NARAYAN CHANDRA SAHA,JALPAIGURI vs. DCIT, CENTRAL CIRCLE 4(2),, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘C’ BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI PRADIP KUMAR CHOUBEY, JUDICIAL MEMBER I.T.A. No.3205/KOL/2025 Assessment Year: (2021-22) Narayan Chandra Saha, DCIT, C/o Subhash Agarwal & Associates, Vs. Central Circle – 4(2), Advocates, Kolkata Siddha Gibson, 1, Gibson Lane, Suite 213, 2nd Floor, Kolkata – 700069, West Bengal [PAN: ALTPS5989G] (Appellant) .. (Respondent) Appellant by : Shri Siddharth Agarwal, Advocate Respondent by: Shri Dheeraj, Sr. DR Date of Hearing 13.07.2026 Date of Pronouncement 24.08.2026 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: This appeal preferred by the assessee against the order of the learned Commissioner of Income Tax (Appeals), Kolkata – 27 (hereinafter referred to as the “ld. CIT(A)”], dated 27.10.2025 for Assessment Year (AY) 2021-22.

ITA No.3205/Kol/2025/A.Y.2021-22 Narayan Chandra Saha vs. DCIT 3. The facts of the case in brief are that the assessee filed its return of income u/s 139(1) of the Income-tax Act, 1961 (In short, ‘the Act’) on 15.03.2022, declaring total income at Rs.1,96,03,520/-. A search and seizure action u/s 132 of the Act was conducted on 24.02.2022 and subsequent dates against the Naxal Group cases. The case was selected for compulsory scrutiny and notices u/s 143(2) and 142(1) of the Act along with questionnaire were issued and duly served upon the assessee. The assessee is a proprietor of M/s Jay Matajee Enterprise and who is a prominent traders involved in the business of sale of Areca Nuts in the area of Falakta, Dist – Jalpaiguri. The search team during the course of search proceedings, some back-up of desktop images and folders was made on an external hard disk and inventorized with ID Mark: NCS/HD-1. Summons were also issued u/s 131 to appear personally and his statement recorded on 06.05.2022 u/s 131 of the Act. The AO noted that during the year, the assessee made huge purchases from seven parties aggregating to Rs.74,57,01,570/- during various financial years. The AO noted that most of the parties are non-filers and from the State of Mizoram and Meghalaya, falling under the category of Scheduled Tribe and were exempt for paying of taxes as per the provisions of section 10(26) of the Act. Thereafter, the AO noted that upon verification of e-way bills, it was found that there were no movement of trucks via any tolls to the destination address as per fast-tag and e-way bill tracking in the e-way bill MIS system. Accordingly, the assessee was confronted with this fact at the time of recording of statement on oath u/s 132(4) of the Act on 25.02.2022 and the assessee could not provide any supporting evidences. Thereafter, in para 5.4 of the assessment order, the AO noted that statements of Shri Narayan Chandra Saha, in order to verify the identity, genuineness and creditworthiness of the sellers. The AO issued notice u/s 133(6) of the Act to the various suppliers, which were duly served and delivered, but no response

ITA No.3205/Kol/2025/A.Y.2021-22 Narayan Chandra Saha vs. DCIT was received except one party. Finaly, the AO came to a conclusion that assessee has failed to furnish a complete and concrete financial statement of the purchases made by him and therefore, the books of account were treated as incorrect and incomplete on the basis of which true profit cannot be reduced and after rejecting the books of account u/s 145(3) of the Act. The AO noted that the assessee is involved in unaccounted and unorganized rural seller of North-eastern region of India, which almost fall out the ambit of applicability income-tax and estimated the income at the rate of 5% of total turnover at Rs.121,65,66,176/- and thereby made an addition of Rs.6,08,28,309/- and assessed the income accordingly.

