DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-4(3), KOLKATA, KOLKATA V. GAURANG ALLOYS AND IRON LIMITED, KOLKATA

ITA 1257/KOL/2025

AI Insights

The case involves an appeal by the Deputy Commissioner of Income Tax (DCIT), Central Circle-4(3), Kolkata against Gaurang Alloys and Iron Ltd concerning the assessment year 2020-21. The primary issue was the treatment of undisclosed cash sales/receipts amounting to Rs.7,54,07,283/- identified during a search and seizure operation under section 132(1) of the Income Tax Act. The Assessing Officer (AO) initially added the entire amount as unexplained cash credit under section 68 of the Act. However, the CIT(A) later directed that only the profit element, calculated at a G.P. rate of 6.5%, should be added to the income, following judicial precedents. The ITAT upheld the CIT(A)'s decision, dismissing the revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 822323 (ITAT-KOLKATA)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2020-2021
• Appeal Filed On: 09-06-2025
• Other Referred Cases: Commissioner of Income Tax v. Gurubachhan Singh J. Juneja, M/S. Alokik Steels Pvt. Ltd Village vs Principal Commissioner Of Income, Commissioner of Income Tax v. President Industries, Commissioner of Income Tax v. Samir Synthetics Mill, PR. Commissioner of Income Tax-2 Vs. Rameshwar Textile Mills Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law; Unexplained cash credit; Unexplained investment; Search and seizure; Bogus
• Section: 153A; 68

Judgement Text

"आयकर अपीलȣय अͬधकरण, कोलकाता पीठ, कोलकाता IN THE INCOMETAX APPELLATE TRIBUNAL “B”BENCH KOLKATA Before Shri Rajesh Kumar, AccountantMember and Shri Pradip Kumar Choubey, JudicialMember ITA No.1257/Kol/2025 Assessment Year: 2020-21 DCIT, Central Circle-4(3), Kolkata…....………..............................……….……Appellant vs. Gaurang Alloys and Iron Ltd...………….……………………...……...…..…..Respondent 402A, Mangalam, 24/26, Hemanta Basu Sarani, Kol-1.. [PAN: AACCG1485A] Appearances by: Dr. Anup Biswas, CIT-DR,appeared on behalf of the appellant. Shri S. Jhajharia, AR, appeared on behalf of the Respondent. Date of concluding the hearing : October 30, 2025 Date of pronouncing the order :December 23, 2025 ORDER Per Rajesh Kumar, Accountant Member: This is an appeal preferred by the revenue against the order of the CIT(Appeals)-27, Kolkata (hereinafter referred to as the “Ld. CIT(A)”] dated 25.02.2025passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’)for the AY 2020-21. 2. The only issue raised by the revenue in this appeal is against the order of Ld. CIT(A) treating the undisclosed cash sales/receipts of Rs.7,54,07,283/- as business transaction and directing the AO to apply G.P rate @ 6.5% to determine the profit from the undisclosed sales/receipts. 3. Facts in brief are that a search and seizure operation u/s 132(1) of the Act was conducted on ‘Agarwal Group of cases’ on 25.09.2020and on subsequent dates and the being one of the group entities of the said group, the assessee was also covered under this search. Later, the Printed from counselvise.com ITA No.1257/Kol/2025 Gaurang Alloys and Iron Ltd 2 assessee filed its return of income u/s 139(1) of the Act declaring total loss of Rs. 70,77,348/- and the return of the income was processed u/s 143(1) of the Act. Thereafter, assessment proceeding u/s 153A of the Act was initiated by issuing notice u/s 153A of the Act and in compliance to the notice u/s 153A of the Act, the assessee furnished its return declaring total loss of Rs.70,77,348/-. Subsequently, statutory notices 143(2) &142(1) of the Act along with questionnaire were issued and in reply to the notices, the assessee appeared and furnished the details, submissions & explanations of entries found in the seized/impounded materials. In the course of assessment proceeding, on perusal of the seized/impounded material (MVL-03 & AGH/HD/1), it appeared to the AO that the assessee had made cash sales of manganese ore and other raw materials from its factory in the relevant A.Y 2020-21 amounting to Rs.6,77,57,463/- and the assessee was asked to explain and substantiate those cash sales. Thereafter, after considering the explanations submitted by theassessee, the AO passed the assessment order u/s 153A of the Act by making an addition of Rs.6,77,57,463/- in respect of unexplained cash credit u/s 68 of the Act of the Act. 4. In the appellate proceedings, the