Patna ITAT Deletes Search Additions Based on Retracted Statements & Estimates

Rajesh Agrawal Vs DCIT/ACIT (ITAT Patna)

Patna ITAT Deletes Search-Based Additions Built Solely on Retracted Statements & Uncorroborated Estimates; Holds No GP Addition Sustainable Without Rejecting Books

The Patna ITAT, in a batch of cross appeals for AYs 2018-19 to 2023-24, granted substantial relief to the assessee by deleting major additions arising out of a search action. The Tribunal held that retracted statements recorded during search, without independent corroborative evidence, cannot form the sole basis of additions. It observed that no unaccounted purchases, excess stock, parallel books, suppressed sales or incriminating material relating to the relevant assessment years were found, while the books of account were never rejected under section 145(3). Accordingly, additions made by estimating undisclosed turnover, gross profit and alleged coupon income were held to be unsustainable.

The Tribunal further ruled that once the Assessing Officer’s estimation methodology is found to be fundamentally flawed, the CIT(A) cannot sustain part of the addition merely by applying an estimated GP rate or adopting another ad hoc formula. It also upheld the deletion of additions made towards alleged unexplained commission payments and unexplained bank deposits, noting that the Department failed to provide corroborative evidence, cross-examination of third-party witnesses or identify any specific unexplained credits. However, on the issue of addition under section 56(2)(x) for alleged purchase of immovable property below stamp value, the matter was restored to the Assessing Officer because no opportunity of hearing had been granted before making the addition.

Cases Discussed

• Andaman Timber Industries v. CCE (Supreme Court of India), 281 CTR 241
• CIT v. S. Khader Khan Son (Supreme Court of India), (2012) 210 Taxman 248 (SC)
• CIT v. Poonam Rani (Delhi High Court), (2010) 326 ITR 223 (Del)
• CIT v. Kulwant Rai (Delhi High Court), (2007) 291 ITR 36 (Del)
• CIT v. Kelvinator of India Ltd. (Supreme Court of India), 320 ITR 561
• CIT v. Bhaichand H. Gandhi (Bombay High Court), (1983) 141 ITR 67 (Bom)
• Kishinchand Chellaram v. CIT (Supreme Court of India), 125 ITR 713
• Radhasoami Satsang v. CIT (Supreme Court of India), 193 ITR 321 (SC)
• Paul Mathews & Sons v. CIT (Kerala High Court), (2003) 263 ITR 101 (Ker)
• CIT v. A. Krishnaswami Mudaliar (Supreme Court of India), 53 ITR 122
• Pullangode Rubber Produce Co. Ltd. v. State of Kerala (Supreme Court of India), 91 ITR 18

FULL TEXT OF THE ORDER OF ITAT PATNA

These are the cross appeals preferred by the assessee and revenue against the separate orders of the ld. Commissioner of Income Tax, Appeal, Patna-3, (hereinafter referred to as the “Ld. CIT(A)]dated 16.05.2025 &19.05.2025, for A.Ys. 2018-19, 2019-20, 2020-21, 2021-22, 2022-23 & 2023-24.We shall decide the appeals of the assessee as well as revenue assessment year wise. We now take up assessee’s appeal in ITA No.323/PAT/202025.

A.Y. :2018-19

ITA No.323/PAT/202025 (Assessee’s Appeal)

2. Ground No. 1 challenges the validity of the reassessment order passed u/s 147 by the A.O.

2.1. The facts in brief are that the assessee is a prominent businessman of Muzaffarpur dealing in Gutka and Pan Masala having two proprietary concerns namely M/S Balajee Enterprises in individual capacity and M/S Maa Annapurna Enterprises in HUF. The assessee is franchisee of Raj Niwas Pan Masala. A search Action u/s 132(1) of the Act was conducted on the assessee on 3.8.2022 at residential and business premises wherein key persons and relatives were also covered. During the course of the search incriminating documents were found and seized as noted by the AO at page 3 of the assessment order. The assessee filed the return of income showing total income of ₹ 5,17,340/- u/s 139(1). The AO was of the view on the basis of materials/documents found during search, that income of the assessee has escaped assessment. The case of the assessee was re-opened u/s 147 of the Act by issuing notice u/s 148 of the Act on 20.3.2024. The assessee made compliance thereto by filing return of income on 3.4.2024 disclosing the same income as disclosed in the original return. Thereafter notices u/s 143(2) and 142(1) along with questionnaire were issued and served upon the assessee. The assessee was running business of Pan Masala, food grain and beverages etc. The auditor certified that all the books were properly maintained. The AO noted that during the course of search, the assessee could not produce any books of accounts. The statements recorded during the course of search of the employees of the assessee were retracted subsequently on 18.08.2022 and 21.09.2022.Various notices issued and questionnaires were replied to by filing all the details/evidences. The AO after examining all the details, evidences and replies made three additions namely i) of ₹ 9,00,000/- paid by the assessee to his brother-in-law Shri Suresh Kumar, allegedly which was not accounted for in the books and was treated as unexplained expenses and added u/s 69C of the Act , ii) ₹ 1,44,00,000/- was added on the basis of statement of accountant of the assessee Shri Pradeep Kumar Sharma. The AO calculated the undisclosed turnover at ₹ 120,00,00,000/- on estimation and calculated undisclosed profit thereon at ₹ 1,44,00,000/-, which was added to the income of the assessee and iii) ₹ 2,81,02,983/-, being difference between the bank deposits and the total turnover was treated as unexplained money u/s 69A of the Act and added to the total income of the assessee.

2.2. The ld. CIT(A) dismissed the ground by upholding the re-opening of assessment.

2.3. Ld. AR submitted that the reassessment order passed u/s 147 dated 06.01.2025 is nullity and bad in law. The assumption of jurisdiction itself is bad as the reassessment has been initiated on the basis of statements recorded during search proceedings conducted on 03.08.2022, whereas the assessment year involved is AY 2018–19. The ld. AR submitted that there was no assessment-year-specific incriminating material found during the search relatable to the financial year 2017–18. Neither any seized document, nor any loose paper, nor any cash, stock discrepancy or unexplained asset pertaining to AY 2018–19 was found. Reopening on the basis of vague, undated and general statements recorded years later amounts to a roving and fishing enquiry, which is impermissible in law. Ld. AR further submitted that it is a settled principle that for valid assumption of jurisdiction u/s 147, there must exist tangible material having a live nexus with the escapement of income of the relevant assessment year. The Hon’ble Supreme Court in CIT v. Kelvinator of India Ltd. (320 ITR 561) has categorically held that reassessment cannot be based on mere suspicion or change of opinion and must be founded on tangible material. In the present case, the Assessing Officer has failed to demonstrate any such tangible, year-specific material. Thus, the reassessment proceedings are void ab initio and liable to be quashed on this ground alone. Further, the entire assessment is based on conjectures, presumptions and estimations, without rejecting the books of account, without identifying any defects therein and without any corroborative evidences. The ld. AR therefore prayed that the re-opening as well as the consequent assessment may kindly be quashed. The ld. DR on the other hand relied heavily on the orders of authorities below by submitting that the re-opening has been made validly on the basis of searched seized material. Therefore, the ground may be dismissed.

2.4. We have heard the rival contentions and perused the materials on records. We note that a search action was conducted on the assessee and related entities and persons including employees. During the search incriminating documents were found. In our opinion, the re-opening has been made only on basis of searched seized materials and thus the case of the assessee is validly re-opened. The ground no. 1 is dismissed.

3. The issue raised in ground no 2 is against the part confirmation of addition to the tune of ₹ 7,39,421/- by ld. CIT(A) as against the addition of Rs.1,44,00,000/- made by the on account of undisclosed profit from unaccounted sales of Raj Niwas Pan Masala.

3.1. The facts qua this ground in brief are that the A.O. made the addition on the basis of the statement recorded on 04.08.2022 during search of one of the employees of the assessee, Sri Pradeep Kumar Sharma. The A.O. has contended that during the course of search, on the basis of his statement, a working of annual profit was calculated. Accordingly, profit of Rs. 1,44,00,000/- was estimated and added to the income of the assessee in the assessment framed by the AO .

3.2. The ld. CIT(A) partly allowed the appeal of the assessee on this issue by observing and holding as under:

“The facts of the case, findings of the AO and the submissions of the appellant have been duly considered. The appellant has vehemently contended that not an iota of evidence has been found during the search depicting the undisclosed turnover and profit of this magnitude. Statements of Sh. Khetan and Sh. Sharma have been recorded in 2022 and do not at all speak about the year under consideration. These persons have retracted from their statements immediately after the search was concluded. It is a settled principle that mere statements without corroborative evidence cannot be the basis of addition. This principle has been reiterated in Kishenchand Chellaram v. CIT (1980) 125 ITR 713 (SC), where the Hon’ble Supreme Court held that any addition made solely on the basis of the statement that is not corroborated with evidence cannot be sustained. The AO, while considering similar facts in AY 2019-20, made no addition vide order dated 09.11.2024 with reference ITBA/AST/S/147/2024-25/1070225272(1) after considering assessee’s reply to the show cause. This action of the AO supports the appellant’s contention.

The Ld. AO has not found any deficiency in the books of the assessee. He has nowhere given the finding that the appellant had turnover over and above the turnover disclosed in the books of account. The AO has not made any reference to any seized material for the year under consideration depicting a higher turnover.

In light of the above, I find that the addition of 1,44,00,000/- made by the AO is unsustainable in law and the addition made is unwarranted and unjustified.

The turnover of the appellant for the year was Rs.72257114/- and the GP on this turnover as per books was Rs. 893590/- which is 1.24% of the turnover. In the appellate order passed for the AY 2020-21 to 23-24, the GP rate was held to be at 2.26% after due consideration and discussion in the appellate orders for the aforesaid years. Hence, in my considered opinion, the same rate has to be applied for this year as well. Accordingly, the GP of the appellant is calculated at Rs. 1633011/-. The appellant has already shown GP of Rs. 893590/-. Therefore, a further addition of Rs. 739421/- is directed to be made to the total income of the appellant. The addition of Rs. 14400000/- is hereby deleted. With these observations, the ground no.04 is partly allowed. ”

3.3. We have heard the rival contentions and perused the material on record. We note that the unaccounted sales and the alleged undisclosed turnover have been calculated on the basis of a retracted statement on oath without any corroborative supporting evidences. The Assessing Officer alleged undisclosed turnover of Raj Niwas Pan Masala solely on the basis of the statement of Shri Pradeep Kumar Sharma, recorded u/s 132(4) on 04/082022. The said statement was categorically retracted within a reasonable time after the copy of the statement was provided belatedly by the Department. We observe that while his statement was recorded during search on 04.08.2022, the retraction was done within a reasonable time on 18.08.2022. We observe that the affidavit of retraction is placed in the paper book at page 49, wherein Mr. Pradeep Kumar has stated on oath that his statement was taken under mental pressure. He was in a state of shock and panic and that he replied in affirmation to all the questions put forward to him. He further stated that he had orally requested during search and in writing on 10.08.2022, but till date he had not received the same. The contents of the affidavit could not be controverted before us. It is well settled that a retracted statement, by itself, has no evidentiary value unless corroborated by independent material. The Hon’ble Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala (91 ITR 18) has held that an admission is not conclusive and can be shown to be incorrect. In the present case, no corroborative evidence whatsoever has been found. During the search and survey operations, the physical stock of pan masala was found fully tallying with the stock as per books. No excess stock, no shortage, no unaccounted purchases, no kacha bills, no parallel accounts and no evidence of suppressed sales were found. The reliance on third-party statements is also legally impermissible without corroboration and opportunity of cross-examination. The statements of Shri Pradeep Kumar Sharma and Shri Suresh Khetan are statements of third parties and cannot be used as substantive evidence against the assessee without independent corroboration and without affording opportunity of cross examination. The Hon’ble Supreme Court in Kishinchand Chellaram v. CIT (125 ITR 713) has held that use of such statements without confrontation violates principles of natural justice and renders the addition invalid.

