AI Insights
The case involves Shyam Steel Industries Limited appealing against the orders of the Commissioner of Income Tax (Appeals), which sustained additions made by the Assessing Officer related to alleged bogus purchases and under-invoicing of sales. The Tribunal examined the evidence, including documents seized during a search operation and statements made by company officials. It was found that the additions were not supported by concrete evidence, and the Tribunal relied on precedents and principles that only net profits from unaccounted transactions should be considered, not the entire turnover.
Appeal Details
Counselvise Citation
[2026] 140 COUNSELVISE.COM (IT) 890096 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-09-2026
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
D
Next Hearing Date
24-08-2026
Assessment Year
2019-2020
Appeal Filed On
18-06-2026
Judgement Text
"IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘D’ BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBERAND SHRI PRADIP KUMAR CHOUBEY, JUDICIAL MEMBER I.T.A. No.2243 & 2244/KOL/2026 Assessment Years: (2019-20 & 2020-21) Shyam Steel Industries Limited, Shyam Tower, Premises No.03-319, DH-6/11, Action Area – 1D, Street No. 319, New Town, Kolkata – 700156, West Bengal [PAN: AAGCS3838R] Vs. DCIT, Central Circle – 2(1), Kolkata (Appellant) .. (Respondent) Appellant by : Shri S. K. Tulsiyan, Advocate & Ms Puja Somani, CA Respondent by: Shri Sanat Kumar Raha, CIT-DR Date of Hearing 24.08.2026 Date of Pronouncement 11.09.2026 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: These appeals preferred by the assessee are against the orders of learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (hereinafter referred to as the “ld.CIT(A)”], even dated 22.04.2026 for the Assessment Years (AY) 2019-20 and 2020-21 respectively. 2. The issue raised by the assessee in Ground No.1 is general in nature, does not require any adjudication. Printed from counselvise.com 2 ITA Nos.2243 & 2244/Kol/2026/A.Y.2019-20& 2020-21 Shyam Steel Industries Ltd. vs. DCIT 3. The issue in Ground No.2 is against the order of ld. CIT(A) sustaining the addition of Rs.23,23,359/- by applying Net Profit (NP) at the rate of 5.25% on account of alleged bogus purchases from Majee Group of Rs.4,43,68,734/-. 4. The facts of the case in brief are that the assessee filed its return of income on 30.11.2019, declaring total income of Rs.133,67,24,010/- under normal provisions and book profit of Rs.168,66,08,136/- u/s 115JB of the Income-tax Act, 1961 (In short, ‘the Act’), which was processed u/s 143(1) of the Act. The assessee is engaged in the business of manufacturing of Iron ore pellet, sponge iron, billet, TMT bars, Ferro Alloys and power generation etc. A search action u/s 132 as well as survey u/s 133A of the Act were carried out on 15.06.2023 in financial year 2023-24 by the DDIT (Inv.), Unit – 2(4), Kolkata in case of “Shyam Steel Group”. The assessee also covered u/s 132 of the Act during the search and several documents/materials were impounded. Accordingly, the case of the assessee was re-opened by issuing notice u/s 148 of the Act on 10.04.2023 after passing order u/s 148A(A) on 10.04.2023 after taking into the reply of the assessee to the notice u/s 148A(b) of the Act. The Assessing Officer (In short, ‘the AO’) observed from the report of the DDIT (Inv.), Unit – 2(4), Kolkata that on the basis of search conducted on 05.11.2020 at the premises of “Majee Group”, the said part was supplying coal to various entities and assessee was one of the beneficiaries of huge quantity of coal from “Majee Group”. The AO had estimated the quantity of 9,253.55 metric tons, the value there of was estimated at Rs.4,43,68,734/-. The AO, accordingly, added the same u/s 69C of the Act as unexplained expenditure in the assessment framed u/s 147 r.w.s. 143(3) of the Act, dated 26.03.2025. Printed from counselvise.com 3 ITA Nos.2243 & 2244/Kol/2026/A.Y.2019-20& 2020-21 Shyam Steel Industries Ltd. vs. DCIT 5. In the appellate proceedings, the ld. CIT(A) after taking into account the reply and submissions of the assessee, partly allowed the appeal by directing the AO to estimate the net profit @ 5.25% of the said unaccounted purchases, thereby sustaining the addition to the tune of Rs.23,29,359/- and the remaining was deleted to the tune of Rs.4,20,39,375/-. The ld. CIT(A) noted the entire alleged purchases of coal cannot sustained unless corroborated by the seized documents. Moreover, the coal was consumed in the manufacturing of sponge iron. The AO has neither rejected the books of account nor demonstrated any abnormality in production, consumption, or input output ratios. The ld. CIT(A) also noted that the AO has not disputed the quantum of the sales vis-à-vis GST returns filed by the appellant, showing both input output credits. However, the ld. CIT(A) thereafter noted that some possibilities of some unaccounted trading activity of coal could not be entirely ruled out and thus, partly allowed the appeal. 