Unaccounted sales must be taxed on net profit basis, not on gross profit

Al-Dua Agro Food Processing Pvt. Ltd. Vs DCIT (ITAT Delhi)

Conclusion: Where unaccounted sales were established through seized material, only the net profit embedded therein was liable to tax, and not the entire sales turnover. When the seized evidence itself reflected corresponding business expenditure, the Revenue could not disregard such expenses while relying on the same material. Accordingly, the addition was restricted by applying a net profit rate of 2%, and the Revenue’s appeal seeking taxation of the entire undisclosed sales was rejected.

Held: During search and seizure operation under Section 132, AO extrapolated the unaccounted sales based on the incriminating material found during the search for the entire financial year and treated the entire sale proceeds as income. Deduction towards purchases and other expenses was denied by invoking Section 40A(3). CIT(A) held that the entire unaccounted sales could not be assessed as income and restricted the addition by estimating the gross profit at 16% of the unaccounted sales. Aggrieved, both the assessee and the Revenue preferred appeals before the Tribunal. Assessee challenged the adoption of the 16% gross profit rate, whereas Revenue contended that the entire unaccounted sales ought to have been brought to tax. Before the Tribunal, assessee submitted that CIT(A) ought to have applied the net profit rate instead of the gross profit rate since the seized material itself reflected not only unaccounted purchases but also indirect expenses such as salary and other business expenses. It was further submitted that the gross profit rate adopted by CIT(A) exceeded the gross profit disclosed in the audited books of account and the income tax returns. However, Revenue contended that AO had rightly brought the entire unaccounted sales to tax and that the CIT(A) had erred in restricting the addition by applying a gross profit rate of 16%. It was held that AO had treated the entire unaccounted sales as income without allowing deduction of purchases and other expenses, whereas CIT(A) had rightly held that only the profit embedded in such sales could be brought to tax. It was further noted that assessee had declared a net profit rate of 1.45% for the relevant assessment year and that the seized material itself reflected both direct and indirect expenses. Relying on Commissioner of Income Tax v. President Industries [2002] and India Seed House v. Assistant Commissioner of Income Tax [2024], the Tribunal held that estimation of income on the basis of the net profit rate was appropriate in the facts of the case. Tribunal applied a net profit rate of 2% to the sales, partly allowed the assessee’s appeals, and dismissed the Revenue’s appeals.

FULL TEXT OF THE ORDER OF ITAT DELHI

The four appeals in ITA Nos. 7190/DEL/2025, 7191/Del/2025, 7192/Del/2025 and 7193/Del/2025 are filed by the Assessee and four captioned Appeals in ITA Nos. 590/Del/2026, 591/Del/2026, 705/Del/2026 and 706/Del/2026 are filed by the Revenue, wherein the respective parties have challenged the Orders of the Ld. Commissioner of Income Tax (Appeals)-3, ‘(Ld. CIT(A)’ for short) Gurgaon, dated 28/10/2025 pertaining to Assessment Year 2020-21 to 2023-24 respectively.

2. Brief facts of the case are that, a search and seizure operation conducted u/s 132 of the Income Tax Act, 1961 (‘Act’ for short) in the case of Al-Hamd Group and Al-Dua Group on 21/03/2023. The Assessee company filed return for the years under consideration in response notice u/s 148 of the Act. Assessment Orders, came to be passed for the respective years under consideration on 28/03/2025 by making various additions. Aggrieved by the assessment orders Assessee preferred Appeals before the Ld. CIT(A). The Ld. CIT(A) partly allowed the Appeals of the Assessee. As against sustaining the additions by the Ld. CIT(A), Assessee preferred above Appeals and as against deletion of the addition by the Ld. CIT(A), the Revenue also filed the respective Appeals. For the sake of convenience Appeals pertaining to Assessment Year 2020-21 was taken up as lead matters and both the parties have made extensive arguments on the respective grounds of Appeal.

3. The grounds of Appeal of the parties for Assessment Year 2020-21 are reproduced as under: –

ITA No. 7190/DEL/2025 (A.Y. 2020-21) (Assessee’s Appeal)

“On the facts and circumstances of the case and in law, the notice u/s 148 issued in this case is bad-in-law, illegal, without jurisdiction and barred by limitation and, therefore, the said notice u/s 148 along with assessment order passed on the foundation of such notice are liable to be quashed and CIT(A) erred in not holding so.

1. On the facts and circumstances of the case and in law, the assessment order passed by the assessing officer is liable to be quashed as statutory notice u/s 143(2) of the Income Tax Act, 1961 has not been issued.

2. On the facts and circumstances of the case and in law, the reassessment proceedings initiated are contrary to the provisions of law including the specific provisions of section 147 to section 151 of Income Tax Act, 1961 and therefore, the reassessment proceeding initiated along with assessment order passed are liable to be quashed and CIT(A) erred in not holding so.

3. On the facts and circumstances of the case and in law, the order passed by the learned assessing officer and the addition made therein is bad-in-law and CIT(A) erred in not holding so.

4. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the addition made by the Ld. Assessing Officer to the extent of Rs. 73,61,614/-i.e. 11.70% of Rs.6,29,19,774/- on account of alleged non-genuine purchase.

5. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the addition made by the Ld. Assessing Officer to the extent of Rs. 7,01,41,324/-on account of profit estimation @ 16% on alleged unaccounted sale receipt.

6. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the addition made by the Ld. Assessing Officer of Rs. 87,34,454/- on account of alleged entry fees received in cash.

7. On the facts and circumstances of the case and in law, the assessment order passed by the assessing officer is contrary to the provisions of section 148B of the Income Tax Act, 1961.”

ITA No. 590/DEL/2026 (A.Y. 2020-21) (Revenue’s Appeal)

“1. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) erred in restricting the addition to Rs.7,01,41,324/- by estimating profit at the rate of 16% on unaccounted sales of Rs.43,83,83,273/- instead of confirming the addition of the entire amount of unaccounted sales as rightly made by the Assessing Officer.