3.3.1. We further note that the Assessing Officer has not rejected the books of account of the assessee under section 145(3) of the Act and no defects whatsoever were pointed out in the method of accounting, quantitative records, stock register, purchase records, sales records, or valuation of closing stock. In fact, during the course of search and survey proceedings, the physical stock of Raj Niwas Pan Masala was found to be fully reconciled with the books of account, and no excess or shortage was detected. In such circumstances, the law is well settled that no estimation of turnover or profit is permissible unless the books of account are first rejected. The Hon’ble Supreme Court in CIT v. A. Krishnaswami Mudaliar (53 ITR 122) has categorically held that estimation of income is permissible only after rejecting the books of account and recording a finding that the accounts do not correctly reflect the true state of affairs. This settled legal position has been consistently followed by various High Courts and Tribunals. Thus, having accepted the books of account as such, the Assessing Officer could not estimate the unaccounted turnover or profit. More importantly, once the Ld. CIT(A) has recorded a categorical finding that the addition of Rs.1,44,00,000/- made by the Assessing Officer was unsustainable in law for want of incriminating material, lack of corroboration, absence of unaccounted purchases and absence of stock discrepancy, there remained no legal basis whatsoever to sustain any further addition by way of estimation. Despite this, the Learned CIT(A) erred in law in partly sustaining the addition to the tune of Rs.7,39,421/- by applying gross profit rate derived from subsequent assessment years. Considering these facts , we set aside the order of ld. CIT(A) insofar as the part sustenance of addition is concerned and direct the AO to delete Rs.7,39,421/-. The ground no 2 is allowed.

4. The ground no 3 and 4 are general and need no adjudication.

5. In the result, the appeal of the assessee is partly allowed.

ITA No.399/PAT/2025(Revenue’s Appeal)

6. Ground no.1 of the revenue’s appeal reads as under :-

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. 9,00,000/- being unexplained expenditure u/s 69C of the Act without appreciating the fact that incriminating documents with regard to undisclosed turnover of Raj Niwas Pan Masala were found and seized and also addition on account of that evidence has been partly accepted by the Ld. CIT(A) in other assessment years i.e. A.Y. 2021-22, 2022-23 & 2023-24.

6.1. The facts qua this addition were discussed in details in the assessee’s appeal and are not being reiterated here. The addition was made by the AO on the basis of statement of Shri Suresh Kumar Khetan recorded u/s 132(4) on 03.8.2022 wherein it was stated that he received commission of ₹ 250/- to ₹ 300/- per bag for effecting sales of Pan Masala. The said statement was retracted on 18.8.2022 and 23.9.2022. The AO rejected the retractions and treated the amount as commission without any corroboration/evidences.

6.2. In the appellate proceedings, ld. CIT(A) deleted the addition on the ground that there were no corroboration and the very basis of addition i.e. statement of Shri Suresh Kumar Khetan stood retracted. The ld. CIT(A) also noted that third party statements cannot be used to make any addition unless the assessee is allowed cross examination. Thus ld. CIT(A) deleted the addition for the want of evidences.

6.3. We have heard the rival contention and perused the materials on records. We note that the addition was made solely on the basis of a statement recorded from Shri Suresh Kumar Khetan under section 132(4) on 03.08.2022, wherein he allegedly stated that he received commission of ₹250–₹300 per bag for sale of pan masala. No document, ledger, voucher, bank entry, cash trail or corroborative material evidencing payment of commission for Assessment Year 2018–19 was found or seized during the search. We also note that the copy of the statement was supplied to the assessee only on 03.09.2022, despite a written request made on 10.08.2022. Due to the delay in supply of the statement, the first retraction was filed on 18.08.2022, followed by a detailed and final retraction on 23.09.2022, i.e., within 20 days of receipt of the statement. The Ld. CIT(A) has recorded a categorical finding that the retraction was timely, bona fide, and reasonable, which finding has not been controverted by the Department with any contrary material. We further note that, at no stage was Shri Suresh Kumar Khetan was confronted to the assessee, nor was any opportunity of cross-examination provided. The Assessing Officer relied upon the statement in isolation, without testing its veracity through examination or confrontation. This procedural lapse goes to the root of the matter. The Ld. CIT(A) has correctly held that reliance on an untested third-party statement, without granting opportunity of cross-examination, constitutes a gross violation of principles of natural justice. It is also relevant that during the entire search and survey operation conducted on 03.08.2022, no evidence of unaccounted sales, excess stock, deviation in stock tally, or undisclosed business activity was found. In absence of any primary evidence of unaccounted sales, the allegation of commission payment automatically collapses. The Department’s argument that additions were made in other years is wholly irrelevant, as each assessment year is a separate unit and must be supported by year-specific incriminating material, which is completely absent for AY 2018–19. Consequently, we uphold the order of ld. CIT(A) on this issue by dismissing the ground no. 1 raised by the revenue.

7. GROUND NO. 2 of the revenue’s appeal reads as under :-

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. 1,44,00,000/- being undisclosed business income from sale of Raj Niwas Pan Masala without appreciating the fact that the addition was based on statement on oath recorded u/s 132(4) of the Act dated 03.08.2022 of Sri Pradeep Kumar Sharma, Accountant.

7.1. The issue has been decided by us in ground no. 2 in the cross appeal filed by the assessee in ITA No.323/Kol/Pat against the part confirmation of addition by the ld. CIT(A) wherein we have deleted the part addition sustained by the Ld. CIT(A). We have elaborately discussed the issue in question and given a detailed findings as to why addition of Rs 1,44,00,000/- was not sustainable in law. We accordingly dismiss ground no 2 of the revenue.

8. GROUND NO. 3 of the revenue’s appeal is as under :-

The Ld. CIT(A)-3, Patna did not appreciate the fact that the principal of res judicata is inapplicable in tax matters because each year’s assessment is final only for that year and does not govern later years.

8.1. After hearing both the parties , it admitted position of law that res judicata does not apply to income-tax proceedings. The assessee has not disputed this legal proposition. However, we note that the Ld. CIT(A) has not applied res judicata mechanically. The deletion is based on independent examination of facts of AY 2018–19, absence of incriminating material, retraction of statements, and violation of natural justice. Hence, this ground is academic and misconceived. The ground no 3 is dismissed.

9. GROUND NO. 4of the revenue’s appeal is as under :-

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. 2,81,02,983/- being unexplained money deposited in the bank account without appreciating the fact that the onus to explain the bank deposits lies upon the assessee.

9.1. The relevant facts are that the AO compared the bank deposits in SBI with the turnover declared by the assessee which were ₹ 13,96,45,447/- and 7,22,57,114/- respectively. The assessee was accordingly asked to explain the same. The assessee submitted that the turnover was net of GST and further there were realization of old due from sundry debtors. The AO rejected the explanation of the assessee as regards receipts from sundry debtors and treated the same as unexplained money u/s 69A of the Act.

9.2. The Learned CIT(A) after taking into account the contentions of the assessee deleted the addition. While adjudicating the issue, ld. CIT(A) considered the detailed reconciliation filed by the assessee. The Learned CIT(A) recorded a categorical finding that the difference between turnover and bank deposits was fully explained on account of GST component and receipt of old outstanding debtors, and that the Assessing Officer had made the addition merely on an ad hoc basis without identifying any specific unexplained deposit. The Learned CIT(A) has further noted that the Assessing Officer did not reject the books of account under section 145(3), nor did he point out any defect in the bank reconciliation or accounting records. It has been specifically observed that the addition was made only on the basis of gross comparison of figures, without disproving the reconciliation furnished by the assessee.

9.3. We have heard the rival contentions and perused the materials on records. We note that ld. CIT(A) has deleted the addition of ₹2,81,02,983/- made by the Assessing Officer on account of alleged unexplained bank deposits, after a detailed examination of facts and records. The Assessing Officer has dealt with this issue under para 10 of the assessment order, wherein it is recorded that the assessee maintained a current account with SBI, Kalyani Market Branch, Muzaffarpur, and that total deposits of ₹13,96,45,447/- were made during the year, whereas turnover of ₹7,22,57,114/- was declared in the return. As recorded by the Assessing Officer, the assessee, vide reply dated 12.12.2024, explained that the difference arose because the turnover declared in the return was net of GST, whereas the bank deposits included the GST component, and further that part of the deposits represented realization of old outstanding trade debtors. The Assessing Officer himself accepted the GST component explanation to the extent of ₹3,92,85,349.83 and computed deposits attributable to sales at ₹11,15,42,463.83. However, without rejecting the books of account and without identifying any specific unexplained credits, the Assessing Officer rejected the explanation regarding realization from debtors and treated the balance amount of ₹2,81,02,983/- as unexplained money under section 69A. We further note that ld. CIT(A) has also taken note of the assessee’s contention that on identical facts that the very same issue was examined by the Department in Assessment Year 2019–20, and the addition was dropped in the assessment order dated 09.11.2024, passed under section 147 and no distinguishing feature for Assessment Year 2018–19 has been pointed out by the Revenue. Further, it is a settled legal position that mere excess of bank deposits over turnover cannot justify an addition unless a specific unexplained credit is identified and the assessee fails to explain its nature and source, as held in CIT v. Bhaichand H. Gandhi (1983) 141 ITR 67 (Bom) and CIT v. Kulwant Rai (2007) 291 ITR 36 (Del). Further, once the books of account are accepted, arbitrary additions based on bank deposits are impermissible, as held in CIT v. Poonam Rani (2010) 326 ITR 223 (Del). In view of these facts and legal position, we are inclined to uphold the order of ld. CIT(A) on this issue by dismissing the ground no.4 of the Revenue’s appeal.

10. GROUNDs NO. 5 & 6 are general in nature and require no adjudication.

11. In the result, appeal of the revenue is dismissed.

A.Y. 2019-20

ITA No.324/PAT/2025(Assessee’s Appeal)

12. GROUND NO. 1 of the assessee’s appeal reads as under: –

For that, the order of assessment passed by The Ld. AO is against the weight of facts, evidences on record & contrary to the law & circumstances of the case.

12.1. The issue is similar to ground no 1 of the assessee’s appeal in ITA No. 323/Pat/2025 for A.Y.2018-19, which, has been dismissed by us. Accordingly, our decision would, mutatis mutandis, apply to ground no. 1 of this appeal as well. Consequently, the ground no. 1 is dismissed.

