Sakshat Jain Vs ACIT (ITAT Delhi)
Delhi ITAT Upholds Section 153C Proceedings but Restricts Addition on Bogus Sales to 1% GP Estimation
The Delhi ITAT partly allowed the assessee’s appeals while dismissing the Revenue’s cross appeals, holding that the initiation of proceedings under section 153C was valid, as the seized material recovered during the search on the K.K. Spun Group specifically pertained to and related to the assessee’s alleged bogus sales transactions. The Tribunal rejected the assessee’s challenge to the absence of a proper satisfaction note, observing that the lower authorities had consistently recorded that the seized material directly related to the assessee.
On merits, the Tribunal upheld the finding that the sales routed through K.K. Spun Group and Giga Pipes were accommodation entries and therefore bogus in principle, relying on the evidence unearthed during the search and subsequent enquiries. However, it disagreed with the quantification of the addition. While the CIT(A) had reduced the commission element to 3%, the Tribunal found that such estimation lacked support from any comparable data and was on the higher side. Considering the overall facts, it held that estimating the profit at 1% of the impugned sales or the gross profit actually declared in the books, whichever is higher, would meet the ends of justice, with a specific direction that the order shall not be treated as a precedent. Accordingly, the assessee obtained partial relief, while the Revenue’s appeals were dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
These assessee’s instant fours appeals ITA Nos.8309 to 8312/Del/2025 and Revenue’s as many cross appeals ITA Nos. 8682, 8553, 9109 & 8683/Del/2025 for assessment years 2018-19 to 2021-22, arise against the Commissioner of Income Tax (Appeals) [in short, the “CIT(A)”], Delhi’s-23 orders, all dated 09.10.2025, having DINs and orders no. ITBA/APL/S/250/2025-26/1081587654(1),1081587654(1), 1081587654(1) and 1081587654, involving proceedings under section 153C of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
Heard both the parties. Case file perused.
2. It transpires during the course of hearing that the assessee seeks to canvass its first and foremost substantive ground challenging both the learned lower authorities’ action initiating/framing section 153C proceedings and assessments in its case; all dated 30.03.2024. We notice from a perusal of the case records that the learned departmental authorities appear to have carried out section 132 search action in M/s. K.K. Spun group of cases where they found some alleged incriminating material indicating the assessee to have availed bogus sales entries through a well-orchestrated accommodation entry network. They accordingly set into motion section 153C proceedings in his case which finally culminated in the impugned assessments framed on 30.03.2024 as upheld in the CIT(A)’s lower appellate discussion.
3. Learned counsel’s case accordingly is that we ought to quash the impugned assessments as non-est ones in the eyes of law since not based on a proper satisfaction note recorded under section 153C. We find that no such satisfaction note forms part of the case records before us. This is further coupled with the fact that both the Assessing Officer as well as the CIT(A) have recorded their unanimous reasoning(s) that the aforesaid seized material in fact pertained to and the information therein related to the assessee’s bogus sale entries availed through the searched parties M/s. K.K. Spun group of cases. We thus find no merit in the assessee’s instant legal ground and uphold the departmental action taking recourse to section 153C proceedings herein. Rejected accordingly.
4. Next comes the identical sole substantive issue between the parties on merits. It emerges from a perusal of the assessee’s and the Revenue’s “lead” cross appeal in the first and foremost assessment year 2018-19 that the Assessing Officer found the assessee’s total sales entries to the tune of Rs.7,38,51,580/-availed from the aforesaid searched parties which stood assessed @ 6.9% commission component resulting in addition of Rs.50,97,973/- as partly restricted in the CIT(A)’s lower appellate order, as under:
“11.4 I am of the opinion & considering the material seized, the nature of business, and the prevailing industry practice, it is reasonable to hold that the appellant earned commission income on such transactions. I find that the AO has charged commission income @6.90% which is on very higher side as there are several judicial precedents wherein commission income on such transactions were held to be charged @ 1 to 1.5%. It is also a matter of facts that the appellant has already included the profit element of these sales while accounting GP rate @ 1.73% for the AY 2018-19 on combined turnover, whereas if these tainted parties i.e. KK Spun and Giga Pipe are excluded then the GP is 1.97%. In the other words, the appellant is reducing its GP to the extent of 0.24% for the year under consideration. For AY 2019-20, 2020-21 and 2021-22 the difference is 0.66%, 0.71%, and 0.88% respectively. Therefore, considering the same I hereby restrict the commission income to the extent of 3% of the total sales made to M/s KK Spun India Limited & Giga Pipes and the addition is being sustained to the extent of 1.27% [3% minus 1.73% (i.e. difference of restricted commission with the GP rate)], which comes to the tune of Rs. 9,37,915/- (i.e. 1.27% of 7,38,51,580/-) and direct the AO to re-compute the income of the appellant accordingly. Thus, ground no. 2 to 7 are partly allowed.”
It is in this factual backdrop that both the assessee as well as the department have filed their instant identical cross appeals that we ought to delete the impugned addition or uphold the same in entirety; respectively.
5. Both the parties vehemently reiterate their respective stands against and in support of the learned Assessing Officer’s assessment findings herein. We wish to clarify here that his assessment discussion has duly elaborated the fact that the aforesaid searched party had acted as a mere accommodation entry provider to the assessee as well as similarly situated persons. We thus find no reason to interfere with the same since supported by detailed evidences gathered during search and the inquiries carried out thereafter. We uphold the learned lower authorities’ action treating the assessee’s sales sourced from M/s. K.K. Spun group of companies as bogus ones in principle.
6. Next comes the equally important aspects of quantification of the impugned addition. Learned CIT(A) has admittedly granted part relief to the assessee whilst reducing the commission component on the aforesaid alleged bogus sales to 3% (supra) which is not found to be based on any segmental comparables as well. The facts also remains that the impugned sales are found to be treated as bogus once only, we do not see any logic in applying the profit element thereupon @ 3% as well being on a bit higher side. Faced with these situations, after taking into consideration totality of the relevant facts and circumstances, we hereby conclude that a lumpsum GP estimation @ 1% or that declared in the assessee’s books, whichever is higher, would be just and proper with a rider that the same shall not be treated as a precedent. The assessee gets part relief and the department’s corresponding arguments are hereby rejected in very terms therefore.
7. The assessee’s four appeals ITA Nos.8309 to 8312/Del/2025 are partly allowed and the Revenue’s as many cross appeals ITA Nos. 8682, 8553, 9109 & 8683/Del/2025 are dismissed. A copy of this common order be placed in the respective case files.
Order pronounced in the open court on 28th July, 2026