2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the assessee had admittedly not recorded sales amounting to Rs.43,83,83,273/- arising from the sale of offal, hides, tallow, paya, khiri, horns and hooves, bile water and PFS during the year under consideration, and once such unaccounted sales were conclusively established and accepted, the entire receipts were liable to be brought to tax.

3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in estimating only the profit element on the unaccounted sales, despite the assessee having failed to furnish any details or evidence of corresponding purchases against such sales during the course of assessment proceedings.

4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to consider that in the absence of evidence of unaccounted purchases, it is to be presumed that the purchases corresponding to the unaccounted sales were routed through the regular books of account, in which case the assessee would have already claimed deduction of such purchases, thereby warranting taxation of the entire unaccounted sales.

5. Whether on the facts and circumstances of the case and in law, without prejudice, even if it is assumed that the corresponding purchases were also unaccounted, the Ld. CIT(A) failed to appreciate that such purchases would have been made from undisclosed sources, and therefore both the unaccounted purchases and the profits embedded therein were liable to be brought to tax, effectively resulting in taxation of the entire unaccounted sales.”

4. The Ld. Counsel for the Assessee submitted that the Assessee wishes not to press legal contentions raised in Assessee’s Ground No. 1 to 4 of the Assessee’s Appeal. Accordingly, the submission made by the Assessee’s Representative is taken on record and the Ground No. 1 to 4 of the Assessee are dismissed as not pressed.

5. Ground No. 5 of the Assessee is regarding addition made by the A.O. to an extent of Rs. 73,61,614/- i.e. 11.70% of Rs. 6,29,19,774/- on account of alleged non-genuine purchases. The Ld. A.O. made the said addition by imposing GP rate at Rs.11.7% to the income of the Assessee, in following manners:-

“On the basis of enquiries conducted during the course of research and post-search investigation as well as on verification of information available with Insight portal, e-filing portal and CPC2.0, It was noted that the aforesaid suppliers have not filed their return of income during the year under consideration. Further, in the notice issued u/s 142(1) dated 17.12:2024, it has been elaborated the modus operandi of bogus billing made by the assessee company. In response, the assessee submitted details of transaction undertaken with the aforesaid parties along with copy of ledger as well as copy of bank account statement. From the details filed, it was noted that some of the aforesaid parties have filed their return of income and some of them did not file their return of income. Further, consequent to search action, it was inferred that purchases made with these parties are prima-facie bogus. However, by taking a judicious and reasonable view, it is felt prudent to apply GP rate for calculation of profit embedded on the aforesaid purchases. The assessee further submitted that during the year under consideration, total transaction to the tune of Rs. 6,29,19,774/- were made with the aforesaid parties. Accordingly, GP rate i.e. 11.7% is applied to the aforesaid transaction as discussed supra.

In view of above, addition to the tune of Rs. 73,61,614/­(11.7% of 6,29,19,774/-) is hereby made to the total income of the assesse company.”

The Ld. CIT(A) in the first appeal filed by the Assessee, confirmed the above said addition.

6. The Ld. Counsel for the Assessee submitted that the addition made by the Assessing Officer, which has been and confirmed by CIT(A) is totally erroneous. Further submitted that the AO made the addition on the ground that some of the parties have not filed their Return of Income, however, merely because some of the parties have not filed their ITR that cannot be a ground/ reason for making addition in the case of Assessee. Further submitted that the Ld. AO had details of the PAN of all the parties but not made any enquiry. The assessee made all payments through banking channels only, however, the authorities have committed error making/confirming the additions on the basis that the party has not filed their ITR by drawing adverse inference against the Assessee. Further submitted that there was no justification in making ad-coaddition by applying G.P. rate @ 11.70% when the purchases are duly recorded in the books along with corresponding sales which have been duly accepted by the A.O. and the profit in the transaction already stood declared in the books of accounts and ITR. Therefore, the Ld. Assessee’s Representative submitted that the addition made by the AO and confirmed by CIT(A) is patently erroneous and the same is liable to be deleted.

7. The Ld. Assessee’s Representative has also relied on order of the Co-ordinate Bench of the Mumbai Tribunal in the case of ACIT Central Circle-3(1), Vs. M/s Everest Food Products Pvt. Ltd. and submitted that non-filing of return by the supplier cannot be a ground for making addition. Thus, sought for allowing Ground No. 5.

8. Per contra, the Ld. Assessee’s Representative submitted that the A.O. has rightly made addition by applying GP rate at 11.7% on the total transaction as the Assessee made purchase with the parties who are prima facie bogus, therefore, relying on the orders of the Lower Authorities, sought for dismissal of Ground No. 5 of the Assessee.

9. We have heard both the parties and perused the material available on record. The Ld. A.O. while making the addition observed that the suppliers have not filed the return of income during the year under consideration and the notice u/s 142(1) of the Act has been issued elaborating the alleged modus operandi of bogus bill made by the Assessee company and on enquiry it is found that the purchase made with the parties are prima-facie bogus. The A.O., however, applied GP rate for calculation of profit embodied on the said purchase at 11.7% which has been confirmed by the Ld. CIT(A). In our opinion, merely because some parties have not filed their ITR, the same cannot be sole ground or reason for the A.O. to make the addition at the hands of the Assessee. A.O. in the assessment order mentioned the PAN Numbers of all the parties, however, without making any further enquiry, disbelieved the purchases made by the Assessee without any contrary material on record. It is found that all the payments were made by the Assessee are through banking channel, therefore, authorities cannot draw adverse inference against the Assessee. The purchases are duly recorded in the books along with corresponding sales which has been duly accepted by the A.O., thus, the profit in the transaction already stood declared in the books of account and the ITR of the Assessee. Therefore, the said addition cannot be sustained on the eyes of law.