13. GROUND NO. 2 of the assessee’s appeal reads as under: –

The Ld. AO has made an addition amounting to Rs.2,76,33,761/- on account of undisclosed profit from unaccounted sales of raj niwas pan masala and thereafter the Ld. CIT(A) confirmed the addition of Rs.11,25,247/-. In this regard, I would like to say that there are no unaccounted sales and the alleged undisclosed turnover has been calculated on the basis of a retracted statement of oath without any corroborative supporting evidence. In view of the same, the addition is illegal and totally baseless and uncalled for. Therefore, the addition made shall be deleted.

13.1. The facts in brief are that the AO during the assessment proceedings calculated the suppression of gross profit at 18.54% on the basis of seized document marked as SK-01 page-5 being invoice of Malwa Packaging, Kota dated 27.7.2022 which in fact pertained to a later assessment year. The AO extrapolated the contents of the documents to instant assessment year and also selectively relied upon the statement of Shri Pradeep Kumar Sharma. The Assessing Officer has summarily rejected the retractions by branding them as afterthoughts, without bringing on record any independent corroborative material. Thus, the AO added ₹ 2,76,33,761/- to the income of the assessee.

13.2. The Learned CIT(A), while categorically rejecting the gross profit methodology adopted by the Assessing Officer and granting substantial relief, has nevertheless sustained an ad-hoc addition of ₹11,25,247/-, without identifying any independent incriminating material or recording any fresh factual finding. Such partial sustenance, the Learned CIT(A), while examining this aspect, has noted that the AO relied almost exclusively on statements without independent documentary backing and that no seized material directly evidencing suppressed pan masala sales was found. It is settled law that a retracted statement loses its evidentiary value unless corroborated by independent evidence. The Learned CIT(A) has himself recorded that no independent corroboration of the statements was brought on record by the AO.

13.3. We have heard the rival contentions perused the material on record. We note that the search covered the assessee’s godowns and business premises. The Assessing Officer himself records that a detailed physical stock inventory was prepared during search and that stock valued at approximately ₹1.56 crore was found at the godown. Noteworthy that, no discrepancy whatsoever was found between the physical stock and the stock recorded in the books of account, a fact which has been expressly recorded by the Learned CIT(A). Further, during the entire search and post-search proceedings, no unaccounted purchase invoices were found, no kacha sales bills or parallel accounts were discovered, no transport documents or delivery challans indicating clandestine movement of pan masala goods were seized, and no unaccounted cash or assets representing proceeds of alleged undisclosed pan masala sales were found.

13.4. On the contrary, the documentary material examined during assessment proceedings, including purchase records, quantitative details, and reconciliations, evidences trading activity in food grains, which has been separately disclosed, recorded in the books, and assessed. The Learned CIT(A) has specifically observed that no seized or examined document evidences any suppressed or undisclosed pan masala business. The allegation that the assessee earned suppressed profits from pan masala business running into crores is thus unsupported by even a single piece of corroborative documentary evidence. If the assessee had been engaged in large-scale unaccounted pan masala sales, corresponding evidence in the form of unaccounted purchases, stock discrepancies or cash accumulation would necessarily have existed. The complete absence of such evidences demolishes the very basis of the addition. Additions based on conjectures and surmises are impermissible.

13.5. The Assessing Officer computed the gross profit by deriving cost per pouch from a purchase bill admittedly pertaining to Assessment Year 2023–24, as recorded by him in the assessment order itself, and extrapolated the same to Assessment Year 2019–20. The Learned CIT(A) has categorically recorded that the AO relied on a purchase bill of a later year and that such extrapolation cannot be mechanically applied without contemporaneous data. Such cross-year extrapolation, without any comparability analysis or contemporaneous market data relating to the year under appeal, is ex facie illegal and unsustainable in law. Estimation must be based on relevant material of the same assessment year, failing which it becomes speculative.

13.6. The assessee maintained regular books of account, duly audited, along with quantitative stock records. The AO has not pointed out a single specific defect in purchases, sales, stock register, or accounting method. The Learned CIT(A) has also recorded that sales, purchases, expenses and stock figures were otherwise accepted by the AO. Mere non-availability of books at the moment of search does not justify rejection under section 145(3), particularly when physical stock is reconciled and books are subsequently produced.

13.7. The assessee demonstrated before the lower authorities that across multiple assessment years, including years preceding and succeeding AY 2019–20, the GP ranged between 1% to 2.26%, and the same has been accepted by the Department. The Learned CIT(A) has himself relied upon this historical data to hold that 2.26% is the highest GP ever earned by the assessee. No material changes in business model, pricing structure or market conditions has been brought on record for the year under appeal to justify deviation. Consistency must be maintained in the absence of change in facts, as held in Radhasoami Satsang v. CIT (193 ITR 321, SC).

13.8. The Learned CIT(A), after examining the record, has categorically rejected the GP methodology adopted by the AO and held the excessive estimation of 23.54% / 18.54% to be unsustainable. Having so held, the Learned CIT(A) erred in law in sustaining a sum of ₹11,25,247/- purely on an ad-hoc basis, without identifying any incriminating material relatable to pan masala business, without recording any independent or scientific calculation, and without pointing out any defect in the books of account. Once the foundation of the addition is held to be invalid, no part of the addition can survive merely on approximation or guesswork. Such partial sustenance is legally impermissible and contrary to settled principles.

13.9. The Learned CIT(A), has noted that the AO relied almost exclusively on statements without independent documentary backing and that no seized material directly evidencing suppressed pan masala sales was found. It is settled law that a retracted statement loses its evidentiary value unless corroborated by independent evidence. Further, the statements of the aforesaid persons were relied upon without granting the assessee any opportunity of cross-examination. The Learned CIT(A) has himself recorded that no independent corroboration of the statements was brought on record by the AO. Denial of cross-examination when statements form the sole basis of addition amounts to a violation of the principles of natural justice, rendering the addition void, as held in Andaman Timber Industries v. CCE (281 CTR 241, SC) and Kishinchand Chellaram v. CIT (125 ITR 713, SC).

13.10. Therefore, considering the facts and circumstances of the case we are inclined to set aside the order of ld. CIT(A) in sustaining the addition to the tune of ₹ ₹11,25,247/- and direct the AO to delete the addition. The ground no 2 is allowed.

14. GROUND NO. 3 & 4 are general in nature and do not require any adjudication.

15. In the results, appeal of the assessee is partly allowed.

ITA No.400/PAT/2025(Revenue’s Appeal)

16. GROUND NO. 1 of the Revenue’s appeal is as under :-

That on the facts and in the circumstances of the case CIT(A)-3, Patna erred in deleting the addition of Rs. 2,65,08,514/- being suppression of G.P. from sale of Raj Niwas Pan Masala without appreciating the fact that the estimation of G.P. in the assessment order was based on the basis of seized documents SK-01, Page No.5 which is a purchase invoice from Malwa Packaging-Kota dated 27.07.2022 impounded from the business premises of the assessee during the course of search and survey action.

16.1. The issue has been decided by us in ground no. 2 in the cross appeal filed by the assessee in ITA No.324/Pat/2025 for instant year against the part confirmation of addition by the ld. CIT(A). Since we have allowed the ground raised by the assessee wherein, we have discussed the issue in detail, therefore the ground no. 1 raised by the revenue is dismissed.

17. GROUND NO. 2 of the Revenue’s appeal is as under:-

That on the facts and in the circumstances of the case CIT(A)-3, Patna erred in deleting the addition of Rs. 15,00,000/- being bogus unsecured loan taken from Saurav Beverages without appreciating the fact that during the course of assessment proceedings assessee failed to furnish confirmation of the lender, i.e. M/s Saurav Beverages and it has been held by the Hon’ble Bombay High Court that where assessee failed to produce relevant documents and confirmation in respect of loan taken from various parties, amount in question was to be added to the assessee’s taxable income u/ s68 (Arun Kumar J Muchhala v. CIT (2017) 250 Tax Man 362).

17.1. We have heard the rival contentions and perused the materials on records. The Assessing Officer proceeded to make the addition on the premise that the loan was interest-free, that the creditor was not produced before him, and that the transaction was therefore not genuine. The Ld. CIT(A), however, after examining the assessment records and the evidences placed on record, recorded a clear finding that assessee had fully discharged the onus cast upon him under section 68 by furnishing written confirmation of the lender, PAN details, copies of income-tax returns, audited financial statements establishing creditworthiness, and bank statements evidencing that the loan transaction was routed entirely through normal banking channels. The Ld. CIT(A) thus held that the assessee had satisfied all the three essential ingredients of section 68, namely identity of the creditor, genuineness of the transaction and creditworthiness of the lender, in line with the settled law laid down by various court decisions. The Ld. CIT(A) specifically noted that once the assessee had established the identity of the creditor, the genuineness of the transaction and the creditworthiness of the lender, the primary burden stood discharged and the onus shifted upon the Assessing Officer to make further enquiry. The Ld. CIT(A) held that an addition under section 68 cannot be sustained merely because the AO chose not to verify the documents furnished by the assessee, especially when the evidences remained uncontroverted.

17.2. We note that on the basis of the above analysis, the Ld. CIT(A) recorded a categorical finding of fact that the unsecured loan of ₹15,00,000/- stood fully explained within the meaning of section 68 and that the addition made by the Assessing Officer was arbitrary and unsustainable. He has further recorded a finding of fact, which would not be controverted by the department before us, that the loan was repaid in the next year. Thus, we do not find any infirmity in the order of ld. CIT(A) and are inclined to uphold the same on this issue by dismissing the ground no. 2 of the revenue appeal.

18. GROUND NO. 3 of the Revenue’s appeal is discussed as under :-

3. That on the facts and in the circumstances of the case CIT (A)-3, Patna erred in deleting the addition of Rs. 9,00,000/- being unexplained expenditure u/s 69C of the Act without appreciating the fact that incriminating documents with regard to undisclosed turnover of Raj Niwas Pan Masala were found and seized and also addition on account of that evidence has been partly accepted by the Ld. CIT(A) in other assessment years i.e. A.Y. 2021-22, 2022-23 & 2023-24.

18.1. The similar issue has been decided by us in ground no. 1 in the appeal filed by the revenue in ITA No.323/Pat/2025 A.Y. relating to 2018-19 dismissing the ground raised by the revenue. Therefore, our decision would, mutatis mutandis , apply to ground no. 3 of this appeal as well. The ground no. 3 raised by the revenue is dismissed.

19. GROUND NO. 4& 5 are general in nature and requires no adjudication

20. In the result appeal of the revenue is dismissed.

A.Y. 2020-21

ITA No.325/PAT/2025 (Assessee’s appeal)

21. GROUND NO. 1 of the assessee’s appeal is as under: –

For that, the order of assessment passed by The Ld. AO is against the weight of facts, evidences on record & contrary to the law & circumstances of the case.

21.1. The issue is similar to ground in. 1 in assessee’s appeal in ITA No. 323/Pat/2025 for A.Y.2018-19 which has been dismissed by us. Accordingly, our decision would, mutatis mutandis, apply to ground no. 1 of this appeal as well. Consequently, the ground no. 1 is dismissed.