6. We have heard rival submissions and perused the materials available on record. We find that following a search action was conducted u/s 132 of the Act on the assessee, various incriminating materials were found and seized. Accordingly, the case of the assessee was re-opened u/s 147 of the Act by issuing notice u/s 148 of the Act after procedure laid down u/s 148A of the Act. The AO, during the course of proceedings, noted that the assessee has purchased some coal on cash basis which are not recorded in the books of account as revealed during the course of search in case of “Majee Group”. We note that the AO primarily relied on the documents marked as ‘SMVD-06’ found by the Investigation Wing, in which the assessee-company was stated to be one of the beneficiaries. The AO estimated the quantity purchased of coal at 9,253.55 metric tons estimatedly valued at Rs.4,43,68,734/-. We also note that AO has accepted the sales/consumption of coal as well as production Printed from counselvise.com 4 ITA Nos.2243 & 2244/Kol/2026/A.Y.2019-20& 2020-21 Shyam Steel Industries Ltd. vs. DCIT made by the assessee. The books of account were also not rejected. The AO merely relied on the evidences found in the search of third party, which were unsubstantiated. The ld. CIT(A) in the appellate proceedings, categorically recorded a finding, the addition made by the AO by treating the alleged cash purchases and unexplained expenditure is not sustainable on the ground that there was no corroborative seized materials and evidences brought on record by the AO. We also note that manufacturing of sponge Iron was fully by accepted by the AO. The AO has also not rejected the books of account by demonstrating any abnormality in the production or input-output ratio. Having recorded all these findings by the ld. CIT(A) , he assumed and presumed that the assessee might have made some sales of coal outside the books which is hypothetical and only presumptions and thus directed the AO to apply a rate of profit of 5.25% on the alleged unrecorded cash purchases of coal. Therefore, we are inclined to set-aside the order of ld. CIT(A). In our opinion, the conclusion drawn by the ld. CIT(A) is purely on conjecture and surmises and sans any basis. The issue is squarely covered by the decision of this Tribunal in case of M/s Shakambhari Ispat & Power Limited, ITA No. 931/Kol/2025, order dated 02.01.2026 wherein an identical issue has been decided by this Tribunal in favour of the assessee. We, therefore, respectfully following the same, modify the order of ld. CIT(A) and direct the AO to delete the addition. The ground no. 1 is allowed. 7. The issue in Ground No.2 is against the order of ld. CIT(A) part confirming the addition of Rs.7,76,160/- as alleged undisclosed business income on account of under invoicing of sale of mill scales calculated arbitrarily based on the net profit percentage of 5.25% for the year when it was duly explained that there was no under invoicing sale of mill scales as alleged by the AO. Printed from counselvise.com 5 ITA Nos.2243 & 2244/Kol/2026/A.Y.2019-20& 2020-21 Shyam Steel Industries Ltd. vs. DCIT 8. The facts of the case in brief are that during assessment, the assessee was asked to explain as to why the amount of Rs.1,47,84,000/- should not be treated as income, alleging it represented cash generated through under- invoicing of mill scale sales on the premise that CCTV footage on 05.06.2023, at 2:57:33 PM, showed Shri Niraj Patwari, the cashier of the company, handing over a bag containing Rs.17 lacs approx. to Shri Deepak Chowdhary, the President of the company. The AO noted that Shri Deepak Chowdhary has admitted in his statement recorded u/s 132(4) of the Act that the company sells Mill Scale to different local vendors in regular course of business and some of such sales were under-invoiced to meet cash requirements for payment of salary. The assessee was asked to explain as to why a sum of Rs.1,47,84,000/- 1 should not be added to the income of the assessee as cash generated from under invoicing of sale of mill scales. In arriving at these figures, the learned AO assumed inflation @ 6% year on year basis and average cash generated per month of Rs.16.50 lacs. In reply, the assessee submitted that there was no under invoicing of sale of mill scales as alleged in the notice. Shri Deepak Chowdhary has