10. The Co-ordinate Bench of the Mumbai Tribunal in the case of M/s Everest Food Works Pvt. Ltd. (supra) held as under:

“6. The Learned Departmental Representative (“Ld. DR” for short) for the Revenue contended that the assessee had not furnished complete details before the Ld. AO for substantiating that these are genuine purchase transactions made by the assessee company. Further, the Ld. DR stated that some of the companies, though having a huge turnover, have not audited its financials and have also not filed their returns of income. Further, it is also contended that mere submission of ledger confirmation would not be held to be genuine transaction. The Ld. DR relied on the decision of the Hon’ble Bombay High Court in the case of Pr. CIT vs. M/s. Mohommad Haji Adam & Co. (2019) 103 taxmann.com 459 (Bombay) where GP addition on non genuine purchases was justified. The Ld. DR relied on the order of the Ld. AO.

7. The Authorized Representative (“Ld. AR” for short) for the assessee, on the other hand, controverted the said fact and stated that the assessee has substantiated its claim by sufficient documentary evidences along with the fact that it was evident from the income tax portal screenshot that out of four parties which were identified by the Ld. AO to be non-tax filers three have filed their returns of income. The Ld. AR further contended that the assessee has duly audited its financials which were also not disputed by the Ld. AO and also stated that most of the parties have also responded to the 133(6) notice and in spite of the same the Ld. AO has failed to make any independent inquiry on these alleged companies. The Ld. AR relied on the order of the Ld. CIT(A).

8. We have heard the rival submissions and perused the materials available on record. The only issue that requires adjudication is “whether the Ld. CIT(A) has erred in deleting the addition of Rs.25,55,69,713/- made by the Ld. AO towards alleged non genuine purchases made by the assessee company with four parties?” It is observed that the Ld. AO has alleged that the assessee had entered into purchase transaction the following parties who according to the Ld. AO has not filed the ITR for the impugned year A.Y. 2021-22, the details of which are tabulated hereunder:

9. The Ld. AO has sought for the details pertaining to the ledger account, invoices, proof of transportation, delivery challans, proof of payments from the assessee with regard to the above mentioned parties and had also issued notices u/s 133(6) of the Act to the said parties. With regard to the first party namely Jayapaul Rajesh, the Ld. AO made an addition on the impugned purchases amounting to Rs.2,62,73,000/- on the ground that the assessee has not submitted the ledger confirmation of the party and with regard to second party namely Mr. Gulmi the Ld. AO observed that though GST return has been filed by this party regularly no audit financials and return of income has been filed inspite of huge turnover made by the said party. With regard to the third party namely Madhukar Gorakhnath Devkar and MRG Enterprises though the ledger confirmation was filed, the Ld. AO held the same to be bogus for the reason that even these said parties have not filed their returns of income though GST return was filed regularly by the said entities.

The Ld. AO proceeded to make an addition/disallowance of Rs.25,55,69,713/- which is the GP @ 46% on the total alleged transaction of Rs.55,55,83,331/-. Per contra, the Ld. CIT(A) deleted the impugned addition/disallowance on the following observations which are cited herein under for ease of reference:

5.4.2 The appellant is a leading manufacture of masala and spices. The thrust of the addition done by the AO is the non-filing of income tax returns by the 4 suppliers. The submissions of the appellant with respect to each of the party is as under:

(1) Jayapaul Rajesh-It has been submitted that the total purchases taken by the AO at Rs. 2.50.01.21.905/- is incorrect as the actual purchase amount debited in the books of accounts is Rs. 1,60,23,000/- Further supporting documents in the form of Parties Ledger Account, Invoice copies with Goods Receipt Notes, E-way Bills, Transportation Receipts and Bank Statements highlighting payments have been submitted. Further the supplier has been regular in tax compliance and has filed its ITR for AY 2018-19, AY 2019-20 & AY 2020-21. It has also been submitted that input tax credit in respect of these purchases have already been allowed which proves that the supplier is regular in filing its GST returns. Copy of GST-R 2A showing the same has also been filed by the appellant.

(ii) MR Gulmi – It has been submitted that the AO has taken incorrect purchase amount of Rs. 46,97,31,180/- as against actual purchase of Rs.40.18,72,196/-. Further supporting documents in the form of Ledger Account, Invoice copies & Goods Receipt Notes, E-way Bills &Transportation Receipts, Quality Testing Reports, Cold Storage, Weighment Bridge Proof and Bank Statements highlighting payments have been filed. The appellant has also submitted Income Tax Portal screenshot confirming that MR Gulmi is not a “Specified Person” under Sections 206AB & 206CCA implying that the supplier has duly filed the return of income for the AY 2021-22 and hence the very pretext on which the disallowance has been made is not correct. The appellant has also submitted that the input tax credit claimed against these purchases already stand allowed proving that the supplier is regularly filing its GST returns. It has also been pointed out that the supplier has duly responded to the verification notice issued by the AO on 29.12.2022 via email.

(iii) Madhukar Gorakhnath Devkar It has been submitted that the AO has taken incorrect purchase amount of Rs.30,73,524/- as against actual purchase of Rs.32,27,200/-. Further supporting documents in the form of Ledger Account, Invoice copies & Goods Receipt Notes, E-way Bills & Transportation Receipts, weigh bridge receipt and Bank Statements highlighting payments have been filed. The appellant has also submitted Income Tax Portal screenshot confirming that Madhukar Gorakhnath Devkar is not a “Specified Person” under Sections 206AB & 206CCA implying that the supplier has duly filed the return of income for the AY 2021-22 and hence the very pretext on which the disallowance has been made is not correct. The appellant has also submitted that the input tax credit claimed against these purchases already stand allowed proving that the supplier is regularly filing its GST returns.

(iv) MRG Enterprises – It has been submitted that the AO has taken incorrect purchase amount of Rs.5,77,59,722/- as against actual purchase of Rs.5,98,41,579/-. Further supporting documents in the form of Ledger Account, Invoice copies & Goods Receipt Notes, E-way Bills & Transportation Receipts and Bank Statements highlighting payments have been filed. The appellant has also submitted Income Tax Portal screenshot confirming that MRG Enterprises is not a “Specified Person” under Sections 206AB & 206CCA implying that the supplier has duly filed the return of income for the AY 2021-22 and hence the very pretext on which the disallowance has been made is not correct. The appellant has also submitted that the input tax credit claimed against these purchases already stand allowed proving that the supplier is regularly filing its GST returns.