22. Ground no.2 of the assessee’s appeal reads as under :-

The Ld. AO has made an addition amounting to Rs.1,38,34,052/- on account of undisclosed profit from unaccounted sales of raj niwas pan masala and thereafter the Ld. CIT(A) confirmed the addition of Rs.1,57,893/-. In this regard, I would like to say that there are no unaccounted sales and the alleged undisclosed turnover has been calculated on the basis of a retracted statement of oath without any corroborative supporting evidence. In view of the same, the addition is illegal and totally baseless and uncalled for. Therefore, the addition made shall be deleted.

22.1. The Assessing Officer made an addition of ₹1,38,34,052/- by alleging suppression of gross profit on declared turnover of ₹6,60,76,405/- of M/s Shree Balajee Enterprises by applying a gross profit rate of 23.54%, as against the declared gross profit of ₹17,20,333/-, yielding a GP rate of 2.60%. The addition was based primarily on seized paper SK-01 (Page-5) and selective reliance on the statement of Shri Pradeep Kumar Sharma, Accountant, recorded under section 132(4) on 04.08.2022. The AO observed that during survey conducted on 03.08.2022 at the godown at Zeromile Chowk, physical stock of pan masala valued at approximately ₹1.56 crore was found. On the basis of assumed pouch-wise calculations, the AO held that one bag allegedly contained 6,420 pouches, adopted a cost price of ₹2.93 per pouch and a sale price of ₹3.62 per pouch, thereby arriving at a profit of ₹0.69 per pouch and extrapolating the same to derive a gross profit rate of 23.54%.

22.2. The Learned CIT(A), in paragraphs dealing with Ground No. 2 of the appellate order dated 19.05.2025, categorically held that the AO’s GP computation was fundamentally flawed. The CIT(A) recorded that the AO had accepted the sales, purchases, expenses and closing stock as per books of account and had not rejected the books under section 145(3). The CIT(A) further recorded that the AO’s computation compared consumer-level retail pricing with distributor-level purchase price, ignoring the established trade chain of Manufacturer Distributor (assessee) Wholesaler Retailer Pan Shop Consumer. The CIT(A) also relied upon the same statement of Shri Pradeep Kumar Sharma dated 04.08.2022, particularly Question No. 24, wherein he categorically stated that the purchase price per bag was around ₹25,000 and the sale price around ₹25,300, yielding a margin of approximately 1.2% only. The CIT(A) noted that the AO had selectively relied on statements while ignoring this categorical admission. However, despite rejecting the AO’s estimation methodology and recording that no defect in books was found, the Learned CIT(A) sustained an addition of ₹1,57,893/- by applying the highest historical GP rate of 2.26% purely on an estimated basis, without identifying any unaccounted sale, without rejecting books, and without any corroborative material.

22.3. We have heard the rival contentions and perused the material on records. We note that once the AO’s GP estimation was found to be unsustainable in principle, there was no legal justification to sustain even a marginal addition. It is settled law that estimation cannot be resorted to merely because the profit rate appears low. In the absence of rejection of books under section 145(3), no GP addition can be sustained.

22.3.1. It is further an admitted position emerging from the assessment order as well as the appellate order that no material seized during the survey/search has been demonstrated to pertain specifically to Financial Year 2019–20, relevant to Assessment Year 2020–21. The seized paper SK-01 (Page-5) does not bear any date, period, buyer identification, invoice reference, delivery detail, or financial trail linking it to the year under appeal, nor does it evidence any transaction relatable to the declared turnover of Assessment Year 2020–21.

22.3.2. It is also a matter of record that the statement of Shri Pradeep Kumar Sharma relied upon by the Assessing Officer was recorded on 04.08.2022, and no part of the said statement identifies or admits any undisclosed transaction, suppressed sale, or excess profit pertaining to Financial Year 2019–20. On the basis of the entire material available on record, it stands established that the addition sustained by the Learned CIT(A) is founded not on any year-specific incriminating fact or material relating to Assessment Year 2020–21, but purely on post-period assumptions, estimations, and historical averages, despite the acceptance of books of account and absence of any defect therein. Therefore, in view of the above facts and discussion , the appellate order passed by the Learned Commissioner of Income-tax (Appeals)-3, Patna under section 250 dated 19.05.2025, to the extent additions have been sustained is set aside and AO is directed to delete the addition. The ground no 2 is allowed.

23. GROUND NO. 3 reads as under :-

The Ld. AO has made an addition amounting to Rs.9,10,94,491/- on account of alleged undisclosed profit from the sales of coupon and thereafter the Ld. CIT(A) confirmed the addition of Rs.36,85,052/-. In this regard, I would like to say that the addition is based on the documents found at the premises of my staff member, Mr. Sunil Kumar is entirely unfounded. These documents merely consist of order sheets that Mr. Kumar notes while working from his residence. His practice involves documenting order details, which are subsequently used to fulfill customer demands once payment is received or as instructed. These notes serve as a record-keeping mechanism for operational efficiency and do not represent any unaccounted income or undisclosed transactions profit from unaccounted sales of raj niwas pan masala. Therefore, the addition made is without any corroborative evidence and without any cross questioning from my staff and hence the addition is illegal and shall be deleted.

23.1. After hearing the rival contentions and perusal of material on record, we find that the Assessing Officer quantified the alleged undisclosed income on the basis of certain loose papers marked SK-01 to SK-19 by first aggregating the figures appearing therein and treating the same as representing “coupon” amounts for the year. For Assessment Year 2020–21, the Assessing Officer determined the alleged coupon value at ₹2,45,67,015/-. Without establishing how, when, to whom, or in what manner such coupons were issued or redeemed, and without proving that these figures represented actual monetary outflow or consideration, the Assessing Officer assumed that the said coupon amount constituted 5% of the total sales turnover of the assessee’s alleged undisclosed business. The Assessing Officer mechanically extrapolated the alleged undisclosed turnover by applying a multiplier of 20, on the premise that if ₹2,45,67,015/-represented 5% of sales, then 100% of sales would amount to ₹49,13,40,300/-, calculated as ₹2,45,67,015 × 100 ÷ 5. This figure of ₹49.13 crore was thus arrived at purely on a hypothetical ratio, without any linkage to stock movement, purchases, transportation, delivery, buyer confirmation, or receipt of sale consideration. The said estimated undisclosed turnover of ₹49,13,40,300/-, the Assessing Officer applied a gross profit rate of 23.54%, which he had independently worked out on an entirely separate and already disputed methodology. Applying this rate, the Assessing Officer computed the alleged gross profit on the assumed undisclosed turnover at ₹11,56,61,506/-, calculated as ₹49,13,40,300 × 23.54%. Thereafter, the Assessing Officer reduced the alleged coupon amount of ₹2,45,67,015/- from the above computed gross profit of ₹11,56,61,506/-, on the reasoning that coupons represented benefits passed on to customers. After this reduction, the Assessing Officer arrived at a net alleged undisclosed profit of ₹9,10,94,491/-, calculated as ₹11,56,61,506 minus ₹2,45,67,015, and added the same to the total income of the assessee as undisclosed income.

23.1.1. The Learned Commissioner of Income-tax (Appeals)categorically rejected the Assessing Officer’s foundational assumptions, both in respect of the 5% coupon-to-turnover ratio as well as the 23.54% gross profit rate. The Learned CIT(A) recorded that there was no material on record to justify the assumption that coupons constituted 5% of sales, nor was there any basis to apply the same gross profit rate which had already been found to be excessive and unrealistic. However, despite rejecting the Assessing Officer’s computation as excessive, the Learned CIT(A), on a purely assumption basis, proceeded to re-estimate the figures. For this purpose, the Learned CIT(A) accepted the alleged coupon figure of ₹2,45,67,015/- only as a starting point, without treating it as conclusive evidence of sales. Instead of assuming a 5% coupon ratio, the Learned CIT(A) assumed a 20% coupon rate, meaning thereby that coupons represented one-fifth of the sales value. On this assumption, the alleged undisclosed turnover was re-computed at ₹12,28,35,075/-, calculated as ₹2,45,67,015 × 100 ÷ 20, or alternatively by applying a multiplier of 5 to the coupon amount.

23.1.2. Having thus reduced the alleged undisclosed turnover from ₹49.13 crore to ₹12.28 crore, the Learned CIT(A) further held that the gross profit rate of 23.54% could not be applied, as the same had already been rejected in the context of disclosed turnover. On a further ad-hoc basis, and without reference to any comparable cases or independent evidence, the Learned CIT(A) applied a gross profit rate of 3% to the re-estimated undisclosed turnover of ₹12,28,35,075/-. On this basis, the alleged undisclosed gross profit was computed at ₹36,85,052/-, calculated as ₹12,28,35,075 × 3%.

23.1.3. Accordingly, out of the original addition of ₹9,10,94,491/- made by the Assessing Officer, the Learned CIT(A) sustained only ₹36,85,052/- and deleted the balance addition of ₹8,74,09,439/-. It is observed that once the very basis of the computation—namely, the nature of coupons, the linkage with sales, the percentage assumptions, and the gross profit rate—has been found to be unsupported by evidence, even this residual computation remains an exercise in estimation without proof and cannot survive independently in law.

23.1.4. It is held that once the Learned Commissioner of Income-tax (Appeals) has categorically rejected the very computational foundation adopted by the Assessing Officer, including the assumption that the alleged coupon figures represented actual sales, the assumption that coupons constituted 5% of turnover, the extrapolation of turnover by applying a multiplier of 20, and the application of an inflated gross profit rate of 23.54%, the entire edifice of the addition stood demolished at its inception. The subsequent re-estimation undertaken by the Learned CIT(A), by substituting one assumed percentage with another and by replacing one multiplier with another, does not cure the fundamental defect, namely the complete absence of proof of any undisclosed sale, receipt, or income. It is observed that the seized documents are rough, uncorroborated loose sheets, seized from a third-party employee, no delivery particulars, no acknowledgment of payment, and no linkage with stock or money flow, there remains no legally sustainable basis to treat the same as representing real turnover or profit, even on an estimated basis. It is a settled principle of law that estimation is permissible only after the existence of income is first established by evidence. In the present case, the Learned CIT(A) has expressly held that the primary material relied upon by the Assessing Officer is not conclusive, not corroborated, and not reliable, and that the assessee’s explanation regarding the meaning of “coupon” has not been disproved by any independent material. In such circumstances, sustaining even a residual addition of ₹36,85,052/- on the basis of notional turnover and an ad-hoc gross profit rate of 3% amounts to substituting suspicion for proof and assumption for evidence, which is impermissible in law. Once the evidentiary link between the seized documents and undisclosed income is found to be missing, the computation, howsoever conservative, becomes legally irrelevant.

23.1.5. Accordingly, the assessee is entitled to full relief, and not merely partial relief, as granted by the Learned CIT(A). The inevitable legal consequence of the findings already recorded is that the entire addition on account of alleged coupon has to be deleted in toto, including the residual amount of ₹36,85,052/-. Partial sustenance of the addition, in absence of any uncorroborated evidence will result to an inherent contradiction and therefore, cannot be sustained. The assessee’s plea for complete deletion of the addition on merits is accepted in full. Ground no 3 of the assessee’s appeal is allowed.