retracted the statement and clarified that the source of the cash of Rs.17,00,000/- was the available cash balance at the factory in Durgapur, which was handed over to him by Shri Niraj Patwari for safekeeping, as Shri Niraj Patwari was leaving the premises for that day. This practice of transferring cash between Shri Niraj Patwari and Shri Deepak Chowdhary was routine one, with cash being kept with Shri Niraj Patwari and handed over to Shri Deepak Chowdhary as and when required as per the circumstances. The same cash used to be returned back to Shri Niraj Patwari when he resumed office/factory. The cash book was also submitted to evidence the sufficient cash in hand as on 05.06.2023. However, the submissions filed by the assessee were not appreciated and the learned AO Printed from counselvise.com 6 ITA Nos.2243 & 2244/Kol/2026/A.Y.2019-20& 2020-21 Shyam Steel Industries Ltd. vs. DCIT with a prejudiced mind and preset notion held that there was under invoicing of sale of mill scale in AYs. 2015-16 to 2024-25. He considered it just and reasonable to apply Gross Profit (GP) to estimate the income on alleged unaccounted turnover for the year. He noted that the assessee has reported GP of 19.16% during A.Y. 2019-20 and accordingly added Rs.28,32,641/-, by applying 19.16% on Rs.1,47,84,000/- as undisclosed income. 9. In the appellate proceedings, the ld. CIT(A) partly allowed the appeal by observing and holding as under: “After considering the assessment order as well as submission of the appellant, it has been observed that Shri Deepak Chowdhury retracted his statement on 19/06/2023, just two days after it was recorded by the search team. Further, no evidence has been detected by to search team which could conclusively prove under-invoicing of mill scale sales. However, there was an indication of cash transaction from the CCTV footage. More so, no explanation was offered by Shri Lalit Beriwala, director of the assessee company. Shri Deepak Chowdhary, president of the assessee company and Shri Niraj Patwari, cashier about the source of Rs. 17,00,000/- within the reasonable time allowed by the search team. If the cash of Rs. 17,00,000/- were part of regular books of account, it could have been explained at the time of search by producing the relevant cash book. But no such effort has been given by the appellant. 4.4 The AO, while making the addition on account of suppressed sales, relied on the judicial pronouncement, especially on the decision of the Hon'ble Gujarat High Court in CIT v. President Industries (258 ITR 654) In the aforesaid case, the Hon'ble Court held that - \"Section 698, read with section 256, of the Income-tax Act, 1961 Undisclosed investments - Assessment year 1994-95 - Whether amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales Held, yes - During survey it was found that assessee had not disclosed certain sales in books of account Whether Tribunal was justified in holding that unless there was a finding that investment by way of incurring cost in acquiring goods which had been sold, had been made by assessee and that had also not been Printed from counselvise.com 7 ITA Nos.2243 & 2244/Kol/2026/A.Y.2019-20& 2020-21 Shyam Steel Industries Ltd. vs. DCIT disclosed, only net profits embedded in sales, and not wholesale proceeds itself, would be treated as undisclosed income of assessee - Held, yes\" In the said case, Hon'ble Gujarat High Court upheld the decision of the Tribunal wherein the Tribunal found that the entire sales could not have been added as income of the assessee for the assessment year in question but only to the extent the estimated profits embedded in the sales for which the net profit rate was adoptedentailing addition of income on the suppressed amount of sales. In view of the established law, the mandate is that only a net rate of profit can be applied in respect of the goods sold outside the books of account. Therefore, it is obvious that in the light of the material on record the Assessing Officer's approach in arriving at the gross profit ratio in the present case is not proper and correct. After following the same principle, I am of the opinion that the net profit rate is most appropriate and reasonable to arrive at the figure of unaccounted income from the estimated suppressed sales. It has been observed from the Tax audit report that the net profit ratio to turn over of the appellant company during the relevant previous year was 5.25%. Therefore, estimated profit is calculated @5.25 % on the suppressed amount of sales of Rs. 1,47,84,000/- i.e. Rs.7,76,160/- and addition to that extent is confirmed and the remaining addition of Rs.20,56,481/- is hereby deleted. As a result, the appeal on this ground is partly allowed.” 