5.4.3 While non filing of income tax return by a supplier is a reason to further investigate the transaction, this reason alone is not sufficient to disallow the expenses and treat the same as non genuine. The appellant in the instant case has filed ample documentary evidence to not only support the purchase but also to justify its transportation and delivery. The factual matrix is that the expenses being disallowed are purchase of raw material which is quintessential and proportionate to the manufacturing output being shown by the appellant, wherein it is not correct to accept the manufacture and corresponding sale of the finished product but doubt the input raw material. The AO has proceeded to examine the tax behavior of the persons from whom these purchases have been made and has made this addition since they have not been regular in filing of return of income. In my view, with respect to expenses debited in the profit & loss account that are routine business expenses such as purchase and otherwise satisfy the conditions laid down in Section 37(1) of the Act, the onus of the appellant is limited and does not extend to ensuring that the parties to whom the appellant is making these payments are tax compliant. It is also to be noted that none of these parties are admitted or identified accommodation entry providers. Further the appellant has demonstrated by way of income tax portal screen shot that out of the 4 parties identified by the AO as non-filer, 3 have actually filed their return of income. In view of the above reasons and also in view of the fact that the books of accounts of the appellant are duly audited and the auditor has not identified any specific case of misuse and violation of the conditions prescribed in Section 37(1) of the Act, the addition made by the AO cannot be sustained. Thus, the addition of Rs.25,5569,713/- made by the AO by attributing 46% profit to unverifiable purchases of Rs. 55,55,86,331/- is deleted and the ground of appeal is allowed.”

10. From the above observation, it is evident that the assessee has furnished various documentary evidences such as ledger account, invoice copies with goods receipt notes, Eway bills, transportation receipts and bank statement reflecting payments made regularly and also the ITR details of party No.1 for A.Y. 2018-19, 2019-20 & 2020­21. It is also an undisputed fact that these parties have been filing GST returns regularly showing substantial business transaction and also the finding of the Ld. CIT(A) that none of these parties are “specified persons” u/s 206AB & 206CCA, which substantiates that they have duly filed their return of income for the impugned year and disallowance of expenses towards purchases cannot be made merely on the ground that these parties have not filed their return of income, is not justifiable in our view. Further, it is also observed that the Ld. AO has not given a finding on the veracity of the documentary evidences furnished by the assessee nor has she stated that these parties are alleged to be accommodation entry providers engaged in providing bogus purchase bills which is the modus operandi of a regular accommodation entry provider. Pertinently, we also find no observation as to whether any enquiry was conducted in these companies as to their existence or whether or not there is any business transaction carried out by these companies has not been examined by the Ld. AO. The purported bogus purchases are said to have been backed by bills and vouchers along with the books of accounts of the assessee duly audited where the said transactions have been recorded, corroborates the fact that the assessee has proved the transaction to be genuine. There is no iota of doubt that the Ld. AO has failed to establish that the parties through whom the assessee has purchased are accommodation entry providers neither by any documentary evidences nor by circumstantial evidences where the Ld. AO has not faulted with the supporting documents filed by the assessee to substantiate its case and we also reiterate the fact that no inquiry was carried out by the Revenue to justify the disallowance of 46% of the purchases by holding the same to be bogus. It is also a settled proposition of law that the Revenue while disallowing bogus purchases would necessarily have to ignore the corresponding sales recorded against the alleged parties, which has not been done so in the present case in hand. In the absence of these findings, we do not find any justification in upholding the addition/disallowance made by the Ld. AO and thereby holding that there is no infirmity in the order of the Ld. CIT(A) in deleting the addition/disallowance made in the hands of the assessee and the same warrants no interference. Hence, we dismiss the grounds of appeal raised by the Revenue on the above observation.”

11. In view of the above discussion and also relying on the ratio laid down by the Co-ordinate Bench of the Mumbai Tribunal in the case of M/s Everset Food Products (supra), we delete the ad-hoc addition made by the A.O. by applying the GP rate of 11.70% which has been confirmed by the Ld. CIT(A). Accordingly, Ground No. 5 of the Assessee is allowed.

12. Ground No. 6 of the Assessee’s Appeal is against confirming of addition made by the A.O. to the extent of Rs. 7,01,41,324/- on account of profit estimation @ 16% on alleged unaccounted sale receipt.

13. The Ld. A.O. observed that incriminating material found during the search clearly established that the Assessee was making unaccounted sales and also unaccounted purchases including unaccounted salary and other expenses. Based on the material found for a certain period, the A.O. extrapolated the sales to full year and allocated such unaccounted sales to two Companies namely Al-Hamd Agro Foods Products and Al-Dua Food Processing Pvt. Ltd. The A.O. made the addition of entire amount of such sale and has not allowed the deduction of any purchase and other expenses on the ground that the deduction of cash expenses is not allowable u/s 40A(3) of the Act. In the first Appeal filed before the Ld. CIT(A), the Ld. CIT(A) by relying on various judicial precedents held that the entire sales cannot be added as income and the profit embodied in the sales can be treated as income. Accordingly, the Ld. CIT(A) deleted the additions of entire sales made by the A.O. and confirmed the addition by applying GP rate @ 16%. Aggrieved by the action of the Ld. CIT(A) in upholding the addition to the extent of 16%, the Assessee has raised Ground No 6 in ITA No. 7190/Del/2025 and as against the deletion, revenue field Appeal in ITA No. 590/Del/2026.

14. The Ld. Counsel for the Assessee vehemently submitted that the GP rate @ 16% applied by the Ld. CIT(A) is erroneous and in any case, the same is highly excessive and submitted that instead of applying GP rate, A.O. should have applied NP rate. Further submitted that the GP rate applied by the Ld. CIT(A) is higher than GP rate declared by the Assessee in the Audited Books of Account and in the ITR which have been accepted by the A.O. The Ld. Counsel has also submitted a Chart of GP/NP rate declared by the Assessee in the books of accounts and ITR which is reproduced as under: –

15. The Ld. Counsel further submitted that the Ld. CIT(A) should have applied only NP ratio, because, as per the seized material itself, there were evidence found of not only direct expenses by way of purchase, but also the indirect expenses such as salary and other expenses were in exist. The Ld. Counsel has also relied on several judicial precedents in support of his contention and sought for allowing Ground No. 6 and also sought for dismissal of Revenue’s Appeal.