Ld. CIT(A) partly allowed the appeal of the assessee after taking into account the contentions and submissions of the assessee by observing and holding as under: “6.2.1. I have perused the assessment order as well as the submission of the assessee. Onexamining the same, it is observed that on analysis of seized/impounded documents withidentification mark MVL/03 and AGH/HD/1, the AO noticed that the assessee has made cashsales of manganese ore & other raw materials amounting to Rs. 6,77,57,463/-. It is alsofound that the Bills corresponding to these cash sales are not genuine as details of thepersons, to whom sales were made, were not real. The assessee also not provided thecomplete contact details of any of the buyers to whom sales were made. With regard to theauthenticity of the these Bills, it is imperative to mention that all these Bills have registrationnumber of the trucks which were used for transportation purpose, nevertheless, when theseregistration numbers were randomly verified from the E-Vahan portal of Govt. of India, it wasfound that several of these numbers pertained to Motorcycles and Scooters. It is alsonoteworthy to mention that no weighbridge receipt or any other relevant Printed from counselvise.com ITA No.1257/Kol/2025 Gaurang Alloys and Iron Ltd 3 records has beenproduced by the assessee to substantiate these cash sales. The AO also found it illogicalthat the raw materials were supplied to the steel making companies and sales were restrictedto the ceiling of Rs. 50,000/- only. On the part of revenue generation of the assessee, it isobserved that the assessee has made last sale of Rs. 19.09 lakhs in the F.Y 2013-14 andthereafter, no sales took place in F.Y 2014-15 to F.Y 2018-19 and from 01.04.2019 to20.09.2019. The assessee, in the course of assessment proceeding or at the time ofappellate proceeding, failed to submit any cogent explanation, for the sudden/extraordinarysurge in their business revenue and also to getting those buyers who were ready to buy theassessee’s products/stocks in cash, during the period of AY 2020-21. 6.2.2. In its submission in the course of appellate proceeding, apart from submitting thestocks details (which already been submitted in the course of assessment proceeding) noany other relevant documents/evidences has been adduced by the assessee which couldestablished the genuineness of the induced cash sales in the period of AY 2020-21. Therewas no details, pertaining to the immediate & sudden buyers of raw materials/products of Rs.6,77,57,463/-, made available in the course of appellate proceeding. It, clearly reflects thatthe sales so recorded in the books are bogus and the assessee had deposited its ownunaccounted cash in its bank accounts and created bogus bills showing these sales toappear the normal business transactions. Extraordinary event of unaccounted cash sale isnothing but to justify cash deposit in the bank account of the assessee. Moreover, in hisstatement, Sri Amar Kumar Agarwal, key person of the Agarwal group, also admitted thehidden fact of generating unaccounted cash over the years. In view of above, Rs.6,77,57,463/- was held by the AO as unexplained cash credit of the assessee interms of section 68 of the Act as the assessee had failed to satisfy the genuinenessof the cash sales made in the period of AY 2020-21. 6.2.3. During the appellate proceedings, the assessee had also argued that the sales madeduring the period was Rs. 7,54,07,283/- and the AO has accepted such sales booked in theP&L account and part of sales of Rs. 6,77,57,463/- doubted and added u/s 68 of the Act.Further, the assessee pleaded that, if at all, only profit embedded in such sales can be addedbecause the stock was existing in the books since so many years. The assessee, stopped itsoperations ,therefore, the stocks could not be consumed. The unconsumed stocks laying ingodowns put for distress sale. The assessee further argued that the stock was laying withthe assessee in its books of account only the profit element can be added to the income ofthe assessee for the AY 2020-21. 