24. GROUND NO. 4 of the assessee’s appeal reads as under :-

The Ld. AO has made an addition amounting to Rs.9,50,000/- on account of purchase of immovable property below the stamp duty value of the property and the same was confirmed by the Ld. CIT(A). In this view, I would like to mention here that during the course of the assessment, no query has been asked regarding this addition and in the final order passed by the Ld. AO, this addition has been made on his own which is against the principle of the natural justice and shall be deleted. Also, the property has been purchased as per the market value as mentioned in the deed, therefore, there exists no basis of addition to be made and hence is liable to be deleted.

24.1. Ld. Counsel for the assessee submits that the Assessing Officer made an addition of ₹9,50,000/- on account of alleged purchase of immovable property below the stamp duty value, without issuing any specific show-cause notice, without calling for any explanation from the assessee, without invoking the machinery provisions of section 50C, and without making any reference to the valuation authority. The addition was introduced for the first time directly in the assessment order dated 28.12.2024, without confronting the assessee with the basis of the proposed addition or affording any opportunity of being heard, thereby violating the fundamental principles of natural justice.

24.2. Ld. counsel submits that during the assessment proceedings, no query whatsoever was raised in any of the notices issued under sections 142(1) dated 13.06.2024, 26.09.2024, 28.11.2024 and 10.12.2024, nor was any discrepancy pointed out in the registered purchase deed. The property in question was purchased through a registered instrument, at the prevailing market value, and the consideration was duly recorded in the books of account. In the absence of invocation of section 50C and without a reference to the Departmental Valuation Officer, the Assessing Officer had no jurisdiction to substitute the declared consideration with any notional value.

24.3. Ld. DR relied on the Order of CIT(A).

24.4. After hearing the parties, we find that the Ld. CIT(A) has dismissed this ground summarily. Since the appellant has argued violation of principles of natural justice, we restore this issue to the file of Ld. AO for fresh adjudication accordance with law after providing proper opportunity of hearing to the assessee. Ground no.4 is partly allowed for statistical purposes.

25. Grounds No. 5 & 6 are general in nature and requires no adjudication.

26. The appeal of the assessee is partly allowed for statistical purposes.

ITA No.400/PAT/2025(Revenue’s Appeal)

27. Ground no.1 reads as under:-

“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. 1,36,76,159/- being suppression of G.P. from sale of Raj Niwas Pan Masala without appreciating the fact that the said estimation of G.P. was made on the basis of seized material having identification number SK-01, Page-5 and on the basis of statement on oath of Sri Pradeep Kumar Sharma, accountant.”

27.1. The issue involved in ground no. 1 is similar to ground no. 1 of the revenue’s appeal in ITA No. 400/PAT/2025 relating to A.Y: 2019-20,wherein we have dismissed the ground no. 1. Consequently, our decision on ground no. 1 of the said appeal would, mutatis mutandis, apply to ground no 1 here as well. Hence, the ground no. 1 of the revenue’s appeal is dismissed.

28. GROUND NO. 2 of the Revenue’s Appeal reads as under :-

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. 8,74,09,439/- being undisclosed business income from sale of Raj Niwas Pan Masala without appreciating the fact that the said addition was made on the basis of seized documents SK-01 to SK-19.

28.1. Since we have already allowed the ground no. 3 in cross appeal filed by the assessee in ITA no. 325/Pat/2025 relating to the instant year, wherein we deleted the addition as sustained by CIT(A). While dealing with the said ground, we have elaborately discussed as to how the AO’s action of estimating the alleged undisclosed profit of Rs 9,10,94,491/- on the basis of seized documents, being SK-01 and SK-15 is not sustainable in law. Therefore, in view of our decision, the ground no. 2 in the revenue’s appeal is also dismissed.

29. Ground Nos. 3 & 4 are general in nature and requires no adjudication.

30. The appeal of the revenue is dismissed.

A.Y. : 2021-22

ITA No.328/PAT/2025 (Assessee’s appeal)

31. GROUND NO. 1 assessee’s Appeal reads as under:-

For that, the order of assessment passed by the Ld. Assessing Officer is against the weight of facts, evidences on record and contrary to the law and circumstances of the case.

31.1. The issue is similar to ground no 1 of the assessee’s appeal in ITA No. 232/Pat/2025 for A.Y.2018-19, which has been dismissed by us. Accordingly, our decision would, mutatis mutandis, apply to ground no. 1 of this appeal as well. Consequently, the ground no. 1 is dismissed.

32. GROUND NO. 2 as under:-

That on the facts and in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) erred in sustaining an addition of ₹4,960/-on account of alleged suppression of gross profit from sale of Raj Niwas Pan Masala, despite having categorically held that the gross profit rate of 23.54% adopted by the Learned Assessing Officer was arbitrary, excessive, unsupported by evidence and contrary to the facts available on record.

32.1. This ground is similar to ground no 2 of the assessee’s appeal in ITA no 324/PAT/2025 relating to AY 2019-20, which has been allowed by us. Accordingly, the decision will mutatis mutandis will apply to ground no 2 of this appeal as well. Consequently, ground no 2 is allowed.

33. GROUND NO. 3 of the assessee’s appeal reads as under:-

The Ld. AO has made an addition amounting to Rs.338947189/- on account of alleged undisclosed profit from the sales of coupon and thereafter the Ld. CIT(A) confirmed the addition of Rs.13711456/-. In this regard, I would like to say that the addition is based on the documents found at the premises of my staff member, Mr. Sunil Kumar is entirely unfounded. These documents merely consist of order sheets that Mr. Kumar notes while working from his residence. His practice involves documenting order details, which are subsequently used to fulfill customer demands once payment is received or as instructed. These notes serve as a record-keeping mechanism for operational efficiency and do not represent any unaccounted income or undisclosed transactions profit from unaccounted sales of raj niwas pan masala. Therefore, the addition made is without any corroborative evidence and without any cross questioning from my staff and hence the addition is illegal and shall be deleted.

33.1. This issue is similar to ground no 3 of the assessee’s appeal in ITA no 325/PAT/2025 relating to AY 2020-21, which has been allowed by us. Accordingly, the decision will mutatis mutandis will apply to ground no 3 of this appeal as well. Consequently, ground no 3 is allowed.

34. Grounds No. 4 & 5 are general in nature and does not require adjudication.

35. The appeal of the assessee is partly allowed.

ITA No.402/PAT/2025 (Revenue’s appeal)

36. GROUND NO. 1 of the revenue’s appeal reads as under:-

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. 60,94,662/- being suppression of G.P. from sale of Raj Niwas Pan Masala without appreciating the fact that the said estimation of G.P. was made on the basis of seized material having identification number SK-01, Page No. 5 and on the basis of statement on oath of Sri Pradeep Kumar Sharma, accountant.

36.1. The issue has been decided by us in ground no. 2 in the cross appeal filed by the assessee in ITA No.328/Pat/2025 for the instant year against the part confirmation of addition by the ld. CIT(A). Since we have allowed the ground raised by the assessee wherein, we have discussed the issue in detail, therefore the ground no. 1 raised by the revenue is dismissed.

37. GROUND NO. 2 of the revenue’s appeal reads as under: –

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. 33,89,47,189/- being undisclosed business income from sale of Raj Niwas Pan Masala without appreciating the fact that the said addition was made on the basis of seized documents SK-01 to SK-19.

37.1. Since we have already allowed the ground no 3 in cross appeal filed by the assessee in ITA no 328/PAT/2025 relating to the instant year, wherein we have deleted the addition as sustained by Ld. CIT(A) after discussing the issue in detail. Therefore, the ground no 2 of the revenue’s appeal is dismissed.

38. GROUND NO. 3 is not pressed and accordingly dismissed as not pressed.

39. GROUND NO. 4 of the revenue’s appeal reads as under:-

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. 58,17,789/- which was made on account of unexplained money deposited in the bank account of the assessee over and above his turnover declared in the ITR and audit report without appreciating the fact that the onus to explain the bank deposits lies upon the assessee.

39.1. The issue is similar to ground no 4 of Revenue’s appeal in ITA no 399/PAT/2025 for AY 2018-19, wherein we have dismissed the revenue’s appeal. Therefore, ground no 4 of the revenue’s appeal is dismissed.

40. Grounds No. 5& 6 are general in nature and require no adjudication.

41. The appeal of the revenue is dismissed.

A.Y. 2022-23

ITA No. 327/PAT/2025 (Assessee’s appeal)

42. GROUND NO. 1 of the assessee’s appeal reads as under :-

For that, the order of assessment passed by The Ld. AO is against the weight of facts, evidences on record & contrary to the law & circumstances of the case.

42.1. The issue is similar to ground no 1 of the assessee’s appeal in ITA No. 323/Pat/2025 for A.Y.2018-19, which has been dismissed by us. Accordingly, our decision would, mutatis mutandis, apply to ground no. 1 of this appeal as well. Consequently, the ground no. 1 is dismissed.

43. GROUND NO. 2 of the assessee’s appeal reads as under:-

The Ld. AO has made an addition amounting to Rs.9596077/- on account of undisclosed profit from unaccounted sales of raj niwas pan masala and thereafter the Ld. CIT(A) confirmed the addition of Rs.788687/-. In this regard, I would like to say that there are no unaccounted sales and the alleged undisclosed turnover has been calculated on the basis of a retracted statement of oath without any corroborative supporting evidence. In view of the same, the addition is illegal and totally baseless and uncalled for. Therefore, the addition made shall be deleted.

43.1. This issue is similar to ground no 2 of the assessee’s cross appeal in ITA no 324/PAT/2025 relating to AY 2019-20, which has been allowed by us. Therefore, ground no 2 of the assessee’s appeal is allowed.

44. GROUND NO. 3 of the assessee’s appeal reads as under :-

The Ld. AO has made an addition amounting to Rs.23,65,91,190/- on account of alleged undisclosed profit from the sales of coupon and thereafter the Ld. CIT(A) confirmed the addition of Rs.9570841/-. In this regard, I would like to say that the addition is based on the documents found at the premises of my staff member, Mr. Sunil Kumar is entirely unfounded. These documents merely consist of order sheets that Mr. Kumar notes while working from his residence. His practice involves documenting order details, which are subsequently used to fulfill customer demands once payment is received or as instructed. These notes serve as a record-keeping mechanism for operational efficiency and do not represent any unaccounted income or undisclosed transactions profit from unaccounted sales of raj niwas pan masala. Therefore, the addition made is without any corroborative evidence and without any cross questioning from my staff and hence the addition is illegal and shall be deleted.

44.1. This issue is similar to ground no 3 of the assessee’s appeal in ITA no 325/PAT/2025 relating to AY 2020-21, which has been allowed by us. Accordingly, the decision will, mutatis mutandis, apply to ground no 3 of this appeal as well. Consequently, ground no 3 is allowed.

45. GROUND NO. 4 of the assessee’s reads as under:-

That the Ld. AO has made an addition of Rs.4,08,000/- as per point number 14.2 of the assessment order and the CIT(A) confirmed the addition of Rs.4,08,000/-. In this regard, I would like to say that the addition is uncalled for as it is not supported by any corroborative evidence or logical explanation and hence is liable to be deleted.