16. Per contra, the Ld. Departmental Representative vehemently submitted that the Ld. A.O. has rightly applied GP rate of 16% on the entire sale as it was clearly established that the Assessee was making unaccounted sales purchases and also unaccounted salary expenses. Therefore submitted that the Ld. CIT(A) committed error in deleting the addition of entire sales made by the A.O. and in applying GP rate at 16%. Thus, sought for dismissal of Ground No. 6 and allowing the Revenue’s Appeal.

17. We have heard both the parties and perused the material available on record. The A.O. based on unaccounted salefor certain period, extrapolated sales to full year and allocated such un-accounted sales to two companies including the Assessee company. The A.O. made the addition of entire amount of such sale and has not allowed the deduction of any purchase and other expenses on the ground that deduction of cash expenses is not allowable u/s 40A(3) of the Act. However, the Ld. CIT(A) held that the entire sale cannot be added as income and only profit embodied in the sales can be treated as income. Accordingly, confirmed the addition by applying the GP rate of 16%. The Ld. Assessee’s Representative has taken us through GP/NP rate declared by the Assessee in the books of accounts and in the ITR. The GP rate applied by the Ld. CIT(A) is higher than the rate declared by the Assessee in the books of accounts and the ITR for the year under consideration. The Assessee has declared NP rate of 1.45%. As per the seized material, there were evidence found not only direct expenses i.e. purchase, but also indirect expenses such as salary and other expenses, which can be corroborated from the assessment order. Therefore, the Ld. CIT(A) should have applied the net profit rate only.

18. The Hon’ble High Court of Delhi in the case of Indigo Airways (P.) Ltd Vs. Commissioner of Income Tax [2012] 26 taxmann.com 244, the Hon’ble High Court held as under:-

“14. In the present case, the AO and, to a certain extent, the CIT (A) appear to have proceeded inter alia, to disallow heads of expenditure towards commission payments, sundry expenses (termed „R‟) and green box expenses. As far as the “green box” expenses are concerned, the assessee had relied on the books relied on by the revenue to assess the income, to urge that these constituted expenses entitled to deduction. The AO held these expenses to be excessive. The assessee argues that once the revenue seeks to draw a presumption, by relying on Section 132 (4A) of the Act that presumption has to be given full effect. In other words, if the correctness of the contents of books and other materials is to be presumed, such a deemed state of affairs would have to be assumed in respect of all entries in the books, and not merely the entries of income (or receipts).

15. Section 132 (4A) reads as follows:

“(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed-

(i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;

(ii) that the contents of such books of account and other documents are true; and

(iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting ITA-1620 & 1622/2010 Page 12 of, any particular person, are in that person’ s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.”

As to the nature of the presumption, the Kerala High Court, in Income Tax Officer, B-Ward, Ernakulam v. T. Abdul Majeed, [1988] 169 ITR 440, held as follows: –

“It is true that section 132(4A) of the Act enables the court to presume the truth of the contents of such books. However, it is a presumption which can be rebutted. Moreover, the presumption envisaged therein is only a factual presumption. It is in the discretion of the court, depending upon other factors, to decide whether the presumption must be drawn. The expression used in the sub-section is “may be presumed” as is used in section 114 of the Evidence Act, 1872. It is not a mandate that whenever the books of account are seized, the court shall necessarily draw the presumption, irrespective of any other factors which may dissuade the court from doing so.”

16. In P.R. Metrani v. Commissioner of Income Tax, Bangalore (2007) 1 SCC 789 the Supreme Court elaborated upon the nature of presumption under Section 132 (4A) and the scheme of the provision, in the following words:

“Sub-section (4A) was inserted by Taxation Law (Amendment) Act, 1975 with effect from 1.10.1075 to permit a presumption to be raised in the circumstances mentioned therein. Before the insertion of sub­section (4A) the onus of proving that the books of account, other documents, money bullion, jewellery etc. found in possession or control of a person in the course of a search belonged to that person was on the Income Tax Department. Sub-section (4A) enables an assessing authority to raise a rebuttable presumption that such books of account, ITA-1620 & 1622/2010 Page 13 money, bullion etc. belonged to such person; that the contents of such books of account and other documents are true, and, that the signatures and every other part of such books of account and other documents are signed by such person or are in the handwriting of that particular person. Raising of such presumption has been enacted by the Legislature to enable the assessing authority to make a provisional adjudication within the time frame prescribed under Section 132. Otherwise it may not be possible to do so. The object of introduction of Section 132 is to prevent the evasion of tax, i.e., to unearth the hidden or undisclosed income or property and bring it to assessment. It is not merely an information of undisclosed income but also to seize money, bullion etc. representing the undisclosed income and to retain them for the purposes of realization of taxes, penalties etc. Search and seizure is a serious invasion in the privacy of the person. Section 132 which is a complete code by itself provides that the money, bullion or the books of account etc. should not be retained unnecessarily and that the provisional assessment made under Section 132 for the purpose of retention of the books is passed within a specified time in accordance with law. It provides that the books of account, money and bullion which are not required are not retained unnecessarily thereby causing harassment to the person concerned. In order to see that the assessment order is framed within the time frame provided under Section 132, legislature provided for a rebuttable presumption to be raised against the person from whose possession and control the books of account, money, bullions etc. are seized so that the order can be passed within the time frame provided under Section 132. A presumption is an inference of fact drawn from other known or proved facts. It is a rule of law under which courts are authorized to draw a particular inference from a particular fact. It is of three types, (i) “may presume”, (ii) “shall presume”

and (iii) “conclusive proof”. “May presume” leaves it to the discretion of the Court to make the presumption according to the circumstances of the case. “Shall presume” leaves no option with the Court not to make the presumption. The Court is bound to take the fact as proved until evidence is given to disprove it.