6.2.4. In this context, reliance is placed in the case of ‘Commissioner of Income Tax v.Gurubachhan Singh J. Juneja, reported in (2008) 302 ITR 63 (Guj.)’, the Hon’ble HighCourt, Gujrat had held as under: “…….the assessee was engaged in the business of trading of tyres. Search proceedingswere carried out at the residential and business premises of the assessee. On the basis ofloose sheets which were seized during such search operation, the Assessing Officer heldthat sales to the extent of 10.85 lakhs was not found in the books of account. Such amountwas included in the total income of the assessee. The Commissioner (Appeals) gavesubstantial relief to the assessee and reduced the income on the basis of gross profitrate. The Tribunal confirmed the order of the Commissioner (Appeals). On furtherappeal before the High Court by the revenue, the High Court Printed from counselvise.com ITA No.1257/Kol/2025 Gaurang Alloys and Iron Ltd 4 refused to refer anyquestion holding that in absence of any material on record to show that there was anyunexplained investment made by the assessee which was reflected by the allegedundisclosed sales, the finding of the Tribunal that only the gross profit on the saidamount can be brought to tax does not call for any interference.” 6.2.5. Reliance is also placed in the case of ‘M/S. Alokik Steels Pvt. Ltd Village vsPrincipal Commissioner Of Income on 3 March, 2021, ITA No. 861/JP/2019’, the Hon’bleITAT, Jaipur had held as under: “Further, there is no dispute regarding the quantum of unaccounted turnover of Rs.1,77,95,859. The assessee has declared the same in its return of income and which hasbeen accepted by the AO as well as by Ld. Pr. CIT as there is neither any material on recordnor any adverse finding recorded by Ld. Pr. CIT disputing the same. Therefore, as far as thequantum of unaccounted turnover of Rs 1,77,95,859/- is concerned, the order so passed bythe AO cannot be held as erroneous and prejudicial to the interest of Revenue. Therefore,the limited issue that remains to be examined is the rate of profit so declared by theassessee on such unaccounted turnover which has not examined by the AO which rendersthe assessment order as erroneous and prejudicial to the interest of the Revenue andtherefore, to this limited extent, the directions of the Ld. Pr. CIT are sustained and the matteris set-aside to the file of the AO to examine the rate of gross profit so declared by theassessee on such unaccounted turnover and decide as per law. In the result, appeal of the assessee is partly allowed in light of aforesaid directions.” 6.2.6. In the case of ‘Commissioner of Income Tax v. President Industries, reported in(2002) 258 ITR 654’ the Hon’ble High Court, Gujrat had taken a similar view. In the saidcase, during the course of survey conducted on the premises of the assessee, from theexcise records found, an inference was drawn by the Assessing Officer that sales accountingto Rs. 29 lakhs and odd had not been disclosed in the books of account. The AssessingOfficer made addition of the entire sum of the said undisclosed sales as income of theassessee for the assessment year 1994-95. Such addition was confirmed by theCommissioner (Appeals). The Tribunal, however, held that “the entire sales could not havebeen added as income of the assessee, but only to the extent the estimated profitsembedded in the sales for which the net profit rate was adopted entailing addition ofincome on the suppressed amount of sales.” Such decision was carried in appeal by therevenue before the High Court. The High Court rejected the appeal, observing that “unlessthere is a finding to the effect that investment by way of incurring the cost in acquiring thegoods which have been sold has been made by the assessee and that has also not beendisclosed, such addition could not be sustained.” 6.2.7. Further I rely on the decision in the case of ‘Commissioner of Income Tax v. SamirSynthetics Mill, reported in (2010) 326 ITR 410’, wherein the Hon’ble Gujrat High Courtconfirmed the view of the Tribunal accepting only the profit of unaccounted sale for thepurpose of collecting tax. 6.2.8. In the case of ‘PR. Commissioner of Income Tax-2 Vs. Rameshwar Textile MillsLtd’ ITA 527 & 528 of 2015’, the Hon’ble Gujrat High Court had held the following: Printed from counselvise.com ITA No.1257/Kol/2025 Gaurang Alloys and Iron Ltd 5 “Commissioner (Appeals) was of the view that if the entire addition was confirmed, the grossprofit ratio would go upto 23% which was definitely a distorted result looking to the presentprofit of the assessee concern. Considering the past trend of loss, the margin of profit in theearlier year and the large volume of turnover and also the possibility that some