order to prove 'whether the source income was offered to tax in current or years' copy of the ITR along with computation of income, profit and loss balance sheet required, however, the assessee filed merely copy of ITR-V/Ack. of the ITR.

3.

Copy of the ledger and relevant page of the bank statement filed (even in some cases only relevant entries filed), however, copy of bank statement for the entire FY alongwith the ITR were required to prove whether the source income was offered to tax in current or earlier years'.

4.

(iv) Barring 2-3 cases, in all the cases, vary blurred copy of the relevant pages the bank accounts have been filed.

5.

The details and the supporting documents regarding source of the capital of partners and the unsecured loans were sought on 08.11.02023, fixing for 23.11.2023, however, the assessee compelled to make the compliance, belatedly that too after receipt ofthe SCN dated 12.03.2024, proposing variations."

With the above observations, Ld. A.O. drew conclusion that the appellant failed to discharged its primary onus to offer satisfactory explanation with regard to the nature and source of the above transactions and creditworthiness of the partners and other related parties to introduce the above sum under consideration.

In contention to the above observations of the Ld. A.O., the appellant has claimed that if documents as filed by the assessee were not clear the same should have been communicated to the assessee which has not been done in the present case by the A.O. The appellant has further claimed that the A.O. has not brought on record and defect in any of the paper or confirmation or ITR or bank statement filed by the assessee during the assessment proceedings and without providing any opportunity to the assessee, the assessment has been completed without pointing out any defect or any short coming in the papers filed by the assessee.

In my considered view, even if the above contention of the appellant is accepted, this fact cannot be denied that vide the impugned assessment order, the Ld. A.O. had specifically pointed out a number of defects in the documents furnished by the appellant during the assessment proceedings. Hence, during the present appellate proceedings, the appellant had got plenty of time to eradicate such defects but unfortunately, the appellant has filed/uploaded the same documents even in response to notice u/s 250 issued during the course of present appellate proceedings.

In spite of the above observations of the Ld. A.O. in the impugned assessment order, the appellant has failed to file/upload complete copy of ITRs in respect of partners and kept on uploading only copy of ITR-V acknowledgment of the said ITRs. Even in a single case, complete copy of ITR has not been filed/uploaded till date. I find myself in agreement with the remarks of the Ld. A.O. that only the copy of ITR-V acknowledgments is not enough to confirm creditworthiness of theconcerned person if complete copy of the return of income supported by relevant documentary evidences has not been made available for examination. Most of the documents except copies of ledger uploaded by the appellant are still illegible. Some examples of such illegible or blurred documents have already been brought on record at para 5.2.4 of this order. Evidently, these documents do not fall within the category of evidences to enable an assessing officer to examine the same and conduct any further enquiry or verification.

However, on the basis of total income disclosed by the partners of the appellant firm during the A.Y. 2022-23 (as per details available in the ITR-V acknowledgments filed by the appellant firm), I have tried to compare the total income of the partners with the amount invested by them in the appellant firm in the below mentioned table. Since the details of the total income of the partners have been extracted from the ITR-V acknowledgments filed by the appellant firm which are not legible in a number of cases, the figures of total income as per ITR may slightly differ in some cases but to some extent they are comparable. The details are as under:

It is evident from the above table that the amount invested by the partners of the appellant firm towards capital and unsecured loan during the previous year under consideration is multi-times higher than their total current income i.e. income of the current A.Y. 2022-23. For example, Shri Karamjeet Singh Lamba, partner of the appellant firm appearing at Sr. No.13 of Table-l above, has invested an amount of Rs. 16,87,97,701/- towards capital and unsecured loan but he has declared total income of Rs.20,66,480/- only during the A.Y. 2022-23 which implies that it will take more than 81 years to earn such a substantial amount which he has invested in the appellant firm during the previous year under consideration. In other words, the above documents do not confirm the creditworthiness of Shri Karamjeet Singh Lamba to invest such a huge amount in the appellant firm. A cursory view of the above tables by and large reflects the similar story in the cases of the other partners and related parties also.

Now, the issue which arises for determination is whether appellant had discharged its primary onus to establish the genuineness of the transaction required under Section 68 of the Act. For ready reference, relevant portion of section 68 (as amended by the Finance Act, 2012 w.e.f. 01.04.2013) is reproduced as follows:

"Cash credits.

41 Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the 43 [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.

[Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless,-

(a)

the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and

It is evident from the above that the first proviso to section 68 of the Act is applicable in case of every loan or borrowings and this proviso warrants that even the person in whose name such credit is recorded in the books of the appellant also requires to offer an explanation about the nature and source of such sum so credited. In other words, source of source is also required to be explained by the appellant if the sum credited falls within the category of loan or borrowings. In the instant case, such persons are the partners and the related parties who have not offered any explanation about the nature and source of such capital and unsecured loans. In my considered vie, only submission of illegible or blurred copies of bank statements and ITR-V acknowledgment cannot be considered to be a valid explanation to justify the source of such capital and unsecured loans. The appellant had got ample opportunity to produce the said documents before the Assessing Officer and also before the undersigned which the appellant failed to avail.

The appellant's contention is that copies of ledger, bank statements and ITR-V acknowledgment were produced as primary materials and if the A.O. did not find favour with the same, the Ld. A.O. ought to have called for further details. This argument cannot be countenanced. The mere production of such incomplete and invalid documents, does not discharge the liability of the appellant to offer satisfactory explanation for the loan receipts and production of such material cannot lead either to a conclusion that the Assessing Officer has to discredit the same or call for further details in the event of non-satisfaction. The Assessing Officer cannot be burdened with the onus of proving the negative nor can there be an endless process of substantiation of materials by production of other materials. The burden of the assessee is to offer satisfactory explanation and if the materials and documents produced by theassessee does not lead to a proper, reasonable or acceptable explanation as regards the receipts in the books, the Assessing Officer is perfectly entitled to record his non-satisfaction, provided he has applied his mind which is discernible from the impugned assessment order. As noticed earlier, the assessee rested contend countered with the production of copies (i.e. illegible and blurred copies) of ledger, bank statements and ITR-V acknowledgment without any further material regarding the identity, status or capacity of the creditors. In my considered view, these documents do not justify the creditworthiness, nature and source of the transactions in question. I find on due perusal of the assessment order that as the appellant had failed to substantiate the creditworthiness of the lenders along with the source and genuineness of the respective loan transactions, therefore, the A.O. was constrained to treat the same as its unexplained cash credits under section 68 of the Act.

My above view is supported with the following decisions of the Hon'ble higher courts:

1.

Hon'ble Supreme Court in the case of Kale Khan Mohammad Hanif v. CIT3 and, Roshan Di Hatti v. CIT4 laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assesse, and there would be no further burden on the revenue to show that the income is from any particular source. With respect to the issue of genuineness of transaction, it is for the appellant to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the appellant's knowledge.

2.

Hon'ble Supreme Court in the case of Sumati Dayal v. CIT (1995) 214 ITR 801(SC) held the following:

"If the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory, there is prima facie evidence against the assessee, vis., the receipt of money, and if he fails to rebut the same, the said evidence being unrebutted can be used against him by holding that it is a receipt of an income nature."

1.

Hon'ble jurisdictional High Court i.e. Hon'ble High Court of Delhi in CIT v. Oasis Hospitalalities (P.) Ltd. [2011] 9 taxmann.com 179/198 Taxman 247/333 ITR 119 (Delhi), wherein the following was observed:

"The initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68. Those are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise."

1.

Hon'ble jurisdictional High Court i.e. Hon'ble High Court of Delhi in Riddhi Promoters (P.) Ltd. Vs. Commissioner of Income-tax-7 has held that the assessee has not only to establish identity of the creditor but genuineness as well as creditworthiness is u/s.68 of the Act.

1.

Hon'ble High Court of Allahabad in the case of Principal Commissioner Income-tax Vs. Mehndipur Balaji [2023] 147 taxmann.com 201 (Allahabad) wherein Hon'ble Court has held that mere filing of confirmation or ITRs or Bank statements is not sufficient to prove the credit capacity of creditors and genuineness of the transaction.

2.

[1963] 50 ITR 1 (SC) [1977] 107 ITR (SC), The Delhi High Court in CIT v. Oasis Hospitalities Pvt. Ltd.5, held that:

"The initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68. Those are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise." It has been held that merely proving the identity of the investors does not discharge the onus of the assessee, if the capacity or credit-worthiness has not been established. In Shankar Ghosh v. ITO6, the assessee failed to prove the financial capacity of the person from whom he had allegedly taken the loan. The loan amount was rightly held to be the assessee's own undisclosed income."

