ACIT Vs Northern Royalty Company (ITAT Chandigarh)
Assessee Company, engaged in mining activities under licences from the Haryana Government, was part of the Majha Group subjected to a search u/s 132 on 05.04.2018. Based on seized digital & physical records, proceedings were initiated u/s 153C & AO completed assessment estimating net profit at 25% on gross receipts of ₹36.78 crore, resulting in an addition of ₹3.68 crore.
On appeal, CIT(A) held that the comparables used by AO were not functionally similar, reduced the rate to 18%, & restricted the addition to ₹1.12 crore. Revenue appealed against this reduction, while Assessee filed a cross-objection contending that even 18% was unjustified.
Assessee’s Arguments
- Assessee belonged to a group of nine mining entities maintaining separate books though consolidated data was found during search.
- It had already declared higher profits of 14–15% in a revised return, much above the actual NP rate emerging from seized records (1.47%).
- CIT(A) wrongly disallowed genuine expenses such as mining instalments, VAT, CSR, environmental protection, & labour welfare costs, which were duly recorded & supported by seized data.
- If all recorded expenses were considered, the profit rate would be below 1.5%, & no further addition was warranted.
- Approval u/s 153D for the assessment was mechanical, being granted in a single day for multiple group cases without application of mind.
Tribunal’s Findings/ Decision
- Bench noted that identical issues had already been adjudicated in Karaj Singh vs ACIT (ITA No.726/Chandi/2022), involving the same group & seized material.
- After analyzing the group’s combined financial data, Tribunal observed that net profit rate from seized material was only 1.47%, far below the 18% estimated by CIT(A).
- The profit rate declared by Assessee in its revised return (14–15%) was substantially higher than actual results reflected in seized data.
- Tribunal also emphasized the principle of consistency, noting that for AY 2017-18, NP rate of 2.28% had been accepted under identical business conditions; therefore, applying 18% in the current year was unjustified.
- ITAT deleted the addition of ₹1.12 crore sustained by CIT(A).
- Directed AO to accept the revised return of income filed by Assessee.
- Revenue’s appeal was dismissed, & Assessee’s cross-objection was partly allowed (as legal grounds became infructuous).
Tribunal reaffirmed that profit estimation must reflect business realities & seized evidence. When declared profits are significantly higher than the profit indicated by seized data, no further addition can stand. Arbitrary enhancement of NP rate, without new incriminating material, violates the principles of consistency & natural justice.