expensesmight have been incorporated in the regular books of accounts, the Commissioner (Appeals)was of the view that the profit margin from the unaccounted additional turnover should be onthe higher side as compared to the margin shown in the regular books of accounts due towhich it could be safely assumed that the assessee must have earned at least 10% of thegross margin of the additional turnover which was almost double the normal gross margin asreflected in the regular books of accounts. He, accordingly, directed the Assessing Officer toestimate the income at 10% of 4,20,73,972/- and sustained the addition to the extent of42,07,397/- as against the addition of 4,20,73,972/- made by the Assessing Officer. Thus, inthe assessee's appeal challenging the rate of gross profit estimated at 10% on the groundthat it was on the higher side, the Tribunal has found that the Commissioner (Appeals) whileestimating the gross profit at 10% had not given any basis for the same, though he hadreferred to the gross profit rate of the assessee at 5.22% in assessment year 2006-07 and4.85% in the current assessment year. The Tribunal was of the view that having regard to thefact that the highest rate of gross profit shown by the assessee in assessment year 2006- 07,which was 5.22%, had been accepted by the department, the gross profit rate disclosed bythe assessee at 4.85% was on the lower side and, accordingly, estimated the gross profit ofthe unrecorded receipt at 6.50%. The Tribunal, accordingly, modified the order passed by theCommissioner (Appeals) to that extent and directed the Assessing Officer to accept the grossprofit rate of the suppressed receipt of 4,20,73,972/- at 6.50%. It was evident that theCommissioner (Appeals) had estimated the gross profit at 10%, whereas the Tribunal havingregard to the gross profit of the previous year, which was 5.22% and which had beenaccepted by the revenue has, on the very same material, estimated the gross profit at6.50%, which is higher than the gross profit accepted by the Department in relation to theprevious year. Nonetheless, both, the Commissioner (Appeals) as well as the Tribunal, haveresorted to estimation for the purpose of computing the gross profit. Thus, ultimately thegross profit has been determined on the basis of an estimate. As to whether theestimate of gross profit by the Commissioner (Appeals) was to be accepted or that bythe Tribunal was to be accepted, cannot in any manner be said to give rise to aquestion of law, much less, a substantial question of law, so as to warrantinterference.” 6.2.9. In view of the aforesaid judicial pronouncements as well as the discussions heldabove, to meet the ends of justice, I estimate the profit in the cash sales of raw materials byapplying GP rate at 6.5 % on the same. Hence, the profit element embedded in theundisclosed cash sales/receipts of Rs. 7,54,07,283/- (supra) becomes Rs. 49,01,473/- [6.5%of Rs. 7,54,07,283/-]. Hence, the addition of Rs. 49,01,473/- is upheld and Rs. 6,28,55,990/-is deleted. Therefore, these grounds raised by the assessee are partly allowed.” 5. After hearing the rival contentions and perusing the materials on records including the appellate order passed by the ld CIT(A) , we observe that it is undisputed fact, the assessee accepted the undisclosed Printed from counselvise.com ITA No.1257/Kol/2025 Gaurang Alloys and Iron Ltd 6 sales in the impounded materials during search. The AO added the entire amount of such undisclosed sales whereas the ld CIT(A) directed the application of G.P. rate to assess the profit element embedded in the said sales. We have perused the appellate order and find that ld. CIT(A) has passed a very reasoned and speaking order by taking a reasonable view in the matter. Certainly the undisclosed sales have to be brought to tax by applying G.P. rate and in no way the entire sales can be allowed to be added to the income of the assessee. Consequently, we uphold the appellate order passed by the ld. CIT(A). The appeal of the revenue is dismissed. 6. In the result, the appeal of the revenue is dismissed. Kolkata, the 23rd December, 2025. Sd/- Sd/- [Pradip Kumar Choubey] [Rajesh Kumar] JudicialMember Accountant Member Dated: 23.12.2025. RS Copy of the order forwarded to: 1. Appellant - 2. Respondent - 3. CIT(A)- 4. CIT- , 5. CIT(DR), //True copy// By order Assistant Registrar, Kolkata Benches Printed from counselvise.com "