“9. For the appeal Ground Nos. 1 and 2: - 9.1.1. I have perused the assessment order carefully and the crux of the adverse view in rejecting the books of accounts and then estimating of assessed total income was due to the concept of bogus purchase on various reasons as enunciated from the relevant assessment order itself. The key points pertaining for drawing adverse inferences by the assessing officer in the assessment order were as follows – "5.3. Further, during the course of search proceedings on 24.02.2022, some of the e-way bills for purchase on behalf of M/s. Jay Matajee Enterprise of different dates were test checked on e-way bill MIS System. The details of which are as follows: Sl. E-way Bill No. Date Purchase/ Name of the Purchase/ Sale No. Sale Party 1. 891194448556 09.12.2021 Purchase Assam Enterprise 2. 891194437530 09.12.2021 Maa Durga Enterprise 3. 831140969313 11.02.2021 BS Enterprise 4. 881195009599 13.12.2021 MS Traders

ITA No.3205/Kol/2025/A.Y.2021-22 Narayan Chandra Saha vs. DCIT On perusal of the same, It was found that there were no movement of trucks via any Tolls to the destination address as per Fast Tag and e-way bill tracking in the E-Way Bill MIS System. The assessee proprietor was confronted with this fact vide Question No.36 & 37 at the time of recording of statement on oath as per provision of section 132(4) of the I.T. Act, 1961 on 25.02.2022. In reply to the above queries, the assessee could not produce any supporting documents in spite of ample opportunities provided to him for establishing that the purchases were not bogus. 5.4. Following the lead as obtained from the statements of Sri Narayan Chandra Saha, in order to verify the identity, genuineness and creditworthiness of the above said sellers (as mentioned in para 5.1], notices under section 133(6) of the Income Tax Act, 1961 dated 20.11.2022 were sent and delivered to all of them. Evidence regarding delivery of notices is placed on record. However, no response has been received till date from any of them except- 5.5. Further, statutory notices under section 142(1) of the Act were issued on 26.08.2022 25.10.2022, 03.12.2022 requesting the assessee for submission of relevant financial statements/ books of accounts (as given questionnaire) and to explain the genuineness of the purchases made by them (as discussed in the above paragraphs). In the notice dated 03.12.2022, it was also requested to submit the i) Name ii) PAN iii) Present Address iv) Opening balance v) Closing balance vi) Amount, of the Sundry creditor of Rs.67,82,52,233/- as appeared in the balance sheet of Mis Jay Mata Ji Enterprise as on 31.03.2021. FINDINGS (by the Assessing Officer in Assessment Order) 6.1 When the allegation is made against the assessee bogus purchase, Burden of proof lies with the assessee only. it is the obligation of the assessee to prove the authorities that the transactions and the parties are genuine by means of direct evidences such as copy of Bill & vouchers, invoices, stock registers, purchase registers, complete details of the parties with whom transactions made. Further, the creditworthiness and genuineness of the Sellers also could not be substantiated in absence of any documentary evidence. And, in absence of any substantial evidence, it is ascertained that the purchases made by the assessee from these individuals of North Eastern States are bogus purchases. 6.2 Mere maintenance of the quantitative records is not a sufficient condition to accept the genuineness of so-called purchase. Onus is cast upon the assessee to prove by means adequate financial documents to the 'satisfactory' level in

ITA No.3205/Kol/2025/A.Y.2021-22 Narayan Chandra Saha vs. DCIT the opinion of the assessing officer. Even on repeated request, the assessee or his AR did not produce or explain any evidence to substantiate/prove the purchase made from above mentioned parties. 6.3 Mere furnishing of details of banking transaction (without the bank details of the other parties) cannot make the transaction allowable when business nexus and services rendered by the recipients have not been established at all. 7.1 Discussions made in the fore-paragraphs clearly reflect that even after the repeating requests made at various occasions, assessee failed to submit the complete and correct financial statements in particular the purchases made by them. Explanations were asked in the course of assessment proceedings to explain the books of accounts, stock registers, purchase registers, Bilt & Vouchers etc but assessee submitted the Books of Accounts in a CD without explaining the same. The assessee has failed to explain the books of accounts to verify the alleged purchase of goods and sale of such goods. The inward of goods from the non-filers to the parties to whom such goods were sold could not be from the non-filler parties and sale of such goods were not verifiable from books of accounts and same should be rejected and income has to bed estimated. The hon'ble Jharkhand High Court in Amitabh Construction (P) Ltd. v CIT(Addl.) [2011] 335 ITR 523/2012 20 taxmann.om 385 held that where purchases are found not be genuine, the books of accounts have been rejected rightly." As books of accounts are found to be unreliable, incorrect or incomplete and true profit cannot be deduced there from, the books of account of the assessee for the year under considered is hereby rejected under the purview of Section 145(3) which read as follows and assessment is made in the manner provided in section 144 of the Act [Best judgment Assessment): - *.... Where the assessing officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) [has not been regularly followed by the assessee, or income has not been computed in accordance with the standard notified under sub-section (2)], the Assessing officer may make an assessment in the manner provided in section 144.]" 7.2 In this case, considering the nature of business, as it involved the unaccounted and unorganised rural seller of North-eastern region of India which almost fall out the ambit of Income tax applicability. and presence of deluge of loopholes which surge the possibility of leakage in the expenses incurred, the books of accounts of the assessee are rejected u/s 145(3) of the Act and Net

ITA No.3205/Kol/2025/A.Y.2021-22 Narayan Chandra Saha vs. DCIT profit is estimated at the rate of 5% of turnover of Rs. 1,216,566,176/- which comes to Rs.6,08,28,309/-. Therefore, during the year under consideration Income from business & profession of the assessee is determined at Rs.6,08,28,309/-," In the contrary, the relevant portion of the appellant assessee's submission during appeal proceedings are also juxtaposed to adjudicated the issues under dispute and then for arriving to the conclusion – "Based on that, books of account were rejected and income was estimated, High value of purchases, termed as bogus purchases. During the course of hearing, Assessee has submitted full details of purchases made during the year including purchases from GST Registered Dealers. Out of the total purchases, purchased from GST Registered Dealers contributed for 96.33%, whereas purchase made from unregistered parties was only 3.67%. However, some of the PAN in case of the Un-Registered Parties could not be provided as they are farmers coming from villages at the weekly Village Markets to sell their products and they don't have PAN numbers. So, PAN number of those parties could not be provided. Further AO list down 7 party details from whom more than 50% worth of goods purchased. Out of 7 parties, 6 parties were non filer of ITR, hence AO presumed the same as bogus purchase. The term 'bogus' refers to something that is fake or not genuine. When applied to accounting records. it refers to entries made in the books that falsely indicate purchases, even though no actual purchases occurred and no goods were involved at the time of recording. In GST Era, the GST department provides information about cancelled dealers and sales details, which the income tax department uses to investigate parties who have purchased materials from them. In this process, the department combines the concept of bogus purchases with untested purchases. Untested purchases occur when the buyer actually acquires goods or services, but they have obtained from the grey market, with the invoice received from someone other than the actual seller. It is crucial to distinguish between bogus purchases and untested purchases and make decisions regarding additions based on this differentiation, Bogus purchases or untested purchases are employed to reduce gross profit by either inflating purchases and manufacturing expenses or manipulating purchases in two ways:-

ITA No.3205/Kol/2025/A.Y.2021-22 Narayan Chandra Saha vs. DCIT 1. By not actually making purchases but creating documentation to falsely represent them. 2. By substituting purchases from the grey market, utilizing them in manufacturing or sales, but obtaining documentation of purchases at higher rates from bill providers. In the instant case, AO did not mention that they received any information form GST authority regarding bogus purchase. However, assessee has provided all the bills, ledger copy, confirmation, bank statement, copy of e-way bills etc. justifying the genuineness of purchase. It was also be mentioned that no proceedings have been initiated by GST authority against the assessee and moreover input credit on purchases also not be in dispute. Further all the purchases are duly reflected in GSTR Portal, therefore, it can be said that there are no bogus purchases." 9.1.2. The assessing officer has doubted about the genuineness of purchases claimed by the assessee from various parties as tabulated above who were tribals of NER. Further, he had suspected the Sundry Creditors evident from the books of accounts / balance sheet at the end of the financial year and which was Rs.67,82,52,233/-, In some cases, the alleged sundry creditors have not responded to the notice u/s.133(6) of the Act, 1961 issued by the A.O. Finally, the A.O has rejected the books of accounts doubting about the correctness of books of accounts and estimated the Assessed Income / Net Income / Total Income @5% i.e. N.P. on Gross Turnover/ Sales/ Receipts shown by the appellant assessee of the business. There were number of loopholes noticed by the assessing officer during the course of scrutiny. Even the assessee himself has failed to provide sufficient documents as sought by the assessing officer during the assessment when the creditors have not responded to the notice Issued u/s.133(6) of the Act, 1961 (except only one) who were alternatively so- called sellers of Areca Nut to the assessee. Thus, the confirmation of purchase of Areca Nut from them (shown/claimed as sundry creditors by the appellant assessee) remain disproved and the purchase has not been confirmed completely in the case of appellant and the action of the A.O. in rejection of books of accounts due to doubt over the correctness of books of accounts has been considered most appropriate and rightly invoked in the instant case. 9.1.3. Now, analyzing the whole facts it is observed that the AO has not doubted about the Gross Turnover/ Sales/ Receipts of the business and considered the yardstick for deriving the net income of the business which was the lion's share of total income of the assessee. It is an admitted fact was doubted on various reasons and one of such shortcomings was non filer of Income Tax Returns by

