DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 3.1, KOLKATA vs. SHAKAMBHARI ISPAT & POWER LIMITED, KOLKATA

First, we shall take the appeal of the assessee in ITA No.931/Kol/2025 for A.Y.2019-2020 as lead case and the grounds raised therein are extracted below:-

Without prejudice to Grounds No. 6 to 9 above, AO didn't even issue notices to alleged transactions of such coal and Ld. CIT(A) erred in not appreciating the same and hence it may be held accordingly.

Without prejudice to Grounds No. 6 to 10 above, the entire addition made by AO in such respect is without allowing cross examination of the third party so involved and such action of AO & CIT(A) is bad in law and it may be held accordingly.

Without prejudice to Grounds No. 6 to 11 above, the rate of gross profit so considered by CIT(A) has no legal basis and such action of CIT(A) is bad in law and it may be held accordingly.

For that in view of the facts and in the circumstances, the Ld. CIT(A) erred in not appreciating that alleged sum of Rs. 8,52,00,000/- was not at all related to / pertain to appellant and such addition was wrongly made by AO without any independent. examination of material or such 3rd party and Ld. CIT(A) was unjustified in treating such sum as part of alleged undisclosed purchase although there was no such purchases as contended in Grounds No. 6 to 11 above and it may be held accordingly.

For that in view of the facts and in the circumstances, the Ld. AO was wholly unjustified in making addition of Rs., 1,20,95,958/- [treating the purchases made from Reeja Trading Private Ltd. as bogus purchase) merely based on the report of CGST Department without conducting any enquiry. /Verification of his own and in view of the facts and in the circumstances the addition so made is liable to be deleted and it may be held accordingly.

Without prejudice to Ground No. 14 above, the Ld/ CIT(A) erred in affirming the action of AO in not appreciating that the said vendor (i.e. Reeja Trading Private Ltd.) had duly filed its income tax return and ROC return nd had made other statutory compliances and merely based on the CGST Department the existence of the said vendor and the consequent purchases cannot be held as bogus and such action is bad in law and in view of the facts and in the circumstances the addition so made is liable to be deleted and it may be held accordingly.

Without prejudice to Grounds No. 14 & 15 above, the payment made to the said vendor (i.e. Reeja Trading Private Ltd.) were through banking channel and the CGST/SGST has been duly paid on such purchases and as such the existence of said party cannot be doubted and the necessary evidence in such respect were duly placed before the AO when AO failed to consider and in view of the facts and in the circumstances the addition affirmed by Ld. CIT(A) is liable to be deleted and it may be held accordingly.

For that your petitioner craves the right to put additional grounds and/or to alter/ amend/modify the present grounds at the time of hearing. Ground Nos.1 to 5 are against the order of the Id. CIT(A) in confirming the re-opening of reassessment u/s.147 of the Act based on invalid notice issued by the AO u/s.148 of the Act dated 06.09.2022

Facts in brief are that the assessee company filed its return of income u/s 139(1) of the Act for the assessment year under consideration on 31.10.2019 declaring total income of Rs.17,25,39,330/- under normal provision and Rs. 51,82,85,619/- as per section 115JB of Income Tax Act, 1961. The return was processed u/s 143(1) of the Act on 03/06/2020. The assessee company was engaged in manufacturing of TMT Bar, Billets, Ingots, Sponge Iron, Ferro Alloy and generation of Captive Power Plant etc, and also engaged in trading activities of Iron Steel Products. A search & seizure operation u/s 132 of the Act, 1961 was conducted on Agarwal Group and its associates by the Directorate of Investigation, Kolkata on 17.09.2021 and on subsequent dates. Being one of the associate members of the above group, the assessee was also covered in search by executing a warrant. Pursuant to the search & seizure operation, the case of the assessee was re-opened u/s 147of the Act after taking approval from the competent authority and notice u/s 148 of the Act was issued and served upon the assessee on 06.09.2022 asking the assessee to file return of income within 30 days from the receipt of the notice. On 13.10.2022 the assessee has filed return u/s 148 of the Act declaring total income same as originally filed u/s 139(1) of the Act dated 31.10.2019. Thereafter, statutory notices u/s 143(2) of the Act dated 11.11.2022 and notice u/s 142(1) of the Act dated 12/01/2023alongwith a set of questionnaire were issued and duly served upon the assessee. Finally, the assessment was completed vide order dated 28.07.2023 u/s.143(3)/147 of the Act by making various additions.

In first appeal, the Id. CIT(A) upheld the notice issued u/s.148 of the Act and the consequent proceedings and the assessment framed by the AO on the ground that notice was validly issued and there is no infirmity in the same.

Aggrieved with both the orders of the authorities below, the assessee is in further appeal before the Tribunal.

Ld. AR vehemently submitted that the re-opening of assessment was made invalidly without satisfying the conditions precedent to issue of notice u/s 148 of the Act. The Id AR submitted that during the course of search operation no incriminating materials/documents were found and seized. Therefore the re-opening of assessment is bvad in law and so is assessment framed. The Id AR made very elaborate and lengthy submissions which are extracted as under :-

Further we find that the PCIT has accorded the approval only as per the proviso (a) to Section 148A, without their being any positive finding about the escapement of income. We also find that there is no incriminating material seized during the course of search with regard to any purchases & sale outside the books of accounts. Therefore, we hold that, despite the deeming fiction applicable to searched persons, the issuance of notice under Section 148 still requires the Assessing Officer to demonstrate that the information unearthed during search leads to escapement of income in the specific assessment year. The mere fact of search, in itself, is not sufficient reason to issue a notice. Failure to establish this connection would render the issuance of notice without proper approval u/s 151 as bad in law and unsustainable." [Copy of such order is enclosed at Annexure-1] iv) The AO at best could have initiated the proceedings w/s 153C for the alleged searches and alleged material evidences/ documents pertaining/relating to conducted on "Kesara Group"[on 30.11.2018) and on Anup Majee Group[on 5.11.2020] which the AO failed to issue and such addition cannot be made u/s 148 pursuant to search u/s 132(1). v) AO could not have travelled to other issues when the AO did not have any material on the basis of which the impugned 148 was initiated. vi) Deemed escapement of income without enquiry u/s 148A applied only for preceding 3 years and for travelling beyond 3 years, AO must issue notice u/s 148A which AO failed to do in this case and hence consequential proceedings and order so passed u/s 147 has become bad in law. vii) Before issuing notice u/s 148 (for A.Y 2019-20) the conditions as specified in sec. 149(1)(b) were required to be satisfied and which is not satisfied in appellant's case. Such condition u/s 149(1)(b) are as follows:- a) AO is in possession books of accounts/other documents/evidence. b) Which reveal income chargeable to tax "represented in form of asset". AO didn't have any evidence / documents books and more so represented by "asset" out of impugned search on 1.4.2021 and as such issue of notice u/s 148 was void ab initio.

In the case of appellant, without prejudice, the AO has referred to only "expenditure" or "entry in books of account" of 3rd parties [ie. "Anup Majee Group" or "Kasera Group"] and such alleged "information" from such persons did not indicate any "income chargeable to tax represented to the form of asset" and hence such requirement of sec, 149(1)(b) (as it existed prior to amendment vide Finance Act, 2022 amendment effective from 1.4.2022 only) and hence it has to be considered accordingly.

Reliance is placed on the aforesaid contention following judicial precedents also may be relied as well, wherein Court has held that for searches conducted prior to 1.4.2014 proceedings u/s 153C can only be taken up and 148 proceedings based on searches conducted prior to 1.4.2021 is invalid. a) Tirupati Construction Company v. ITO [(2024) 165 taxmann.com 165 (Raj.)) b) Shiv Vegpro Pvt. Ltd. v. DCIT [(Rajasthan High Court) (D.B. Civil W.P. No. 15350/2022 dt.25.11.2024) c) Shyam Sundar Khandelwal v. ACIT [(Rajasthan High Court) D.B. Civil Petition No. 18363/2019 dt. 19.3.2024)] d) Jagjit Singh v. DCIT [164 taxmann.com 324 (Amritsar)] e) Koteshwar Rao v. DCIT [(2015) 64 taxmann.com 159 (Viz)]

