DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, MUZAFFARPUR, MUZAFFARPUR vs. RAJESH KUMAR AGARWAL HUF, MUZAFFARPUR

O R D E R Per Rajesh Kumar, AM:

These are appeals preferred by the assessee and Revenue against the orders of the Commissioner of Income-tax (Appeals), Patna-3, (hereinafter referred to as the “Ld. CIT(A)”] all even dated 28.04.2025 for the AYs 2020-21, 2021-22, 2022-23, 2023-24.

“1. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A)-3, Patna erred in deleting the addition of Rs. 7,33,57,570/- being undisclosed business income from sale of Raj Niwas Pan Masala.

5. That the order of the Ld. CIT(A)-3, Patna being erroneous in law and on facts is to be vacated and the order of the AO be restored.

2.1.2. The ld. CIT(A) after taking into the submissions and arguments of the assessee allowed the appeal of the assessee. The ld. CIT (A) held as under:-

“After a thorough examination of the grounds of appeal presented by the appellant against the addition of 7,59,50,930/ made by the Ld. AO during the assessment proceedings, I. find it imperative to address the issues raised with a detailed analysis rooted in legal principles, judicial precedents, and the evidence submitted. The appellant has cogently argued multiple points that challenge the basis of the Ld AO's addition.

Particulars AY Rajesh Agarwal HUF 2020-21 2021-22 2022-23 2023-24 Total Sales 7,59,30,930.00 11,65,05,760.00 9,45,62,368.00 8,71,59,903.00 Gross profit 56,13,926.00 74,85,012.00 64,42,771.00 59,82,937.00 Gross profit ratio 7.39% 6.42% 6.81% 6.86% Even if for argument's sake it is assumed that the appellant wars engaged in trading of Pan Masala in the garb of food grain business what is to be brought to fax is the income. Even if the source of an income is from undisclosed source, the net income 2.1.4. Per contra, the AR submitted that the Special Audit Report had been misconstrued and misapplied by the Assessing Officer. It was explained that all documents, books of account, vouchers, ledgers, bank statements, and explanations called for by the Special Auditor during the course of audit proceedings were duly produced and made available. The assessee emphasized that there was no non-compliance on its part during the special audit proceedings.

2.1.4.2. The AR contended that the Special Auditor had not pointed out any specific defect, falsification, inflation, suppression, or manipulation in the books of account. No instance of bogus purchase, fictitious sale, false commission receipt, or unverifiable expense was identified or quantified by the auditor. In the absence of such specific adverse findings, the assessee submitted that the AO was not justified in drawing sweeping conclusions solely on the basis of the audit report.

2.1.4.3. The ld AR submitted that the Assessing Officer, while framing the assessment under section 147 vide order dated 28.12.2024, alleged that during the course of search and seizure action conducted under section 132 on 03.08.2022, no stock of food grain items was found in any of the godowns of the assessee and that no books of account relating to the food grain business of M/s Maa Annapurna Enterprises were found at the business premises. On 2.1.4.4. The ld AR submitted that the AO further placed heavy reliance on the statement of Shri Suresh Kumar alias Khetan, brother-in-law of the assessee, recorded under section 132(4) on 04.08.2022, particularly reply to Question No. 41, wherein Shri Khetan allegedly stated that M/s Maa Annapurna Enterprises was only a paper concern and that it had been devised to accommodate unaccounted income generated from the business of Raj Niwas Pan Masala. Treating this statement as conclusive, the AO held that the absence of stock and books during search, coupled with the said statement, established that the food grain business was sham and that the disclosed turnover represented undisclosed income.

2.1.4.5. The ld AR submitted that the books of account were duly maintained in the regular course of business and were subsequently produced during the assessment proceedings as well as before the Special Auditor appointed under section 142(2A). It was emphasized that non-availability of books at the exact moment of search cannot lead to an adverse inference when the same books were later produced, examined, and no defect was pointed out therein. The assessee also pointed out that the Assessing Officer did not reject the books of account under section 145(3), which itself demonstrated that the books were accepted as reliable.

2.1.4.6. With regard to the alleged non-availability of stock, the assessee submitted that the search was conducted on 03.08.2022, whereas the assessment year under consideration was AY 2020-21, and therefore the absence of stock on the date of search could not logically or legally negate transactions already completed during FY 2.1.4.7. In respect of the reliance placed on the statement of Shri Suresh Kumar alias Khetan, the assessee submitted that the said statement was general in nature, did not quantify any undisclosed income for AY 2020-21, and was not supported by any seized documentary evidence. It was further submitted that Shri Khetan had given inconsistent statements on different dates, and that the statement relied upon by the AO was subsequently retracted by way of a sworn affidavit, which was placed on record before the appellate authority. The assessee emphasized that no seized material, financial record, or cash trail was brought on record by the AO to link the said statement with the disclosed food grain turnover or to establish that the same represented undisclosed pan masala income for the relevant assessment year.