ITA No.3205/Kol/2025/A.Y.2021-22 Narayan Chandra Saha vs. DCIT the seller or creditors of Areca Nut. However, the AO has not drawn adversely against the GST Returns filed by the assessee and the suppliers of goods to the assessee. It is an undisputed fact that the non-filing of ITR by the suppliers does not contradict completely the genuineness of sale made by the suppliers to the assessee, But not filing of ITRs affects adversely on the legitimacy of income amount but not on purchase and sales completely. if not found specific lacuna or cogent evidence of irregularities. It is also noticed that the A.O. has considered the net profit of the business @5% without bringing any cogent evidence of workings for computing/estimating 5% against the declared net profit @1.61% by the appellant himself from the business. No similar case study has been referred and no live case having same line of business is also brought on record. 9.1.4. Therefore, in view of above discussed facts, the financial statements of the assessee for the past years and next years have been consulted and also obtained from the appellant in writing to avoid any dispute in future. The relevant data extracted therefrom have been tabulated for ready reference and for thorough perusal to adjudicate the issue logically and judiciously in absence of any live case. Further, the situation, location and timing may differ with each and other business activities which may be the cause of dispute for the sake of dispute only. A bird's eye view of comparative study of business profit for six (6) consecutive years (including past and next years) in the case of assessee himself for the similar line of business is appended below –

Assessment Financial Total Gross Profit Gross Net Profit in Net Profit Rearms Year Year Turnover/ in Rupees profit Rupees Percentage Sales in percentage Rupees 2018-19 2017-18 44,89,71,850 93,78,015 2.09% 54,25,094 1.21% Significant Variable 2019-20 2018-19 1,15,90,30,848 2,06,24,278 1.78% 99,74,852 0.86& G.O. and 2020-21 2019-20 1,21,69,28,966 3,21,41,112 2,64% 1,19,82,995 0.98% N.P 2021-22 2020-21 1,21,96,64,176 4,21,08,046 3.45% 1,95,99,845 1.61% percentage 2022-23 2021-22 37,71,49,073 1,6,48,086 4.41% 93,15,847 2.47% from year 2023-24 2023-24 33,70,92,767 1,45,88,256 4.33% 88,23,116 2.62% to year noticed between the period of A.Y. 2018-19 to A.Y. 2021- 22

9.1.5. Now, the Cognizance is taken of the chart tabulated in para no. 9.1.4, as it pertains directly to the business operations of the assessee. It is pertinent to mention that a search & seizure operation under section 132 of the Act was conducted on 24.02.2022 and subsequent dates in the case of assessee. The assessee has filed his return of income for the AY 2021-22, u/s 139(1) of the Income-tax Act, 1961 on 15.03.2022, immediately after the day of