45.1. We have heard the parties and perused the material on record. The impugned addition of ₹4,08,000/- has been made by the Assessing Officer solely on the basis of a statement of Shri Upendra Kumar Choubey recorded during survey proceedings conducted under section 133A of the Income-tax Act, 1961. In the said statement, Shri Upendra Kumar Choubey stated that he was receiving a salary of ₹18,000 per month and was incurring rent expenditure of ₹16,000 per month in connection with activities carried out at the premises. On the strength of this statement alone, and without any further enquiry or verification, the Assessing Officer mechanically aggregated the said figures and computed an annual amount of ₹4,08,000/- (₹34,000 × 12 months), treating the same as alleged unrecorded expenditure of the assessee.

45.2. It is observed that no documentary evidence whatsoever was found, seized or relied upon to support this alleged expenditure. There are no salary slips, no rent receipts, no rent agreement, no bank payment proof, no cash vouchers, no books of account entries and no third-party confirmations evidencing either payment of salary or payment of rent by the assessee. The addition thus rests entirely on a bare oral statement recorded during survey under section 133A. It is well settled by the Hon’ble Supreme Court in CIT v. S. Khader Khan Son (2012) 210 Taxman 248 (SC), affirming the judgment of the Madras High Court, that a statement recorded under section 133A has no evidentiary value by itself and cannot form the sole basis of an addition unless it is supported by independent corroborative material. Similar view has been reiterated in Paul Mathews & Sons v. CIT (2003) 263 ITR 101 (Ker) and consistently followed across jurisdictions. In the absence of any corroboration, the impugned addition is therefore legally unsustainable.

45.3. We hold that in the absence of any corroborative evidence, in view of the settled law regarding the non-evidentiary value of statements recorded under section 133A, the addition of ₹4,08,000/- is wholly unsustainable and deserves to be deleted in full. Accordingly, ground no 4 of the assessee’s appeal is allowed.

46. GROUND NO. 5 of the assessee appeal reads as under:-

That the Ld. AO has made an addition of Rs.12,16,030/- as per point number 19 of the assessment order and the CIT(A) confirmed the addition of Rs.1216030/-. In this regard, I would like to say that the addition is uncalled for as it is not supported by any corroborative evidence and also confirmed without any cross questioning of the person of whose the statement of oath is relied on and hence is liable to be deleted.

46.1. After hearing the parties, we observe that the addition of ₹12,16,030/- has been made on the basis of a seized loose paper marked RN-02, allegedly containing handwritten noting’s of payments aggregating to ₹13,37,030/-. Out of the said amount, the Assessing Officer himself accepted ₹1,21,000/- as explained and proceeded to examine the balance sum of ₹12,16,030/-. The entire allegation is founded upon a loose paper seized during the course of search and survey proceedings, on which certain handwritten noting’s aggregating to ₹13,37,030/- were found recorded. It is observed that the said document is merely a loose sheet and does not possess any independent evidentiary value. The document is unsigned, undated and does not bear the signature of the assessee or of any recipient. It does not mention the date of actual payment, the mode of payment, the source from which the payment was allegedly made, any acknowledgement of receipt, or any narration conclusively establishing the nature and purpose of the entries. In the absence of such basic particulars, the document merely reflects certain handwritten figures and noting’s and does not establish that any actual payment was made by the assessee.

46.2. We observe that during the course of assessment proceedings, the assessee specifically explained that the entries appearing in the seized document did not represent unexplained expenditure. The assessee had explained that payment aggregating to ₹1,21,000/- and ₹3,16,030/- related to his food grain business and further submitted that the expenses reflected in the document had already been accounted for by Shri Sunil Kumar, a staff member. Thus, a specific explanation was furnished before the Assessing Officer regarding the nature and accounting treatment of the entries. However, instead of carrying out any verification of the explanation so furnished, the Assessing Officer rejected the same merely on assumptions and presumptions.

46.3. We note from the assessment order that the explanation was discarded primarily on two grounds. Firstly, the Assessing Officer observed that no stock of food grains was found at the office premises during the course of search. Secondly, reliance was placed upon the statement of Shri Upendra Kumar Choubey @ Pintu recorded under section 133A on 03.08.2022, wherein he stated that he was working for Shri Rajesh Agarwal in connection with the Pan Masala business. Neither of these observations, however, has any nexus with the issue under consideration.

46.4. More importantly, the assessee had specifically stated that the expenses reflected in the seized paper had already been accounted for by Shri Sunil Kumar, who was a staff member. Once such a specific explanation was placed on record, it became incumbent upon the Assessing Officer to conduct proper enquiry and verification before rejecting the same. The Assessing Officer could have examined Shri Sunil Kumar, called for the relevant books of account, verified the ledger entries, examined supporting vouchers or conducted any other enquiry considered necessary. However, no such exercise was undertaken. The assessment order itself records only that “no submission has been made evidencing as to how and where the same has been recorded.” This observation cannot substitute a proper investigation. The Assessing Officer neither issued any specific requisition seeking further particulars from Shri Sunil Kumar nor conducted any independent verification to disprove the assessee’s explanation. The explanation was simply brushed aside without any enquiry whatsoever.

46.5. It is a settled principle that where an assessee furnishes a plausible explanation regarding a seized document, the burden shifts upon the Revenue to dislodge such explanation through cogent material. Suspicion, however strong, cannot take the place of evidence. In the present case, apart from the loose sheet itself, there is absolutely no corroborative material on record. The entire conclusion is therefore based upon assumptions drawn from a loose paper without any supporting evidence. Ground no 5 of the assessee appeal is allowed.

47. GROUND NO. 6 of the assessee’s appeal reads as under :-

That the Ld. AO has made an addition of Rs.151200/- as per point number 20 of the assessment order and the CIT(A) confirmed the addition of Rs.151200/-. In this regard, I would like to say that the addition is uncalled for as it is not supported by any corroborative evidence or logical explanation and hence is liable to be deleted.

47.1. This ground was not pressed by the appellant and is, accordingly, dismissed as not pressed.

48. GROUND NO. 7 of the assessee’s appeal is read as under:-

That the Ld AO has made an addition of Rs.60,00,000/- on account of unaccounted purchase of the land through undisclosed cash and the same has been confirmed by the CIT(A). In this regard, I would like to say that during the course of the assessment, I have submitted in my reply dated 19.10.2024 and 25.10.2024 that no seized documents regarding transaction of Rs.60L was found in the seized documents, so requested to provide me the copy of the evidence to enable me to submit the reply. However, overlooking my submission, the Ld AO has disregarded my reply and made an arbitrary addition of Rs.60L which is against the principle of natural justice and unjust. Therefore, the addition shall be deleted because it is based on no evidence but just assumption.

48.1. After hearing the parties and examining the material on record, we observe that an addition of ₹60,00,000/- has been made by the Learned Assessing Officer by alleging that the assessee, Shri Rajesh Agrawal (PAN: ANNPA7704P), made an unaccounted cash payment for purchase of land at Ranchi through Shri Arun Kumar Khatri. The said addition was made u/s 69 of the Income Tax Act, 1961 and taxed u/s 115BBE, primarily on the basis of the statement recorded u/s 132(4) on 03.08.2022 during the course of search proceedings and a subsequent submission made during post-search proceedings in response to summons u/s 131(1A) dated 02.09.2022. It is observed that the entire addition is legally unsustainable, as it suffers from a complete absence of incriminating material, which is a mandatory jurisdictional requirement for invoking section 69.

48.2. We observe that it is an undisputed fact emerging from the assessment records that during the course of the search and seizure action conducted on 03.08.2022, no document, agreement, receipt, ledger, diary, loose paper or any other incriminating material evidencing payment of ₹60,00,000/- in cash towards purchase of land was found or seized. There exists no registered sale deed recording any such cash payment, no agreement to sell mentioning payment of ₹60 lakh and no receipt or acknowledgement from the alleged seller Shri Arun Kumar Khatri. These facts have not been disputed either by the Assessing Officer or by the Learned CIT(A).

48.3. It is observed that the assessment proceedings, the assessee repeatedly and categorically requested the Learned Assessing Officer to furnish copies of the alleged evidence forming the basis of the proposed addition, vide written submissions dated 19.10.2024 and 25.10.2024. Despite such repeated requests, no seized document, WhatsApp chat, or any other material was ever supplied or confronted to the assessee. In the absence of any incriminating material, the very foundation for making an addition u/s 69 collapses, as the said section mandates proof of the existence of unexplained investment supported by tangible and cogent evidence.

48.4. The Assessing Officer sought to justify the addition primarily on the basis of the statement recorded u/s 132(4) and a subsequent post-search reply. It is observed that a statement, by itself, does not constitute conclusive evidence of undisclosed investment unless supported by independent corroborative material. The assessee had explained that at the time of search on 03.08.2022, he was under tremendous pressure and mental stress and therefore was not in a stable condition while replying to the questions. Subsequently, during post-search proceedings, he clarified the factual position. It is a settled principle of law that an admission without corroboration cannot sustain an addition u/s 69, particularly when no documentary evidence exists.

48.5. It is observed that Assessing Officer and the Learned CIT(A) have also referred to a WhatsApp chat dated 22.03.2022 allegedly exchanged with “Mantu Ji Das Nou”. However, no WhatsApp chat evidencing payment of ₹60,00,000/- for purchase of land was ever supplied to or confronted with the assessee. Mere reference to an alleged WhatsApp chat, without furnishing its contents, without establishing the identity of the parties, without linking it to the land transaction, the allegationsdoes not meet the evidentiary standard required under section 69. A digital message, even if assumed to exist, cannot by itself prove undisclosed investment unless corroborated by independent material.

48.6. We observe that reasoning adopted by the Learned Assessing Officer and affirmed by the Learned CIT(A) is largely based on presumptions. Income-tax proceedings are governed by evidence and statutory provisions, not by market perceptions, probabilities or conjectures. Section 69 does not permit additions on suspicion or assumption; it requires proof of actual unexplained investment, which is conspicuously absent in the present case.

48.7. We note that finding of the Learned CIT(A) that there was no violation of principles of natural justice is factually incorrect. Opportunity is meaningful only when the material proposed to be used against the assessee is disclosed. In the present case, despite repeated written requests, no document or WhatsApp chat was ever furnished. Reliance on undisclosed material behind the back of the assessee vitiates the addition and renders it unsustainable.

48.8. We hold that in view of the admitted absence of incriminating material, non-furnishing of alleged evidence, reliance on conjecture rather than proof, the addition of ₹60,00,000/- made u/s 69 deserves to be deleted. Ground no.7 is allowed.

49. GROUND NO. 8 of the assessee’s appeal reads as under :-

That the Ld AO has made an addition of Rs.89,58,555/- on account of undisclosed MCX transaction and The CIT(A) confirmed the addition of Rs.22,00,000. However, this addition has been made arbitrarily by cherry picking my reply during the course of the assessment. That the concept of margin money has been considered but the concept of the square off of the lot has not been considered which calculates the net profit or loss from the transaction. Thus, if the profit or loss is considered the addition would be deleted because the addition is based on margin money which is not even paid by me for the MCX transaction. Therefore, the entire addition is baseless and uncalled for and therefore shall be deleted.