2.1.5. We have heard the rival submission and perused the material on including the materials seized, during the course of search, statement recorded u/s 132(4) of the Act or special audit report u/s 132A of the Act. We note that M/s Maa Annapurna Enterprises was engaged in a genuine and regular business of trading in food grain items and that the entire turnover of Rs. 7,59,50,930/- for the relevant previous year was duly recorded in the regular books of account maintained in the ordinary course of business. We note that the said books of account were audited under section 44AB by chartered Accountant and that the audited financial statements were filed along with the return of income originally filed under section 2.1.5.1. We note that the ld. CIT(A) noted that the Assessing Officer, while framing the assessment under section 147 vide order dated 28.12.2024, placed heavy reliance on the Special Audit Report obtained under section 142(2A) from M/s Anant Dokania& Co. LLP. The AO observed that the Special Auditor had reported that no 2.1.5.2. We note that the Ld. CIT(A)-3, Patna, after a comprehensive examination of the assessment order passed under section 147, the material seized during the course of search and seizure action, the statements recorded under section 132(4), the special audit report obtained under section 142(2A), and the detailed written submissions and documentary evidences furnished by the assessee, recorded a categorical finding that the Assessing Officer had failed to bring on record any cogent, tangible, or corroborative material to establish that the disclosed turnover of food grain business carried on by M/s Maa Annapurna Enterprises represented undisclosed sale of Raj Niwas Pan Masala. The Ld. CIT(A) observed that the entire inference drawn by the AO was based on assumptions arising out of search-related circumstances and general allegations, without any direct or indirect evidence linking the disclosed turnover of Rs. 7,59,50,930/- with unaccounted pan masala sales for the relevant assessment year.

2.2. The issue raised in Ground No. 2 is against the deletion of Rs. 8,96,750/- which was made by the AO on account of bogus commission income.

2.2.1. The Assessing Officer, while framing the assessment under section 147 vide order dated 28.12.2024, made an addition of Rs. 8,96,750/- on account of commission income earned by the assessee, alleging the same to be bogus in nature. The AO observed that the commission income credited in the profit and loss account of 2.2.2. The ld. CIT(A) after considering the contentions of the assessee as well as of the revenue and taking into account the factual matrix of the case allowed the appeal of the assessee on this issue by observing and holding as under:

“The appellant has convincingly demonstrated that the commission income in question was fully disclosed in the income Tax Return (ITR) and the accompanying audit report submitted in compliance with the provisions of the Income Tax Act. 1961. The documentation provided by the appellant, including the ledger account reflecting the commission income, a duly executed commission agreement, bank statements substantiating the receipt of the income, and additional supporting documents furnished during the assessment proceedings. leaves no room for doubt regarding the transparency and authenticity of the transaction. The Ld. AO's decision to make the addition despite this comprehensive disclosure appears to be an overreach, lacking any substantive basis to challenge the veracity of the submitted evidence Consequently, I am of the view that the addition is unwarranted and merits deletion, as elaborated below. The appellant has rightly emphasized that the commission income of 8,96,750/- was neither concealed nor understated a fact borne out by the meticulous documentation submitted during the assessment process. The ledger account provided a clear record of the income, the commission agreement outlined the terms and legitimacy of the transaction, and the bank statements served as independent proof of receipt These documents were not only submitted in compliance with statutory requirements but were also made available to the Ld. AO for scrutiny during the proceedings The Ld AO, however, failed to point out any specific discrepancies or deficiencies in this evidence that would justify treating the income as undisclosed or fictitious. In the absence of 291, 301/PAT/2025 3. The issues raised in other appeals of the Revenue in 291, 301/PAT/2025 Assessment Years: 2022-23, 2023-24, 2021-22 respectively are similar to ones as decided by us in we have dismissed the appeal of the revenue. Therefore, our decision on various grounds would, mutatis mutandis, apply to these appeals as well. The appeals of the revenue are accordingly dismissed.

A.Y. 2021- The only issue raised by the assessee in Assessment Year 2021-22 is against the order of ld. CIT(A) dismissing the ground raised by the assessee in respect of addition of Rs. 36,32,782/- made by the AO on account of stamp value and actual value of the property purchased. After hearing the rival contentions and perusing the material on records we observe that the addition was rightly made by the AO and sustained by the ld. CIT(A). Therefore, we are inclined to uphold the order of ld. CIT(A) on this issue. The appeal of the assessee is dismissed.