ITA No.3205/Kol/2025/A.Y.2021-22 Narayan Chandra Saha vs. DCIT commencement of search and seizure where the net profit/income shoot up to 1.61% from 0.86% (A.Y.2020-21 and turnover was Rs.1,21,69,26,966/-) and 0.98% (A.Y.2019-20 and turnover was Rs.1,15,90,30,848/-) in respect of identical amount of turnover for all these years. Not only the Net Profit but also, the Gross Profit/Income was shoot up rapidly to 3.45% in the year under consideration where ITR was filed after search and seizure in comparison to the ITRs filed before search and seizure voluntarily for the similar amount of turnover comparing to 2.64% for the immediate past year. Further, the post search and seizure impact has forced the assessee to maintain consistency in reflecting the gross profit as well as net profit for the immediate next years' i.e. AY 2022-23 [Gross Profit @4.41% and Net Profit @2.47%) and for the AY 2023- 24 [Gross Profit @4.33% and Net Profit @2.62%) which was shown by the assessee inconsistently in pre-search and seizure period. As the period under consideration is also related to pre-search and seizure period hence, the proximity of not showing correct income inevitable and evident from all the angle. The discrepancies noticed by the AO during the course of assessment proceedings have already been discussed vide 9.1.2 of this order. The investigation, observation and conclusion of the AO in the assessment have been corroborated with the clear-cut findings which is further substantiated by the legacy of the business outcome from year to year (supra) in the case of assessee himself. Declaration of upward business profit/income in the ITR filed in post search period clearly reveals the truth in the same direction. Only issue, involved to interfere is the rate of net profit and income thereof due to lack of workings with evidence(s), as discussed vide 9.1.2 of this order. After considering all aspects and the trend of declaring net profit later on, the net profit percentage is being computed @2.50% against the percentage shown by the assessee himself @1.61% and which was estimated by the assessing officer @5% in the assessment. Thus, the issue of rejection of books of accounts of the assessee u/s 145(3) of the Act stands and upheld and Net profit is worked out at the rate of 2.50% instead of 5% of turnover of Rs. 121,65,66,176/- which comes to Rs.3,04,14,154/-. Therefore, during the year under consideration income from business & profession of the assessee is determined at Rs.3,04,14,154/- 10. Hence, in view of the discussion made in the para 9.1.1 to 9.1.5, Net profit is worked out at the rate of 2.50% instead of 5% of turnover of Rs.121,65,66,176/- which comes to Rs.3,04,14,154/- and thus Income from business & profession of the assessee for the relevant A.Y is reduced to Rs.3,04,14,154/- from Rs.6,08,28,309/-. Hence these grounds of appeal are partly allowed.” 5. We have rival submissions and perused the materials available on record. We find that the assessee is a dealer of Areca Nuts and has been purchasing

ITA No.3205/Kol/2025/A.Y.2021-22 Narayan Chandra Saha vs. DCIT material from Meghalaya and Mizoram. The AO made the addition on the ground that compliance to notice issued u/s 133(6) of the Act was not made and submitted that some suppliers are non-filers of return. We note that AO did not point out any defect in the books of account justifying the invocation of provisions of section 145(3) of the Act, which is the condition precedent to such section. In our opinion, if the AO wants to estimate the income of the assessee by treating the books of account of the assessee is as under allowable that AO first pointed out defect of the books of account which justifying the rejection of such books of account u/s 145(3) of the Act. The AO has simply discussed the status of the suppliers being non-filer and non-response to the letter issued u/s 133(6) of the Act, estimated the income of the assessee at the rate of 5%. We note that ld. CIT(A) reduced the addition to 2.5% as against the net profit declared by assessee of 1.61%. The ld. CIT(A) upheld the rejection of books of account without assigning any reasons with the same as noted earlier. The AO has not pointed out any defects in the system of accounting or in the entries recorded in the books of account and acted on surmises and conjecture basis. Therefore, considering these facts, we are not agreement with ld. CIT(A) on the issue of rejection of books of accounts, accordingly, we set-aside the issue of upholding the rejection of books of account without pointing out discrepancies and thus, we set-aside the order of ld. CIT(A) and direct the AO to apply the NP as per the audited books of accounts of the assessee. We are of the considered view that again there is no defect pointed out in the books of account and assessee has already declared NP at the rate of 1.61% which is higher in comparison to A.Ys. 2018-19, 2019-20 and 2020-21, therefore, considering the facts and circumstances, we are of the view that the order passed by the ld. CIT(A) is un-reasoned order, accordingly, we set-aside the same and direct the

ITA No.3205/Kol/2025/A.Y.2021-22 Narayan Chandra Saha vs. DCIT AO to accept the NP at the declared rate by assessee. Accordingly, the appeal of the assessee is allowed.

The order is pronounced in the open Court on 24/08/2026.

Sd/- Sd/- (Pradip Kumar Choubey) (Rajesh Kumar) JUDICIAL MEMBER ACCOUTANT MEMBER Kolkata, Dated: 24/08/2026 SAMANTA आदेश�ȧĤǓ�ͧ �ͪ �\ Ē ȯͪ��/Copy of the Order forwarded to: 1. \ �Ȣ�ȡ�ȸ/ The Appellant 2. Ĥ×��ȸ/ The Respondent. 3. Ȳ�Ȳͬ��आयकर] �ǕÈ�/ Concerned CIT 4. आयकर] �ǕÈ�(अपील) / The CIT(A) 5. ��ȡ�Ȣ�ĤǓ�Ǔ�ͬ �, आयकर\ �Ȣ�ȣ�\ͬ ����,/ DR, ITAT, Kolkata 6. �ȡ�[फाईल/ Guard file.

BY ORDER, // TRUE COPY //

Deputy Registrar, ITAT, Kolkata