Ld. CIT-DR, on the other hand, relied heavily on the orders of the authorities below and submitted that the case was validly reopened by the Id. AO by issuing notice u/s.148 of the Act under the new scheme of taxation which mandatorily required the AO to issue notice u/s 148 of the Act for certain assessment years irrespective of whether any incriminating materials were found and seized or not.. Ld.CIT-DR submitted that under new regime of the search provisions, the old code as contained in section 153A to 153C has been discontinued and new scheme has been put in place which required the AO to re-open certain numbers of assessment years. The Id DR submitted the provisions of Section 148 of the Act after search are analogous to the provisions to the provision of Section 153A of the Act which was prevalent and applicable till now where the AO was required to issue notice u/s 153A of the Act for preceding six assessment years preceding the date of search irrespective of any incriminating materials. Therefore, the issue raised by the assessee has no merit and may kindly be dismissed. The written submissions filed by the learned DR Are extracted as under:- In the instant case, Ld. assessee has raised two technical issues, which are discussed below: A) Challenged of re-opening of assessment: Explanation 2 to Sec148 is reproduced below: Explanation 2.-For the purpose of this section, where,- (0) "a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1" day of April, 2021, in the case of the assessee, or (ii) (iv) The Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee where the search is initiated or books of account, other documents or any assets are requisitioned or....... This is a deeming provision. The A.O. has the power to reopen the case u/s. 148 of the IT Act, 1961 when search is initiated under section 132. In this regard, Ld. CIT(A), in the appellate order, for AY-2016-17, page no.101 (last para) has opined that "The appellant has brought to my notice that their case was centralized on 20.12.2021. Pursuant to the search, the case of the appellant was reopened u/s.148 of the Act on 10.01.2023, with the prior approval of PCIT, Central-2, Kolkata. It is observed that the impugned notice was issued after the date of search and therefore, the explanation 2 to section 148 of the Act came into operation and hence, the AO had very much validly reopened the assessment, due to the deeming fiction set out therein, which stated that the AO shall be deemed to be in possession of information for issuance of notice under section 148 of the Act." So, the case pertains to the reopening of an assessment under Section 148 of the Income Tax Act, 1961, subsequent to a search initiated under Section 132. The Assessing Officer (AO) reopened the case based on Explanation 2 to Section 148, which deems the AO to have information suggesting that income chargeable to tax has escaped assessment when a search is initiated or books of account, other documents, or any assets are requisitioned. The appellant's case was reopened on 10.01.2023, after the date of search, and the CIT(A) upheld the AO'S decision to reopen the assessment due to the deeming fiction set out in Explanation 2 to sec. 148. In Pr. CIT vs. NRA Iron & Steel (P) Ltd., (2020) 11 SCC 312, the Supreme Court held that the Assessing Officer was justified in reopening the assessment subsequent to a search and seizure operation under Section 132. The court analyzed the scope of Explanation 2 to Section 148 and found that the AO had the power to reopen the case based on the deeming fiction set out in the provision. After hearing the rival contentions and perusing the material on record, we find that the assessee has challenged the issue of notice u/s.148 of the Act and also the proceedings u/s.147/143(3) of the Act on the ground that the AO has failed to provide copy of the reasons recorded in the proceedings u/s.148 of the Act and also the addition made by the AO are not arising out of the search conducted u/s.132 of the Act on the assessee, Rather the additions made were on the basis of material gathered during the course of searches on Kesara Group on 30.11.2018 and Anup Majee Group on 05.11.2020 and consequently the notice u/s.148 of the Act was itself invalid and may be quashed. We have perused the provisions under old scheme vis a vis under new scheme and find that under the new scheme of search, the AO has to issue notice u/s 148 of the Act for the number of assessment years as provided in the Act. In other words there need not be any incriminating materials and whether there is any materials warranting additions that has to be examined by the AO during proceedings u/s 147 of the Act. Therefore we do not find any merit in the contentions of the assessee that the provisions of Section 148 of the Act for search conducted on or after 1.4.2021 cannot be considered in total oblivion of the fact that no incriminating material was found with the assessee during the course of search u/s.132 of the Act and the impugned assessment was unabated and hence no addition can be made. We note that the plea of the assessee does not have force or merit as in this case the requirement of any incriminating material is not there for issuing notice u/s 148 and the assessment can be reopened because the provisions of Section 148 of the Act are analogous to Section 153A of the Act as applicable in the case of search pertaining to search prior to 1.4.2021. In our opinion, the AO is under obligation to reopen such assessment years prior to the date of search even if there is no incriminating material and then frame the assessment accordingly. In other words the existence of incriminating materials has to be examined during the assessment proceedings and not at the stage of issuance of notice.Ld. AR also relied on the decision of the Chandigarh Bench of the Tribunal in the case of Rosha Alloys (P) Ltd., reported in 2025 (7) TMI 238 (Chd) dtd. 28.05.2025, however, with utmost humility and respectful disagree with the conclusion drawn by the coordinate bench of the Tribunal and, therefore, the ground Nos.1 to 5 raised by the assessee have no merit and accordingly the same are dismissed by upholding the appellate order on this issue.

