ITAT Panaji: 5% Profit Rate on Unaccounted Intra-Group Helmet Sales Sustained; Revenue's Appeal Fails Both on Merits and Monetary Threshold
Case Overview
Case Name: ACIT Vs Vega Aviation Products Pvt. Ltd. (ITAT Panaji)
Assessment Year: 2017-18
Relevant Provisions: Section 132, Section 133A, Section 153A, Section 143(2), Section 142(1), Section 131 of the Income Tax Act, 1961
CBDT Circular: CBDT Circular No. 09/2024
Background: Unaccounted Sales Discovered During Search and Survey
The assessee, a company engaged in manufacturing plastic products — primarily safety helmets and toilet blocks — sold its helmets under the "Vega" brand. This brand was owned by its sister concern, M/s. Vega Auto Accessories Private Limited, with both entities sharing common directors.
For Assessment Year 2017-18, the assessee filed its return of income on 31.10.2017 declaring total income of ₹38,68,830/-. Subsequently, a search under Section 132 of the Income Tax Act, 1961 was conducted on 28.11.2019. Following the search, a notice under Section 153A was issued on 26.11.2020, in response to which the assessee again declared income of ₹38,68,830/-.
Two distinct categories of unaccounted transactions came to light during the course of these proceedings:
Category 1: Unaccounted Retail Cash Sales — ₹15,90,449/-
During the search operation under Section 132, delivery challans were found revealing unaccounted retail cash sales of helmets amounting to ₹15,90,449/- for the year under consideration. These sales were made to unrelated third parties.
Category 2: Unaccounted Sales to Sister Concern — ₹4,87,68,333/-
During a survey conducted under Section 133A at the assessee's factory premises at Belgaum Khanapur Road, Desur, a pen drive was impounded. The data contained in an Excel file titled "New Microsoft Office Excel Worksheet.xlsx" revealed unaccounted sales of ₹4,87,68,333/- made by the assessee to its sister concern, M/s. Vega Auto Accessories Private Limited, during FY 2016-17. These transactions were not recorded in the books of either entity.
During the statement recorded under Section 131 on 25.02.2020, Mr. Shrikant Nagare acknowledged that these transactions were not reflected in the books and confirmed that cash amounting to ₹4,87,68,333/- had been received from Vega Auto.
The Assessing Officer added both amounts in their entirety and completed the assessment under Section 153A vide order dated 29.09.2021, determining total income at ₹5,42,27,612/- as against the returned income of ₹38,68,830/-.
Proceedings Before CIT(A): Profit vs. Turnover
Assessee's Contentions
The assessee challenged the addition of gross sales figures as income, advancing the fundamental principle that no goods can be manufactured or sold without incurring costs. Specific arguments raised included:
- Several delivery challans under the ₹15,90,449/- category related to free sample distribution, promotional activities, employee welfare, and repair or replacement of defective helmets — not commercial sales.
- For the ₹4,87,68,333/- category, the assessee contended that it acted as an intermediary or contract manufacturer. The sister concern, M/s. Vega Auto Accessories Private Limited, had made onward sales of the same helmets and had already offered 15% of unaccounted sales as profit before the Interim Board for Settlement (IBS).
- The assessee's own audited net profit ratios for surrounding financial years ranged between 2.39% and 5.30%, as demonstrated through the following historical data: