IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 115 of 2024 ==========================================================

M/S. VALLABH PESTICIDES LTD.

Versus DEPUTY COMMISSIONER OF INCOME TAX ==========================================================

Appearance:

MR MOHIT R BALANI(12259) for the Appellant(s) No. 1 MS LAKSHA K BHAVNANI(11339) for the Appellant(s) No. 1 KARAN G SANGHANI(7945) for the Opponent(s) No. 1 ==========================================================

CORAM:HONOURABLE MR. JUSTICE A.S. SUPEHIA and HONOURABLE MR. JUSTICE PRANAV TRIVEDI Date : 16/12/2025

ORAL ORDER

(PER : HONOURABLE MR. JUSTICE A.S. SUPEHIA)

1 The present Tax Appeal has been filed proposing the following substantial question of law:

“(i) Whether the Income-tax Appellate Tribunal was right in law in adopting the Gross Profit Rate of 12.5% for Clandestine Sales for the Assessment Year 2009-10, when the Assessing Officer for the later Assessment Years i.e. 2010-11 to 2014-15, has adopted an average rate of 7.65% for clandestine sales, without pointing out any difference in material facts.?”

2 The present appeal emanates from the order dated 17.09.2021 passed by the Income Tax Appellate Tribunal, Ahmedabad “A” Bench. The brief facts leading to the filing of the present appeal are as under:

2.1 The appellant is engaged in the business of manufacturing of pesticides. The appellant had filed its return of income on 26.09.2009 declaring its total income at Rs.7,59,890/-. The said return was processed under Section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act” for short).

2.2 Thereafter, the business premises of the appellant were searched by the Director General of Central Excise Intelligence (hereinafter referred to as the “DGCEI”). During the investigation, it was found that the appellant was involved in clandestine removal of goods from Financial Year 2008-09 to 2015-16 and the proceeds were deposited in 20 different bank accounts, which were not recorded in the regular books of accounts. For the year under consideration, i.e. Assessment Year 2009-10, it was found that the appellant had made clandestine sales amounting to Rs.3,54,23,825/-.

2.3 The case of the appellant was reopened under Section 147 of the Act and a notice under Section 148 of the Act was issued to the appellant on 30.03.2016. In response to the notice issued under Section 148 of the Act, the appellant filed return of income and another notice under Section 143(2) of the Act as well as under Section 142(1) of the Act was issued. In response to the notices, the appellant submitted all the details as called for. In respect of credit entries in the undisclosed Bank account, the Assessing Officer issued a Show Cause Notice asking the appellant as to why an addition amounting to Rs.3,54,23,825/- should not be made under Section 69A of the Act. In response to the Show Cause Notice, the appellant asserted that only the real income embedded in the said credit entries can be treated as income.

2.4 Meanwhile, in respect of other assessment years forming part of the same cluster i.e. Assessment Year 2010-11 to Assessment Year 2014-15, the case of the appellant was reopened. The Assessment Orders were passed on 26.12.2017, and the appellant moved for Settlement Application under Section 245 C(1) of the Act offering Gross Profit at the rate of 7.75% and the said application was admitted vide order under Section 245 D(1) of the Act dated 10.01.2018. The entire factum of the undisclosed sales for the Assessment Year 2010-11 to 2014-15 is discernible from order of Income Tax Settlement Commission, Mumbai, under Section 245 D(2C) of the Act which was being placed before the authorities below.

2.5 Simultaneously, being aggrieved by the order passed by the Assessing Officer, the appellant preferred an appeal before the Commissioner of Income-tax (Appeals), Vadodara, that the addition in respect of Undisclosed / Clandestine Sales can be restricted to the Gross Profit embedded i