In ground Nos.6 to 12 are relating to the order of the Id. CIT(A) in partly confirming the addition applying gross profit rate @8.01% as against the addition made by the AO of Rs.29,93,22,967/- on account of alleged undisclosed purchases.

Facts in brief are that during the course of search and survey operation on Majee Group and others on 05.11.2020 by the Directorate of Investigation, Kolkata. Certain incriminating documents were found which reveals that Majee Group sold coal to the assessee company. Further the documents seized from the transporter Ratnesh Verma also revealed that coals and other goods have been sold in cash and transported by Ratnesh Verma on behalf of Anup Majee Group to the assessee company over the years. After examination of the said documents, it is revealed that assessee company has purchased coal from Majee Group during the F.Y.2018-19 relevant to A.Y.2019-20. The documents seized from Majee Group have been marked as SMVD-01 to SMVD-18. The Assessing Officer discussed the issue from pages 2 to 32 and finally came to the conclusion that on the basis of the material/documents seized from the Majee Group during the search the assessee was found to have purchased 13919.25 Metric Ton of coal from Majee Group during the financial year 2018-19 relevant to assessment year 2019-20 and, therefore, the Assessing Officer applied market rate of coal @Rs.4000/- per MT thereby calculated the unexplained expenses at Rs.5,56,77,000/-. The Assessing Officer also noted from the said documents that loan repayments in cash was Rs.3,50,00,000/-. The Assessing Officer aggregated these amounts to Rs.9,06,77,000/- as undisclosed transactions. The also noted that the amount of cash payments to the said party as per the documents seized were Rs.29,93,22,967/-, which according to the Assessing Officer was not recorded in the books of accounts and attributable to out of books purchases of coal as the assessee company has not shown any transaction with Majee Group in its books of accounts. The Assessing Officer also mentioned that the details of transportation as found from the seized books may not be complete for the entire year whereas as evident from above the assessee had made cash payments of Rs.29,93,22,967/- to the Majee Group and accordingly the said amount of payments being higher of the above two amounts, the Assessing Officer added the same in computing the total income of the assessee u/s.69C of the Act as unexplained expenses.