10. We find that in this case during the course of search, statement of Shri Deepak Chowdhury was recorded on 19.06.2023, which was retraced just two days after it was recorded by the search team. Further, no evidence has been detected by search team, which could conclusively prove the under-invoicing of mill scale sales. We note that it was admitted that company sells mill scale to local vendors and some of the sales were under-invoiced for payment of salary. Based on the said statement, the AO opined that cash required to be paid monthly to employees, ranged between sum of Rs.15 to 18 lakh, which was generated out of under-invoicing of mill scale sales. The AO estimated cash of Rs.15 lakh and Rs.18 lakh was to be the average rate of Rs.16.5 lakh per month every year. The AO noted that the retraction statement and cash flow were not produced by the assessee. The AO estimated the unaccounted Printed from counselvise.com 8 ITA Nos.2243 & 2244/Kol/2026/A.Y.2019-20& 2020-21 Shyam Steel Industries Ltd. vs. DCIT turnover at Rs.1,47,84,000/- and applied a GP rate 19.16% and accordingly, added Rs.28,32,614/- to the income of the assessee. We note that the him , was wrong as assessee vide submission dated 13.03.2025 furnished retraction affidavit/cash books before the AO. We also note that the source of cash of Rs.17 lakh, which was handed over to Deepak Chowdhury by Shri Niraj Patwari for safe keeping, while leaving the premises was out of cash available in the books maintained by the assessee and this is a common practice between Shri Niraj Patwari and Deepak Chowdhury as and when the situation arises and the same was returned back to Shri Niraj Patwari when he resumes office/factory. The cash balance at the factory stood at Rs.23,00,000/- with a petty cash balance of Rs.4,64,556/-. We also note that minimum cash reserve of Rs.15,00,000/- is always maintained at the factory for emergency purposes and therefore, the cash of Rs.17,00,000/- was in question was part of the available cash balance at the factory premises. We also note that AO has not brought any evidence of under-invoicing mill sales scale and totally relied on the CCTV footage which was also wrongly interpreted by the AO. Therefore, we find that the addition made by the AO is wholly on the basis of retracted statement which is wrong and cannot sustained. The issue is squarely covered by the CBDT Circular No. F.No.286/2/2003-IT(Inv.), dated 10.03.2003 (vide page no.21 of paper book). In our opinion, the statement has no evidentiary value unless the material is brought on record substantiating the contents of the statements. Therefore, the addition made by the AO and as partly confirmed by the ld. CIT(A) is only on the basis of presumption and surmises and cannot be sustained. The case is squarely covered by the decision of Hon'ble Apex Court in case of Omar Salay Mohamed Sait vs. CIT reported in [1959] 37 ITR 151 (SC) and also in Lal Chand Bhagat Ambica vs. CIT [1959] 37 ITR 288 (SC) wherein after following the decision of Omar Printed from counselvise.com 9 ITA Nos.2243 & 2244/Kol/2026/A.Y.2019-20& 2020-21 Shyam Steel Industries Ltd. vs. DCIT Salay Mohamed Sait (supra) has been followed and it has been held that no addition can be made on the basis of mere surmises ,conjectures and presumptions .Therefore, considering the said facts, we are inclined to modify the order of ld. CIT(A) and AO is directed to delete the addition. Accordingly, Ground No. 2 is allowed. ITA No.2244/Kol/2026 (A.Y. 2020-21): 11. The issue raised in this appeal is substantially similar to one as decided by us in ITA No.2243/Kol/2026 for A.Y. 2019-20. Therefore, our decision in ITA No.2243/Kol/2026 (supra) would apply, mutatis mutandis, to this appeal as well. Accordingly, the AO is directed to delete the additions made. The appeal filed by the assessee in ITA No.2244/Kol/2026 for A.Y. 2020-21 is also allowed. 12. In the result, the appeals of the assessee are allowed. The order is pronounced in the open Court on 11/09/2026. Sd/- Sd/- (Pradip Kumar Choubey) (Rajesh Kumar) JUDICIAL MEMBER ACCOUNTANT MEMBER Kolkata, Dated: 11/09/2026 SAMANTA आदेश ȧ ĤǓͧͪ Ēȯͪ/Copy of the Order forwarded to: 1. Ȣȡȸ/ The Appellant 2. Ĥ×ȸ/ The Respondent. 3. ȲȲͬ आयकर]ǕÈ/ Concerned CIT 4. आयकर]ǕÈ (अपील) / The CIT(A) 5. ͪȡȢ ĤǓǓͬ, आयकर Ȣȣ ͬ,/ DR, ITAT, Kolkata 6. ȡ[ फाईल/ Guard file. BY ORDER, // TRUE COPY // (Manish Bhoi) Deputy Registrar, ITAT, Kolkata Printed from counselvise.com "
Other Referred Cases
M/s Shakambhari Ispat & Power Limited, ITA No. 931/Kol/2025, Omar Salay Mohamed Sait vs. CIT, Lal Chand Bhagat Ambica vs. CIT
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