ITA-1620 & 1622/2010 Page 14 In this sense such presumption is also rebuttable. “Conclusive proof” gives an artificial probative effect by the law to certain facts. No evidence is allowed to be produced with a view to combating that effect. In this sense, this is irrebuttable presumption.

The words in sub-section (4) are “may be presumed”. The presumption under sub-section (4A) therefore, is a rebuttable presumption. The finding recorded by the High Court in the impugned judgment that the presumption under sub-section (4A) is a irrebuttable presumption in so far as it relates to the passing of an order under sub-section (5) of Section 132 and rebuttable presumption for the purpose of framing a regular assessment is not correct. There is nothing either in Section 132 or any other provisions of the Act which could warrant such an inference or finding. Presumption under sub-section (4A) would not be available for the purpose of framing a regular assessment. There is nothing either in Section 132 or any other provision of the Act to indicate that the presumption provided under Section 132 which is a self contained code for search and seizure and retention of books etc. can be raised for the purposes of framing of the regular assessment as well.” If the revenue was of the opinion that the expenses claimed towards “green boxes” was inadmissible or was excessive, or not genuine, in order to reject the entries in the books of account and other documents of the assessee, seized during the search, it ought to have relied on other materials. Having once drawn the presumption that the contents of the documents (of the assessee) taken into possession during the search were true, the revenue could not have, consistently with that presumption, proceeded to require the assessee to produce materials in support of the expenditure entries. Such an inconsistent approach in respect of the contents of the same book appears to have been founded only on suspicion that they were not genuine. However, suspicion ITA-1620 & 1622/2010 Page 15 cannot replace proof. Moreover, the full effect of the presumption should be given effect to, whenever the statute directs a particular non- existent state of affairs to be assumed. (Ref State of Bombay v. Pandurang Vinayak, AIR 1953 SC 244; Karnataka State Road Transport v B.A. Jayaram & Ors, AIR 1984 SC 790). In these circumstances, the effect of the presumption (which bade the revenue, when it chose to invoke it, to presume that the “contents of such books of account and other documents are true..”. Therefore, in the absence of any materials, in the form of documents, the revenue could not have denied the benefit of any expenses which would otherwise have inured to the assessee, as an allowable deduction under Section 37 (1).”

19. In the case of Commissioner of Income Tax Vs. Balchand Ajit Kumar, 2003 (4) TMI-76 Madhya Pradesh High Court wherein it was held as under: –

“We are in respectful agreement with the aforesaid opinion inasmuch as the total sale cannot be regarded as the profit of the assessee. The net profit rate has to be adopted and once a net profit rate is adopted, it cannot be said that there is perversity of approach. Whether the rate is low or high, it would depend upon the facts of each case. In the present case net profit rate of five per cent. has been applied. We do not think it appropriate that the same requires to be enhanced. We are also inclined to think that it is high. In any case, it cannot be said that there has been perversity of approach”.

20. In the case of Commissioner of Income Tax Vs. President Industries 1999 (4)TMI 8-Gujarat High Court wherein it was held as under: –

“3. Having perused the assessment order made by the AO, the order made by the CIT(A) and the Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under s. 256(1). It cannot be a matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring cost in acquiring goods which have been sold have been made by the assessee and that has also not been disclosed. In the absence of such finding of fact the question whether entire sum of undisclosed sale proceeds can be treated income of the relevant assessment year answers by itself in negative. The record goes to show that there is no finding nor any material has been referred about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales.

4. We are, therefore, of the opinion that no question of law which requires to be referred to this Court arise out of Tribunal’s appellate order. The order of Tribunal under s. 256(1) is not erroneous in reaching such conclusion”.

21. Further, in the case of India Seed House Vs. Assistant Commissioner of Income Tax 2000 (1) TMI 146-ITAT Delhi, wherein it was held as under: –

“The Tribunal found as an admitted fact that unaccounted sales totaling Rs. 4,22,14,428 existed for the relevant block period. The Assessing Officer applied a gross profit (g.p.) rate of 7% on those sales, relying on admissions recorded during search and posts arch enquiries. The assessee, after receiving copies of seized documents and statements, sought deduction of revenue expenses (seed cleaning, warehousing, packing etc.) shown in the seized annexures. The Tribunal majority held that admissions are substantive but not conclusive and that, where seized material itself demonstrates deductible expenses relating to the unaccounted sales, those expenses must be considered. On the material before it the Tribunal concluded that allowing the claimed adjustment of expenses recorded in the seized papers reduced the appropriate net profit rate to 1.5%, a rate consistent with the assessee’s historical net profit disclosure. The AO was therefore directed to recompute the net profit on the unaccounted sales on the basis of 1.5%.”

22. In view of the above circumstances, by applying the ratio rendered in the above judicial precedents, we deem it fit to apply the NP rate of 2%, accordingly, we sustain the addition of Rs. 87,67,665/- by partly allowing the Ground No. 6 of the Assessee in ITA No. 7190/Del/2025.

23. Since, we have partly allowed the Ground No. 6 of the Assessee and sustained the addition by applying NP rate of 2%, the Appeal of the Revenue in ITA No. 590/Del/2026 has become in-fructuous. Accordingly, Ground No. 6 of the Revenue is dismissed.