In the appellate proceedings, Id.CIT(A) partly allowed the appeal by directing the AO to apply GP rate @8.01% on the alleged unaccounted purchases. The Id.CIT(A) after taking into consideration the contention and reply of the assessee and after calling for remand report from the Assessing Officer and rejoinder filed by the assessee, partly allowed the appeal by observing and holding as under :- Having gone through the written submissions of the appellant, it is noted that the principlecontention of the appellant was that there was violation of principles of natural justice, as therelevant data had not been provided to it. Taking note of the same and to meet the end of justice, the matters were remanded to the AO and the appellant was also required to avail this opportunity of hearing. The AO in his remand report is noted to have clearly stated that the relevant seized documents and statements were received by his office and that, the relevant documents pertaining to the assessee and the entries found therein was the basis for making the impugned addition. The appellant in his rejoinder is noted to have again averred that the relevant data was not provided to them. Having considered the entire conspectus of facts, this particular argument of the appellant is found to be misleading. Reading of the assessment order clearly shows that the complete details of the transactions found in the seized material from the premises of Anup Majee Group had been confronted to the appellant and there only stand was denial. Even in the remand proceedings, it is observed that the appellant has not availed this opportunity given by this office. The AO is noted to have nowhere denied the appellant, access or the inspection of the seized material. Understandably, the relevant data found from the premises of the Anup Majee Group was mammoth in nature and most of them were electronic evidences maintained in excel sheets and computer systems. The said person was found to be involved in illegal coal mining and had been supplying coal outside the books of accounts to several steel manufacturers. The key person, Mr. Ratnesh Verma is noted to have recorded a detailed statement in which several explanation regarding the contents of the seized electronic evidence was given by him, which inter alia implicated the appellant as well. It, therefore, cannot be possible that the AO provides the complete back up of the electronic evidence to the appellant, Rather, only the relevant data concerning the appellant is required to be provided to it, as the allegation also relates to the limited amount of data. The appellant rather than availing the opportunity to inspect the seized material and the statements from the office of the AO in the course ofremand proceedings, has deliberately avoided the same and is again in a complete denial mode. Such action of the appellant is deprecated and is held to be unjustified. From the material available on record, it is observed that the appellant is a manufacturer of steel products in which coal was one of the major raw materials. It is also observed that the appellant had been regularly procuring coal for its production. Accordingly, the purchase of coal by the appellant cannot be ruled out. Further, the specific details contained in the seized material is noted to clearly suggest that the Anup Majee Group, who was found to be involved in illegal coal mining, was supplying coal to the appellant. The detailed notings found in the seized material could not be said to be stray or loose notings, as being contended by the appellant. It is observed that the seized material contained date-wise notings with truck nos, giving details of transportation. It also contained the specific locations from where the coal was procured and supplied to the specific location of the appellant's factory. It is also not in dispute that, the location of factory is incorrect or that the appellant was not using coal as a raw material in that premises. Further, having regard to the size and capacity of the said factories, the procurement of such quantity of coal is found to be commensurate. Overall therefore, the contents of the seized material remained uncontroverted. It is further noted that Mr. Ratnesh Verma had clearly confirmed the contents of the seized documents, and therefore, the supply of coal and/or cash payments between the appellant and the Anup Majee Group, in my considered view, is proved beyond doubt. On the aspect of cross examination, it is noted, that, the AD had indeed summoned Mr. Ratnesh Verma who did not appear before him. At the same time, it is noted that, even the appellant did not appear before the AO. Even if, for a moment, the statement of Mr. Ratnesh Verma is kept aside, the appellant ought to have explained the notings found regarding their transactions with Anup Majee Group. The appellant is also noted to have avoided appearance before, the AO and as noted by the AO earlier, the appellant was unable to controvert these notings with evidences. Coming back to the denial of cross examination, on the specific facts of this case, I find this particular argument to be not tenable due to the overwhelming evidences already available on record. In this context, the reliance placed by the AO on the following observations of the Hon'ble juri ictional High Court in the case of Swati Bajaj & Ors (288 Taxman 403) is found to be of relevance.

The first argument on behalf of the assessee is that the copy of the investigation report was not furnished to them despite specific written request made on behalf of the assesses to furnish the copy of the report, the statements recordedand provide those persons from whom statements were recorded to be cross examined on behalf of the assessee. There is no dispute to the fact that the copy of the statement said to have been recorded during the course of investigation has not been furnished to the assessees and the request made by some of them for cross examining of those persons was not considered. The question would be as to whether the non-compliance of the above would render the assessments bad in law. The argument of the revenue is that the assessments cannot be held to be illegal merely on the grounds that the copy of the report was not furnished as the respective assessing officers have clearly mentioned as to the nature ofinvestigation done by the department and as the report itself states that the Investigation commenced not from the assessees end but the individuals who dealt with these penny stocks who were targeted it is equally true invariably in all cases, the statement of the stock brokers, the entry operators or the Directors of the various penny stock companies does not directly implicate the assessee. If such being the situation, the assessee cannot be heard to say that the copy of the entire report should have been furnished to him, the person from whom the statements were recorded should have been produced for cross examination as admittedly there is nothing to implicate the assessee Smt. Swati Bajaj of insider trading or rigging of sham prices. But the allegation against the assessee is that the claim for LTCG/LTCL is bogus. As pointed out by Mr. Rai, learned senior standing counsel, the investigation report is general in nature not assessee specific. Therefore, we are required to see as to whether non-furnishing of the report which according to the revenue is available in the public domain would vitiate the proceedings on the ground that the assessee was put to prejudice.