It is evident from the above decisions that the Copy of ITR-V Acknowledgement only confirms the identity of the partners/lenders and merely providing the identity of the investors does not discharge the onus of the assessee, if the capacity or creditworthiness and source of source has not been established. In my considered view, the appellant failed to file sufficient and valid explanation and evidences before the Ld. A.O. In other words, the appellant failed to discharge its primary onus to furnish explanation to the queries raised by the A.O. Also, since the appellant had filed incomplete and invalid documents before the A.O. that too at the fag end of the time barring date, Ld. A.O. had left with no other option to finalize the assessment proceedings on the basis of the materials available on record. Secondly, since the partners of the appellant firm and the related parties lacked creditworthiness to introduce the capital and unsecured loan under consideration, the nature and source of the transaction also remained unexplained within the preview of section 68 of the Act.

At this stage, I observe that as the appellant had failed to irrefutably prove the authenticity of its claim of having raised genuine capital and loans from the aforementioned partners and related parties, therefore, I find no infirmity in the view taken by the A.O. Hence, I am constrainedto sustain both the addition of Rs. 104,02,03,800/- and Rs. 32,38,06,363/- made by the AO under section 68 of the Act. Accordingly, the Grounds of appeal No. 2 and 3 are dismissed.

Ground No.3

“3.7.1.

Vide query no. 8(3)(a) to (f)(iv), and 10 of the notice uls 142(1), the assessee was asked to file the details of the month-wise & party-wise purchases and sales, ledgers, details of the products and the transportation etc. Similarly, besides GST details of the suppliers, the assessee was asked to furnish copy of the Indirect Tax Returns filed. However, except copy of party-wise purchase ledgers and purchase ledgers, no details and supporting documents have been filed by the assessee, even, till date. Purchase ledger reveals that the first purchase was made on 18.11.2021 and during the year, purchases were made totaling to Rs. 1,44,08,49,439/-. The assessee can easily file copy of bills against some of the purchases in respect of the each suppliers as well as the bank book [the assessee was asked to furnish the same vide query no. 6 of the notice u/s 142(1)], which would enable the AO to test checked the genuineness of the GP and NP shown from sale-purchases of the IMFL. It is pertinent to mentioned here that the assessee has shown very meagre NP of Rs. 26,36,763/- (0.9%) out of huge sale of Rs. 285,52,34,056/-. By garnering huge funds more than Rs. 136.0 Cr., it is quite imprudent to have so little Net Profit. It is noteworthy here that had there was no other income of Rs. 10,70,43,656/- (nature of the same has not been specified by the assessee, in the column, given for this purpose) credited to the profit and loss account, there would be loss of Rs. 10,44,06,893/- to the assessee firm. Thus, the genuineness of the trade results are not reliable and the assessee has not filed details of the sale-purchase, as discussed, in the beginning of this para, hence, the correct GP and NP cannot be accepted. The assessee has shown the Gross profit of Rs. 1,73,11,22,357/- in the Part A-Trading account of the ITR, as under: Op. Stock NILSales2,85,52,34,056/-Purchase 1,44,08,49,439/-Cl. Stock31,67,37,740/-G.P. 1,73,11,22,357/-Total of credit-3,17,19,71,796/-

If we calculate the GP, it would comes to 60.63%, and NP has been shown merel 0.9%, whereas, in similar trade the assessee namely M/s Radha Marketing (PAN AAPFR8477H) has shown the GP and NP during AY 2022-23, as under:

GP/Turnover (8.17%) 247088423/3022694116

NP/Turnover (2.62%) 79204372/3022694116

Even, during the preceding year i.e AY 2021-22, M/s Radha Marketing has declared the trade results as under:

GP/Turnover (8.39%) 134915147/1608617672

NP/Turnover (2.71%) 43543307/1608617672

In view of the comparable trade results of both the assessees, it is evident that the assessee has suppressed the net profit. Since, the assessee has not furnished the requisite details/documents, enabling the AO to check correctness of the GP and the NP, hence, by taking a just and fair view, I proposed to apply a flat NP of 2.50% on the turnover of the assessee, which comes to Rs. 7,13,80,851/-, since, the assessee has already shown net profit of Rs. 26,36,763/-, therefore, an addition of Rs. 6,87,44,088/- is being made to the income of the assessee, during the year. Penalty proceedings u/s 270A of the IT Act has also been initiated, separately, for under reporting the income.