49.1. The present ground of appeal challenges the action of the Ld. CIT(A) in sustaining the addition in part to the tune of Rs 22,00,000/- out of addition made by the Assessing Officer of ₹89,58,555/- on account of alleged undisclosed MCX commodity transactions by treating the same as unexplained expenditure u/s 69C of the Income Tax Act, 1961.

49.2. After hearing the parties and perusing the material available on record, it is observed that the entire approach adopted by the Assessing Officer is fundamentally flawed, being based on conjectures and assumptions rather than on computation of real income. The Assessing Officer has proceeded to treat margin money as unexplained expenditure without appreciating the basic mechanics of commodity trading on the MCX platform, where transactions are settled on a square-off basis, and income, if any, arises only from the net result of profits and losses, and not from the margin money deployed.

49.2.1. The Assessing Officer has referred to certain WhatsApp chats marked as RK-03 and statements recorded from the assessee during search, wherein it was stated that commodity transactions were carried out through persons referred to as “Saurav Ji, Kanpur” and “Vijay Ji, Salgar”. On the basis of these chats alone, without any broker ledger, contract notes, margin statements, or bank trail, the Assessing Officer presumed that the assessee had incurred unaccounted expenditure by way of margin money paid through hawala. The Assessing Officer further assumed a uniform margin requirement of 10% of the alleged lot sizes and, on that presumption, computed a total margin money of ₹89,58,555/- (₹62,32,900 + ₹10,23,585 + ₹17,02,070), which was straightaway added u/s 69C, without any finding of real income.

49.2.2. It is observed that this approach ignores the most fundamental aspect of commodity trading, namely, square-off of positions. In MCX trading, margin money is not an expenditure nor is it income; it is merely a refundable and rotating security deposit, which gets released and reused as trades are squared off. The Assessing Officer himself has acknowledged in the assessment order that margin ranges between 7% to 15% of the lot size and that transactions are squared off within 1–2 months or even earlier. Once this is accepted, the very basis of treating gross margin deployment as unexplained expenditure collapses, because what is required to be examined is the net trading result, not the gross margin circulation.

49.2.3. It is observed that the assessee had categorically explained that, considering all commodity transactions together, he had incurred a net loss. Initially, during post-search proceedings, the assessee stated that there was an approximate profit of ₹18 lakh through Vijay Ji and a loss of about ₹30 lakh through Saurav Ji, Kanpur, resulting in a net loss of about ₹12 lakh. Subsequently, during the assessment proceedings, the assessee furnished his audited Profit & Loss Account, which reflected a net loss of ₹9,93,500/- from commodity trading. Importantly, these audited accounts were never rejected by the Assessing Officer under section 145, nor was any defect pointed out therein.

49.2.4. We further note that the AO has not made any addition in respect of loss/profit in MCX transactions , presumably accepted the book results. The Assessing Officer has discarded the concept of net profit or loss altogether and proceeded to tax margin money as unexplained expenditure, which is legally impermissible. Income-tax is levied on real income, and in the case of commodity trading, the only possible income is the net result after square-off of trades. Margin money, by its very nature, does not represent income or expenditure; it is merely a temporary deposit to facilitate trading. By no stretch of imagination, it can be treated as expenditure as wrongfully done by the AO. Further, the nature of disallowance has not been interfered by the Ld. CIT(A) except reducing the quantum of disallowance

49.2.5. It is held that section 69C can be invoked only where actual unexplained expenditure is proved to have been incurred out of books.

49.2.6. In view of the above facts and circumstances, it is held that the partial sustenance of the addition of ₹89,58,555/- made by the Assessing Officer, to the extent of ₹22,00,000/- by the Learned CIT(A), is wholly unsustainable in law. Since the addition is based on estimated margin money, which is not in the nature of expenditure, the entire addition sustained by the Learned CIT(A) deserves to be deleted in full. Ground no 8 of the assessee’s is hereby allowed.

50. GROUND NO. 9 of the assessee appeal reads as under:-

That the Ld AO has made an addition of Rs.18,64,090/- on account of difference in the investment declared by me for the property and valuation made by the valuation officer by disregarding the submission made and The CIT(A) confirmed the addition of Rs.9,32,045/-. The addition made is not proper and shall be deleted because the valuation has been made by the valuation officer as on date which consists of the current market price on the date of the valuation. This is unjustified because the price shall be taken of the period when the actual investments were made and also the valuation officer has not factored in the discounts availed by me for the bulk purchase order placed by me which is also evident from the purchase bill submitted by me. Therefore, if the same is considered, the valuation will be around the same amount as declared by me. Therefore, in the light of the same, the addition shall be deleted.

50.1. The facts relevant to the instant grounds is that the Learned Assessing Officer in made an addition of ₹18,64,090/-u/s 69 of the Income Tax Act, 1961 on account of alleged unexplained investment in construction of property situated at Jawaharlal Road, Muzaffarpur, and the Learned Commissioner of Income Tax (Appeals) sustained 50% of the addition amounting to ₹9,32,045/-.

50.2. Ld. counsel for the assessee submitted that the entire basis of the addition itself stands demolished by the findings recorded by the Learned CIT(A). The valuation report of the Departmental Valuation Officer (DVO) estimated the total investment in construction during FY 2021-22 at ₹36,88,560/-, whereas the appellant had disclosed investment of ₹18,24,470/-, resulting in a difference of ₹18,64,090/-. This difference was mechanically treated by the Assessing Officer as undisclosed investment u/s 69, without appreciating the manner, timing, and cost structure of the construction activity.

50.3. According to the Ld. Counsel, the appellant had consistently explained, both during assessment and appellate proceedings, that the DVO adopted current market rates prevailing on the date of valuation, whereas the construction activity was spread over earlier periods, and therefore valuation based on present-day rates resulted in an inflated figure. The appellant further explained that stage-wise investment was completely ignored by the DVO and that the time lag between actual expenditure and valuation date was not factored at all. These submissions were supported by purchase bills evidencing bulk procurement of construction materials, which resulted in substantial bulk purchase discounts.

50.4. The Ld. counsel further submitted that the Learned CIT(A), after detailed examination, has categorically accepted all these contentions. The appellate order records clear findings that:

• the DVO relied on current market prices instead of historical prices,
• bulk purchase discounts supported by documentary evidence were not considered,
• the books of account were regular, audited, and free from defects, and
• no evidence of undisclosed investment was found during the course of search or assessment.

50.5. Ld. DR has supported the order of A.O and vehemently submitted that the addition was made by the AO on the basis of DVO’s report and no specific defects were pointed out therein by the assessee.

50.6. After hearing the parties and perusing the material on record, we find that the Ld. CIT(A). also relied upon the decision of the Hon’ble Supreme Court in CIT v. Dalmia Cement (Bharat) Ltd. [216 ITR 79], holding that valuation must be based on facts and prices prevailing at the time of incurring expenditure, and not on inflated future or current market rates. The appellate authority has further acknowledged that the Assessing Officer did not point out any defect in the books of account nor rejected them u/s 145.

50.6.1. It is observed that having accepted all the fundamental defects in the DVO’s valuation and having held that the valuation suffers from multiple infirmities, the Learned CIT(A) nevertheless proceeded to sustain 50% of the addition, solely on the observation that “there is substantial variation in the prevalent costs and the value of investment shown by the appellant”.

50.6.2. It is observed that the books of account were audited and accepted and no defect was pointed out therein. We hold that in absence of rejection of books or discovery of unaccounted investment, reference to DVO valuation alone cannot justify an addition, much less a partial one. We are supported in our view by the decision of Hon’ble Supreme Court in the case of Sangam Cinema 328 ITR 513. Ground no 9 of the assessee’s appeal is allowed.

51. GROUND NO. 10 of the assessee’s appeal reads as under :-

That the Ld AO has made an addition of Rs.2,74,21,202/- on account of undisclosed business transaction and The CIT(A) has confirmed the addition of Rs.68,55,301/-. In this regard, I would like to mention here that the transactions have been made by the staff on my instruction which he records in the sheet and then the same gets accounted for in the books of accounts. These transactions are genuine and already taxed for as also explained during the course of the assessment. Therefore, the addition is illegal and shall be deleted.

51.1. Brief fact relevant to this ground of the assessee are that the Assessing Officer in made an addition of ₹2,74,21,202/-under section 69A of the Income Tax Act, 1961 on the basis of seized document SK-04 and on appeal, Learned Commissioner of Income Tax (Appeals) partly sustained the addition to the extent of ₹68,55,301/- by estimating income at 25% of the alleged receipts.

51.2. Ld. counsel of the assessee submitted that the addition was founded entirely upon an erroneous appreciation of the seized material. The document marked SK-04 consists of rough working sheets maintained by Shri Sunil Kumar, a staff member of the assessee, for day-to-day business convenience. The noting’s therein merely record temporary cash movements, receipts, payments, advances and adjustments made during the course of business operations. These sheets do not constitute books of account, final statements of affairs or records of income. They are merely internal working papers maintained for operational purposes and many of the transactions reflected therein were subsequently accounted for in the regular books of account.

51.3. The Ld. counsel of the assessee had consistently explained during the assessment as well as appellate proceedings that the entries reflected in SK-04 were business-related transactions recorded by the staff member in the course of business activities and that the corresponding results of the business stood incorporated in the regular books of account relating to the food grain business. The books of account were duly maintained, subjected to audit and produced before the Assessing Officer. Significantly, the Assessing Officer neither rejected the books of account under section 145 nor pointed out any specific defect in the audited financial statements.

51.4. Despite the above facts, according to the Ld. counsel, the Assessing Officer proceeded to treat the entire aggregate figure of ₹2,74,21,202/- as unexplained money under section 69A. He further submitted that the approach adopted by the Assessing Officer is contrary to settled principles governing taxation of business transactions. It was further stated that even assuming, without admitting, that the entries represented unrecorded business receipts, what could at best be subjected to tax was the profit element embedded therein and not the entire gross receipts. The assessment order contains no exercise whatsoever for determining actual profit, expenditure, business margin or net accretion. The entire receipts were mechanically treated as income, which is impermissible in law.

51.5. The Ld. DR appearing for the revenue supported the order of the lower authorities. He submitted that the AO has rightly extrapolated the figures recorded in seized documents and has correctly arrived at the figure of Rs 2,74,21,202/-. The AO has meticulously ascertained the transactions which are not recorded in books of accounts.

51.6. After hearing the parties and perusing the material available on record, we find that the appellate order categorically records that the seized sheets contain overlapping entries, duplicated opening balances, repetitive recordings of deposits and withdrawals from “home”, coded figures and mixed transactions. The findings could not be controverted by the revenue. The Learned CIT(A) has specifically observed that the figures appearing in the seized sheets cannot be treated as clean, standalone or independent evidence of undisclosed income. We observe that these findings establish that the gross figure of ₹2,74,21,202/- does not represent actual undisclosed income and that the seized material itself is incapable of yielding any precise determination of taxable income.