In State Bank of Patiala v. S.K. Sharma AIR 1996 SC 1669, the Hon'ble Supreme Court pointed out that violation of any and every procedural provision cannot be said to automatically vitiate the domestic enquiry held against the delinquent employee or the order passed by the disciplinary authority except in cases falling under no notice, no opportunity and no hearing categories. Further it was held that if no prejudice is established to have resulted from such violation of procedural provisions no interference is called for, against the ultimate orders. The test laid down was whether the person has received a fair hearing considering all things as the ultimate test is always the test of prejudice or the test of fair hearing as. Further the Hon'ble Supreme Court pointed out a distinction between a case of no opportunity and a case of no adequate opportunity and while examining the latter case, it was held that the violation has to be examined from the stand point of prejudice, in other words the Court or the tribunal has to see whether in the totality of the circumstances, the delinquent officer/employee did or did not have a fair hearing and the orders to be made shall depend upon the answers to the said query. Further it was held that there may be a situation where interest of the state or public interest may call for curtailing of rule of audi alteram partem and in such a situation the Court may have to balance public/state interest with the requirements of natural justice and arrive at an appropriate decision. 57. in a very recent decision of the Hon'ble Supreme Court in M.J. James (supra) after referring to a catena of decisions on the point the Hon'ble Supreme Court pointed out that natural justice is a flexible tool in the hands of the judiciary to reach out in fit cases to remedy injustice. The breach of the audi alteram partem rule cannot by itself, without more lead to the conclusion that prejudice is thereby caused. Where procedural_and/or substantive provisions of law embodied the principles of natural justice, their infraction per-se does not lead to invalidity of the order passed. The prejudice must be caused to the litigant, except in the case of amandatory provision of law which is conceived not only in individual interest but also in public interest. Further by referring to the decision in State of Uttar Pradesh v. Sudhir Kumar Singh [2020] SCC Online SC 847, it was held that the "prejudice" exception must be more than a mere apprehension or even a reasonable suspicion of a litigant, it should exist as a matter of fact or to be cast upon a definite inference of likelihood of prejudice flowing from the non- observance of natural justice.

Therefore, the assessees have to specifically point out as to how they were prejudiced on account of non-furnishing of the investigation report in its entirety failure to produce the persons from whom the statements were recorded for being cross examined would cause prejudice to the assessee as nowhere in the report the names of the assessees feature. The investigation report states that the investigation has not commenced from the individuals but it has commenced who had dealt with the penny stocks, concept of working backwards. This is a very significant factor to be remembered. Therefore, there has been absolute anonymity of the assessee in the process of investigation. The endeavour of the department is to examine the "modus operandi" adopted and in that process now seek to identify the assessees who have benefited on account of such "modus operandi". Therefore, considering the factual scenario, no prejudice has been established to the assessee by not furnishing the investigation report in its entirety nor making the persons available for cross examination as admitted by the department in substantial number of cases the assessees have not been specifically indicted by those persons from whom statements have been recorded. In view of the above, therefore, I am of the considered view that the Ld. AO had rightly held that the appellant was involved in undisclosed cash purchases of coal with Anup Majee Group to the tune of Rs.29,93,22.967/- Having held so above, I action of adding the entire value of undisclosed purchases as the income of the appellant. The fact that the assessee was having undisclosed purchases would suggest that there were corresponding undisclosed sales as well, suggesting that the assessee was running a parallel business outside the regular books of accounts. In such a scenario, in my considered view, it is the income derived from such out of books business which can be brought to tax. Accordingly, in relation to such undisclosed purchases, only the profit element embedded therein is to be taxed. My view finds support from the judgment of the juri ictional Calcutta High Court in the case of PCIT vs. Subarna Rice Mill [2018] 96 taxmann.com 286 (Calcutta), involving similar facts as involved in the present case. In the decided case, the assessee owned and operated a rice mill. Survey operation under section 133A was conducted upon the appellant and on physical verification the Department had reported that excess stock was found physically in comparison to the stock appearing in the Books of Accounts/Stock Record. At the time of assessment, the AO assessed the entire value of excess stock found at the time of survey by way of undisclosed income of the appellant. On appeal, Hon'ble Tribunal observed that the entire quantity of excess stock discovered in the course of survey operation could not beregarded as unexplained income of the appellant and relying on the decision of the Hon'ble Gujrat High Court in the case of Vijay Trading Co. vs ITO (2016) 388 ITR 377 (Gujarat), it was held that only where any undisclosed purchases or undisclosed stock is discovered then it is only the profit element embedded in the transaction which can be added to the total income of the appellant. Having regard to the past history of G.P. Margin, the Hon'ble Tribunal accordingly held 10% could utmost be assessed by way of unexplained income out of the excess stock found in the course of survey. On appeal the Hon'ble Calcutta High Court upheld the order of the Hon'ble Tribunal by observing as follows: "The assessee's appeal before the Commissioner (Appeals) failed and by an order of August 25, 2014, the assessment order of March 28, 2013 was upheld. The Commissioner looked into the facts, the statements made by or on behalf of the assessee and the books of the assessee that had been looked into at the time of survey which the assessee subsequently claimed had been lost or destroyed and, in respect whereof, no complaint had been lodged by the assessee. On facts, the Commissioner (Appeals) found no grounds to interfere with the quantum of excess stocks discovered by the assessing officer in course of the survey. The Commissioner also agreed with the assessing officer as to the quantum of income which had escaped assessment There are two aspects to the order impugned dated June 30, 2015 passed by the Appellate Tribunal: the factual findings of the Commissioner (Appeals) as appear to have been interfered with by the Appellate Tribunal and, the direction given for taking sales of rice and bran into account before amiving at the additional income which could be said to have escaped assessment Before the Commissioner (Appeals), the assessee had relied on a document signed by an official of the Food Corporation of India that evidenced the stock figures at the relevant point of time. The Commissioner (Appeals) dealt with such aspect of the matter in great detail and by referring to the admitted statements of the representatives of the assessee, which were not sought to be controverted at any point of time on behalf of the assessee, concluded that it was the physical verification of the stocks undertaken by the Assessing Officer in course of the survey operation that was to be given primacy. Indeed, the Commissioner (Appeals) found that there was no evidence that the FCI official who had issued the certificate had undertaken any physical verification of the stock at the rice mill of the assessee and the document appeared to have been filled up by the assessee and merely signed by the FCI official, Such part of the order of the Commissioner (Appeals) was unexceptionable and could not have been interfered ITA No. 1704 & 1567/Kol/2011 & 1084/Kol/2014 Smt. MadhuChhandSirkar A. Y.2007-08 11 with by the Appellate Tribunal. Indeed, no reasons have been furnished by the Appellate Tribunal in disregarding the physical verification of the stocks carried out by the Assessing Officer, Further, the area of the godown as indicated in the FCI certificate was of no consequence since the Assessing Officer found stocks piledoutside the godown at the time of the survey. Accordingly, to the extent that the Appellate Tribunal accepted the quantum of additional stocks on the basis of the certificate issued by the concerned FC! official, such order is unacceptable and is set aside. The order of the Commissioner (Appeals) in such regard is restored. The additional quantum as discovered during the course of the survey operation win fasten to the assessee. However, the other aspect of the matter was dealt with by the Appellate Tribunal on a point of principle and such matter does not call for any interference. According to the Appellate Tribunal the value of the entire quantity of additional stocks that were discovered in course of the survey operation could not be regarded as the additional income of the assessee and amenable to tax. There was a specific ground taken before the Appellate Tribunal which was a legal question, as to whether the undisclosed purchase could be taken as the additional income without reference to the possible sale of the paddy when converted. The assessee refers to a judgment of the Gujarat High Court reported at 388 ITR 377. The principle enunciated in such judgment is that when undisclosed purchases of such nature are discovered, it is only the profit embedded in the transaction which can be added to the total income. The Gujarat High Court relied on some of its previous judgments to hold that "not the (446 ITR 238), Thold that estimation of profit at 8.01% on the undisclosed purchases of Rs.29,93,22,967/- is reasonable (as the AO himself has applied Gross Profit rate 8.01 percent), which works out to Rs.2,39,75,770/-, Accordingly, the addition to the extent of Rs.2.39,75,770/-is retained and the balance sum of Rs.27,53,47,197/- is directed to be deleted. These grounds are, therefore, partly allowed.

Ld. AR filed his written submission in regard to the above grounds which are extracted as under :-

Issues No. 2 & 3 in respect of alleged transaction of purchase of coal with Anup Majhee and addition made thereto for different