24. Ground No. 7 of the Assessee is regarding confirming the addition made by the A.O. of Rs. 87,34,454/- on account of entry fees received in cash. The Ld. A.O. while making the addition on account of entry fees, held as under:-

“Entry Fee – During the course of search action conducted, it was found that cash was being generated through entry fee which was charged per vehicle at the entrance of the assessee company. Further, statement of Sh. Haji Zaheer, Promotor of AL Hamd Group was also recorded on oath wherein he admitted that there are various suppliers who supply raw material (animals) to the factories. These animals are sent in vehicles and these vehicles carrying animals enter the main gate of Al Dua Food Processing Pt. Ltd. and Al Hamd Agro Food Products Pvt. Ltd. There are employees of Al Hamd Group who are available at main gate of factories and provides gate pass to the driver of vehicles. Also, from the drivers of these vehicles entering at factories Rs. 300/- per bigger truck and Rs. 150/-to 200/- per smaller truck in cash are collected by these employees present at gate of factories. Further, Sh. Haji Mohammad Zaheer was asked to provide record of these receipts for entry fee, provide name of employees who receive these entry fee and state whether these receipts from entry fee are recorded in books of account of Al Hamd Group. For which assessee submitted that Sh. Salman, Sh. Shahrukh and Sh. Prempal etc. employees of Al Hamd Group are assigned the work of collecting entry fee. Statement of these persons were also recorded on oath wherein they have confirm that they collect the payment of Rs.150 to Rs.200 per vehicle as entry fee. Mohd. Shahrukh also admitted that his duty is to load vehicles with the skins/hides of Buffaloes. For loading each vehicle, he receives Rs.300/- to Rs.500/- per size of vehicle. He further stated that an amount of Rs. 1600/- is also charged in cash from the driver of vehicle which are loaded with skins and hides. It was also admitted by him that such amount collected is handed over to Hazi Zaheer, promoter of this group on weekly basis. It was further noted from perusal of financials of the assessee company that such amount has not been recorded in the books of accounts of the assessee. Further, incrimination material found and seized in this regard as well as excerpts of the statement of the aforesaid persons including Hazi Zaheer was confronted to the assessee vide this office notice u/s 142(1) dated 17.12.2024(supra). During the year under consideration the assessee received an amount of Rs. 87,34,454/-as entry fee which were not recorded in the books of account. Calculation of the said amount is already given the relevant para of notice u/s 142(1) dated 17.12.2024. Therefore, vide this office notices u/s 142(1), the assessee was asked to submit complete day wise ledger account of entry fees collected by the company for each AY rs separately. The assessee was also asked to show whether said income has been declared for taxation for the year under consideration. In response, it was submitted by the assessee that nominal amount was collected from the vehicles at the factory gate which caries the cattle and on Friday this amount was used as donation or distribution Bhandara and to the poor and needies. Accordingly, the assessee company was show caused vide this office show cause notice dated 20.03.2025 as to why amount of Rs. 87,34,454/- collected as entry fee should not be taxed as income from other sources during the year under consideration. In response, the assessee submitted that the amount was collected from the vehicles at the factory gate which carries the cattle and the amount so-collected was used as donation or distributing Bhandara, to the poor and needy people on Friday. Therefore, you are requested not to take any adverse inference in my case.

Reply furnished by the assessee company on this issue was duly considered but not that the assessee collected entry fee as well as loading charges from the various customers during the year under consideration. Even this fact was admitted by Hazi Zaheer who is promoter the assessee group of company. Further, the assesse also accepted about the receipt of entry fee from various vehicles. It is also seen from the financials of the assessee company that the assessee company did not account for the aforesaid receipts and thus, the same was not disclosed for taxation. It is also an undisputed fact that the said receipt is income of the assessee company chargeable tax.

Considering the above as well as factum of this issue supported with documentary evidence as well as statement given on oath, entire entry fee as well as loading charges to the tune of Rs. 87,34,454/- is held as income from other sources and addition to this extent is hereby made to the total Income of the assessee.”

25. The said addition made by the A.O. has been confirmed by the Ld. CIT(A). It is the case of the Assessee that the said addition made by the A.O. is erroneous and contended that even as per the allegation of the A.O., the entry fees from some trucks were received by the Director in his individual capacity and the same was utilized for donation on every Friday. The same was not the income of the Assessee in any manner. The Ld. Assessee’s Representative further submitted that the addition made by the A.O. is highly excessive and the same is based on extrapolation. Considering that fact the AO has extrapolated the figures of 3 to 4 months to the whole year and also considering the overall facts and circumstances, we sustain the addition to an extent of 25% of the amount added by the A.O. Accordingly, the Ground No. 7 of the Assessee is partly allowed.

ITA No. 7191/Del/2025 to ITA No. 7193/Del/2025 (Assessee’s Appeals) and ITA No. 590/Del/2026 to ITA No. 591/Del/2025, 705/Del/2026 and 706/Del/2026 (Revenue’s Appeal), pertaining to A.Y 2021-22, to 2023-24.

26. The Ld. Counsel for the Assessee submitted that the Assessee wishes not to press legal issues raised in Assessee’s Ground No. 1 to 4for Assessment Year 2021-22 and 2022-23 and Ground No. 1 & 2 for Assessment Year 2023-24 of the Assessee’s Appeals. Accordingly, the submission made by the Assessee’s Representative is taken on record and the Ground No. 1 to 4 for Assessment Year 2021-22 and 2022-23 and Ground No. 1 & 2 for Assessment Year 2023-24 of the Assessee’s Appeals are dismissed as not pressed.

27. The Ground No. 5 of the Assessee for Assessment Year 2021-22 and 2022-23 and Ground No. 3 of Assessment Year 2023-24 of the Assessee are regarding addition made by A.O. on ground of gross profit @ 11.70% applied on certain purchases. The A.O. has estimated GP on certain purchases which have been confirmed by Ld. CIT(A).

28. We have already decided the similar issue while deciding the Appeals for Assessment Year 2020-21 by relying on the ratio laid down by the Co-ordinate Bench of the Mumbai Tribunal in the case of M/s Everest Food Products (supra) and deleted the ad-hoc addition made by the A.O. by applying the GP rate of 11.70% which has been confirmed by the Ld. CIT(A). Since, facts being identical, the decision of the Bench for the Assessment Year 2020-21 would apply mutatis mutandis to the facts of the present Appeal. Accordingly, Ground No. 5 for Assessment Year 2021-22 and 2022-23 and Ground No. 3 of Assessment Year 2023-24 of the Assessee’s Appeal are allowed.