(Addition - Rs. 6,87,44,088/-)

“5.5.4

The undisputed facts emerging after due consideration of the assessment order, grounds of appeal, statement of facts, written submission of the appellant and other materials available on record are the following:

Vide notice under section 142(1), particularly queries 8(3)(a) to (iv) and 10, the appellant was required to furnish:

Month-wise and party-wise purchase and sales details

Ledgers

Product-wise details

Transportation details

GST details of suppliers

Copies of indirect tax returns

Bank book (vide query no. 6)

In response, the appellant furnished only copies of party-wise purchase ledgers and purchase summary. No sale ledger, no transportation details, no stock movement register, no legible bank book and no indirect tax returns were filed. On going through the purchase ledger and trading account as per ITR, Ld. A.O. extracted the following book results:

Opening Stock - Nil

Purchases-1,44,08,49,439/-

Gross Profit-1,73,11,22,357/-

Sales 2,85,52,34,056/-

Closing Stock31,67,37,740/-

Total Credits 3,17,19,71,796/-

Ld. A.O. further noted that the appellant had shown the GP @ 60.63% on sales, whereas the NP declared is merely 0.9%. The Profit & Loss account included "other income" of 10,70,43,656/-, the nature of which was not specified in the return. The A.O. further noticed that in absence of this other income, the appellant would have incurred a business loss of 10,44,06,893/-.

While estimating the income of the appellant, Ld. AO has referred to a comparable case of M/s Radha Marketing (PAN: AAPFR8477H), engaged in similar IMFL trade, which disclosed NP rates of 2.62% (AY 2022-23) and 2.71% (AY 2021-22). DEPP

Now, the core issues arising for adjudication are:

1.

Whether the estimation of profit was justified in the facts and circumstances of the case.

2.

Whether formal rejection of books under section 145(3) is indispensable where material particulars were not produced.

3.

Whether reliance on comparable trade margins without separate confrontation vitiates the addition.

On going through the entire gamut of the issue, I find that the appellant had failed to furnish critical primary records such as:

Sales ledger and party-wise sales details

Transportation evidence

GST returns

Legible Bank book

Stock movement records

Also, during the course of the present appellate proceedings, the appellant had got plenty of time to furnish the above details but the appellant failed to avail of the opportunities. These are fundamental records in a high-volume IMFL trading business involving turnover exceeding 285 crore. The inability or failure to produce such records renders the declared trading results unverifiable. Merely producing purchase ledgers without corresponding sales trail and bank entries does not establish genuineness of gross profit or net profit. The AO was thus justified in concluding that correctness and completeness of accounts could not be verified. It is settled law that where the accounts are not capable of verification due to non-production of primary evidence, the AO is empowered to resort to estimation.

Although the AO has not used the expression "books are rejected u/s 145(3)" in so many words, the assessment order clearly records:

Failure to furnish relevant details;

Inability to verify correctness of GP and Np. T

Unreliability of trade results.

The substance of the assessment demonstrates implicit rejection of book results. Jurisprudence recognizes that when accounts are found unreliable and estimation is resorted to, the omission to cite section 145(3) verbatim does not invalidate the estimation, provided reasons are recorded. In the present case, the AO has recorded detailed factual findings establishing non-verifiability. Therefore, the contention regarding absence of formal rejection is hyper-technical and devoid of merit. The financial structure itself raises serious doubt:

GP of 60.63% in IMFL trading is commercially incongruous when compared to industry margins.

NP of 0.9% despite turnover of 285.52 crore.

Absence of explanation regarding substantial "other income" of 10.70 crore.

But for such other income, the trading activity would have resulted in heavy loss.

Such financial inconsistency justifies deeper scrutiny. In absence of supporting documentation, the declared results cannot be accepted at face value. The AO relied upon margins declared by M/s Radha Marketing in similar line of business. Even assuming arguendo that specific confrontation was not separately undertaken, the estimation 2.50% NP is conservative when compared to:

2.62% NP (AY 2022-23)

2.71% NP (AY 2021-22)

Thus, the rate adopted is lower than comparable margins. Further, estimation is not a mathematical exercise but a matter of reasonable judgment. Comparable instances serve as guiding indicators rather than strict benchmarks. The appellant, even during appellate proceedings, has not produced complete books, GST returns, stock register or legible bank book to dislodge the AO's findings. No alternative working or industry data has been furnished. Accordingly, no prejudice is demonstrated. the application of NP rate of 2.50% is fair, reasonable and even conservative. The resultant addition of 6,87,44,088/- is therefore justified. Accordingly, the addition of 6,87,44,088/- is confirmed and Ground No. 4 is dismissed.”