29. Ground No. 6 of the Assessee and Ground No. 1 to 5 of the Revenue for Assessment Year 2021-22 to 2023-24 and Ground No. 4 of the Assessee’s Appeal for Assessment Year 2023-24 are regarding the addition made on account of unaccounted sale. The Ld. A.O. made addition of alleged unaccounted sale, wherein the Ld. CIT(A) held that the entire sales cannot be added and thereby applied estimated GP rate 16%,. Both the Assessee and the Revenue have challenged the order of the Ld. CIT(A).

30. We have already decided the similar issue while deciding the Appeal for Assessment Year 2020-21, wherein the Bench has applied the NP rate of 2%, accordingly, we sustained the partial addition. Facts being identical, the aforesaid decision of the Tribunal for Assessment Year 2020-21 would apply mutatis mutandis to the facts of the present case also. Accordingly, the Ground No. 6 of the Assessee for Assessment Year 2021-22, 2022-23 and Ground No. 4 of the Assessee for Assessment Year 2023-24 are partly allowed.

31. Since, we have partly allowed the Ground No. 6 of the Assessee for Assessment Year 2021-22, 2022-23 and Ground No. 4 for Assessment Year 2023-24 of the Assessee’s Appeal and sustained the addition by applying NP rate of 2%, the Ground No. 1 to 5 of the Revenue’s appeal for Assessment Year 2021-22 to 2023-24 are dismissed.

32. Ground No. 7 of the Assessee for Assessment Year 2021-22, 2022­23 and Ground No. 5 of the Assessee for Assessment Year 2023-24 are pertaining to the addition made on account of alleged entry fees.

33. We have already decided the similar issue while deciding the Appeal for Assessment Year 2020-21, wherein the Bench considering that fact that the AO has extrapolated the figures of 3 to 4 months to the whole year and also considering the overall facts and circumstances, sustained the addition to the extent of 25% of the amount added by the A.O.

34. Facts being identical, the aforesaid decision of the Tribunal would apply mutatis mutandis to the facts of the present case also. Accordingly, the Ground No. 7 of the Assessee for Assessment Year 2021-22, 2022-23 and Ground No. 5 of the Assessee for Assessment Year 2023-24 are partly allowed by sustaining the addition to the extent of 25% of the amount added by the A.O.

35. Ground No.8 of the Assessee in Assessment Year 2021-22, 2022-23 and Ground No. 6 in Assessment Year 2023-24 are regarding addition made on account of unexplained expenditure u/s 69C r.w. Section 115BBE of the Act. The Ld. A.O. held that the Assessee company is paying fees for documentation clearance to various embassies in respect of exports sales made by it. Ld. A.O. while making the addition observed that the expenses are not recorded in the books of account. The Ld. CIT(A) has confirmed the said addition. For the sake of ready reference, the observation of the A.O. in the assessment order are reproduced as under:-

“In the instant case, it is a matter of record/fact that the assessee company has made said expenditure in cash on account of legalization fee. Source of which was not explained by the assessee. Therefore, the said expenditure is nothing but as an unexplained expenditure within meaning of section 69C of the Act. Reliance is further placed on the judgment of Hon’ble High Court of Delhi in the case of Sushil Bansal v. Pr. CIT [2020] 115 taxmann.com 225 (Delhi) wherein it was held that With there being no credible explanation offered by the assessee for the payment made as capitation fee, the AO is justified in adding it to the Assessee’s income u/s 69C. SLP filed by the assessee was also dismissed by Hon’ble Supreme Court of India vide its order dated 06.01.2020. In the instant case as well, the assessee did not explain any source of the aforesaid payment. Thus, the ratio laid down by the aforesaid judgment is squarely applicable to the case at hand. As such, the impugned payment/expenditure to the tune of 47.29% of Rs. 16,71,384/-(22830*73.21 average value of 1 USD in FY 2021-22) i.e. Rs.7,90,398/- is held as unexplained expenditure u/s 69C of the Act and addition of the same is hereby made to the total income of the assessee. Tax is also being charged as per provisions of section 115BBE of the Act.”

36. The Ld. Assessee’s Representative submitted that the addition made by the A.O. is erroneous, however, submitted that even if net profit ratio is applied on the alleged unaccounted sales, the same will be sufficient to cover the source of the expenses. The learned AR for the assessee further submitted that the addition made in earlier year stood confirmed by CIT(A)estimating the income of the assessee applying G.P on the alleged unaccounted purchases/sales. It is, therefore, requested that the benefit of set off and telescoping of the said addition be allowed to the unexplained expenditure incurred during the year under appeal.

37. Per contra, the Ld. Departmental Representative relying on the orders of the Lower Authorities sought for dismissal of the Assessee’s above Grounds of Appeal.

38. We have heard both the parties and perused the material available on record. Ld. A.O. while making the addition u/s 69C r.w. Section 115BBE of the Act, observed that the expenses of the Assessee were not recorded in the books of account. It is observed in preceding assessment year as well as in the years under appeal, we have confirmed the additions by estimating the income of the assessee applying net profit ratio on the alleged unaccounted purchases/sales. It is further observed such income has not been utilized elsewhere nor any evidence was brought on record by the revenue suggesting that such income was applied by the assessee in acquisition of assets or making other payments. Therefore, it could be safely presumed that the alleged unexplained expenditures were incurred out of the income so available with the assessee. Accordingly, the source of the said expenditure is from the income sustained in earlier years, and thus the benefit of set-off and telescoping out of such income is allowed to the assessee and separate addition made on account of unexplained expenditure is here by deleted by allowing the Ground No.8 of the Assessee in Assessment Year 2021­22, 2022-23 and Ground No. 6 in Assessment Year 2023-24.

39. In the result, Appeal of the Assessee in ITA No. 7190/Del/2025, 7191/Del/2025, 7193/Del/2025 and 7192/Del/2025 are partly allowed and the Appeal of the Revenue in ITA No. 590/Del/2026, 591/Del/2026, 705/Del/2026 and 706/Del/2026 are dismissed.

Order pronounced in the open court on 21st May, 2026