51.6.1. We hold that, the Learned CIT(A) rightly rejected the Assessing Officer’s approach of taxing the entire amount. However, having done so, the Learned CIT(A) proceeded to sustain an addition of ₹68,55,301/- by adopting a profit rate of 25% on the alleged receipts. The adoption of such rate is wholly arbitrary and unsupported by any material available on record, particularly, when there is finding about overlapping entries , duplicated opening balances , repetitive records of deposits and withdrawals.

51.6.2. In view of the foregoing facts and circumstances, the addition sustained by the Learned CIT(A) at 25% of the alleged receipts is excessive and unsupported by evidence. In the interest of justice,the addition is restricted to 10% of ₹68,55,301/-, i.e., the addition sustained by CIT(A). Accordingly, the addition is sustained only to the extent of ₹6,85,530/-, and the balance addition is deleted. Ground no.10 is partly allowed.

52. GROUND NO. 11 of the assessee’s appeal is read as under :-

That the Ld. AO has made an addition of Rs.9,00,000.00 on account of undisclosed cash transaction for the purchase of the property and the CIT(A) has confirmed the same. However, the addition is unjust and is fit to be deleted because the property has been purchased at the market value. Hence, the above addition shall be deleted.

52.1. Brief facts relevant to this ground of appeal is that the Assessing Officer made an addition of ₹9,00,000/- u/s 69A of the Income Tax Act, 1961 on account of alleged undisclosed cash payment for purchase of land. On appeal, the Learned Commissioner of Income Tax (Appeals) sustained the said addition in principle, though granted telescoping benefit against alleged undisclosed gross profit from coupon papers.

52.2. Ld. counsel for the assessee submitted that the entire addition is founded solely on an unsigned draft agreement, seized as document RPKS-08 (pages 6–11), which admittedly never culminated in an executed or registered transaction. The seized document itself is unsigned by the assessee, clearly evidencing that the proposed transaction was abandoned and never materialized. No registered sale deed was executed, no possession was taken, and no further consideration was paid beyond a token amount of ₹1,00,000/- through banking channels, which is duly recorded in the books of Shree Balajee Enterprises on 06.11.2021.

52.3. According to the Ld. counsel for the assessee, the assessee consistently explained, both during post-search proceedings and assessment proceedings, that the document in question was prepared only as a security arrangement, since Shri Dinesh Kumar Motani was in urgent need of funds and sought financial assistance. The intention was never to acquire the property, which was beyond the assessee’s financial capacity. This factual position is corroborated by the absence of signatures of the assessee on the agreement, the absence of registration, and the absence of any subsequent acts normally associated with purchase of immovable property.

52.4. Ld. counsel submitted that the Assessing Officer nevertheless proceeded to assume that because the draft agreement mentions advance figures and because ₹1,00,000/-was paid by cheque, the remaining amounts mentioned in the draft must also have been paid in cash. This inference is purely presumptive and unsupported by evidence. It is a settled principle of law that entries in an unexecuted and unsigned draft agreement do not establish actual payment, unless corroborated by independent material such as cash trail, bank withdrawals, confirmations, receipts, or registration documents. None of these exist in the present case.

52.5. The Ld. DR appearing for the revenue supported the orders of the lower authorities.

52.6. We have heard the parties and pursued the material available on record. The reasoning adopted by the Assessing Officer, and affirmed by the Learned CIT(A), that if cheque payment is made, cash payment cannot be denied, is legally untenable. Such reasoning reverses the burden of proof and substitutes assumption for evidence. The Income-tax Act does not permit additions on the basis of conjectures; the onus lies squarely on the Revenue to prove that actual cash payment was made, which has not been discharged in the present case.

52.7. It is also pertinent that the seized document itself does not bear the assessee’s signature, which is a crucial fact ignored by both the authorities below. An unsigned draft agreement, by its very nature, represents only a proposal or negotiation, not a concluded transaction. In absence of execution, registration, or corroborative evidence of payment, no adverse inference can be drawn merely on the basis of draft noting’s. In view of above, we set aside the order ld. CIT(A) and direct the AO to delete the addition. Ground no 11 of the assessee’s is allowed

53. GROUND NO. 12 of the assessee’s appeal is read as under :-

That the Ld AO has made an addition of Rs.40,00,000.00 on account of undisclosed transaction with bikkibirganj and the CIT(A) has confirmed the same. However, the as per the seized documents, it can be validated that no such transactions have been taken place. However, the Ld AO has conveniently chose to ignore the submission and finalize the addition. If the submission has been gone through, the Ld AO would have tried to justify the addition which he did not because there are no evidences to confirm that any unaccounted transaction has actually taken place between the parties. Therefore, in the absence of any corroborative evidence, the Ld AO’s addition is uncalled for and unjust and is liable to be deleted.

53.1. Brief facts relevant to the above ground are that the Assessing Officer made an addition of ₹40,00,000/- u/s 69A of the Income Tax Act, 1961, on account of an alleged undisclosed cash receipt from “Bikki Birganj”, and the Learned Commissioner of Income Tax (Appeals) sustained the said addition solely on the basis of WhatsApp chats, without any corroborative evidence whatsoever.

53.2. Ld. counsel of the assessee submitted that no seized document evidencing receipt of ₹40,00,000/- by the assessee was found during search. The entire addition rested exclusively on WhatsApp chats extracted from seized mobile data (RK-03), which, at best, reflect discussion, negotiation, or expectation of receipt, but do not establish actual receipt of money. There is no bank credit, no cash receipt, no seized cash, no cash flow linkage, and no confirmation from the alleged counter-party, namely “Bikki Birganj”. In absence of these essential ingredients, the addition u/s 69A is wholly unsustainable.

53.3. Ld. counsel of the assessee submitted that the WhatsApp chats relied upon by the Assessing Officer refer to coded expressions such as “10 DL”, “20 DL”, and “20 muz”, which the AO has unilaterally decoded and interpreted as actual cash receipts, without any supporting evidence. There is no independent material on record to show that these discussions culminated in actual delivery of cash to the assessee.

53.4. Ld. counsel of the assessee further submitted that throughout the proceedings, the assessee has consistently stated that no amount of ₹40,00,000/- was ever received from Bikki Birganj. In his statement, the assessee categorically explained that only ₹15,00,000/- was receivable, and even that amount was never realized. This crucial factual assertion has not been disproved by the Assessing Officer. Significantly, the AO did not summon, examine, or record the statement of Bikki Birganj, nor did he make any effort to verify whether any such payment was actually made. The failure to examine the alleged payer itself vitiates the addition.

53.5. The Ld. DR appearing for the revenue supported the order of lower authorities and vehemently submitted that the AO has meticulously deciphered the contents of the chats and CIT(A) has rightly affirmed the addition made by the AO.

53.6. After hearing the parties and pursuing the material available on record, we observe that the Assessing Officer has also not brought on record any evidence to show movement of cash, such as withdrawal by the alleged payer, delivery mechanism, date of receipt, place of receipt, or utilization by the assessee. Section 69A can be invoked only when the existence and ownership of unexplained money is proved. In the present case, existence itself is not proved, let alone ownership.

53.6.1. The Learned CIT(A) has sustained the addition on the reasoning that the WhatsApp chat was between the assessee and his staff and that the staff “confirmed receipt”. This finding is factually and legally flawed. Firstly, no statement of any staff member confirming actual receipt of ₹40,00,000/- is cited or reproduced in the appellate order. Secondly, the seized mobile belonging to the assessee does not absolve the Revenue from proving that money actually changed hands.

53.6.2. The Learned CIT(A) has further rejected the plea of lack of cross-examination on the ground that staff is not a third party. This reasoning is misplaced. The assessee’s grievance is not limited to cross-examination of staff, but extends to the non-examination of the alleged payer, namely Bikki Birganj, whose role is central to the alleged transaction. No addition based on alleged receipt can be sustained without examining the payer, particularly when the assessee has consistently denied receipt.

53.6.3. The appellate order also proceeds on an erroneous premise that denial by the assessee itself justifies the addition. Denial does not shift the burden of proof. The burden squarely lies on the Revenue to establish, through cogent and corroborative evidence, that the assesseeactually received ₹40,00,000/- in cash. Mere suspicion based on chats and past allegations of cash dealings cannot substitute proof.

53.6.4. We hold that in law, it is well settled that WhatsApp chats, by themselves, are at best weak corroborative evidence and cannot form the sole basis of an addition, unless supported by independent material. In the present case, there is complete absence of corroboration. The addition is thus based on assumptions, conjectures, and unilateral interpretation of chats, which is impermissible in law.

53.6.5. In view of the above facts and circumstances, it is submitted that there is no evidence whatsoever to establish the receipt of ₹40,00,000/-. The WhatsApp chats relied upon merely indicate a discussion or expectation and do not establish the completion of any transaction. Further, the alleged payer was never examined, no opportunity to cross-examine the said person was ever afforded to the assessee, no cash, bank credit, or other money trail has been brought on record, and the essential conditions for invoking the provisions of section 69A are not satisfied. Accordingly, the addition deserves to be deleted in its entirety. Accordingly, Ground of Appeal No. 12 of the assessee’s appeal is allowed, and the addition of ₹40,00,000/- u/s 69A sustained by the Learned CIT(A) is deleted.

54. GROUND NO. 13 & 14 are general in nature and does not require adjudication.

55. The appeal of the assessee is partly allowed.

ITA No.403/PAT/2025(Revenue’s Appeal)

56. GROUND NO. 1 of the revenue’s appeal is read as under:-

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. 95,17,209/- being suppression of G.P. from sale of Raj Niwas Pan Masala.

56.1. The issue has been decided by us in ground no. 2 in the cross appeal filed by the assessee in ITA No.327/Pat/2025 for the instant year against the part confirmation of addition by the ld. CIT(A). Since we have allowed the ground raised by the assessee in the said cross-appeal, therefore the ground no. 1 raised by the revenue is dismissed.

57. GROUND NO. 2 of the revenue’s appeal is read as under:-

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. 22,70,20,319/- being undisclosed business income from sale of Raj Niwas Pan Masala.

57.1. This issue is similar to ground no 3 of the assessee’s appeal in ITA no 327/PAT/2025 relating to the instant year, which has been allowed by us. Accordingly, the decision willapply to ground no 2 of this appeal as well. Consequently, ground no 2 is dismissed.

58. GROUND NO. 3 of the revenue’s appeal is read as under:-

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. 9,32,045/- being unexplained investment in construction of building at Jawaharlal Road, Muzaffarpur.

58.1. This issue has been dealt by us elaborately by us while dealing with ground no 9 of the assessee’s cross appeal in ITA no 327/pat/2025 for the instant year, wherein part sustenance of the addition by the Ld. CIT(A) has been deleted by us. Therefore, ground no 3 of the revenue’s appeal is dismissed.

59. GROUND NO. 4 of the revenue’s appeal is read as under:-

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. 67,58,555/- being unexplained expenditure in commodity trading through Hawala transaction.

59.1. This issue has been dealt with elaborately by us while dealing with ground no 8 of the assessee’s cross appeal for the instant year, wherein part sustenance of the addition by the Ld. CIT(A) has been deleted by us. Therefore, ground no 4 of the revenue’s appeal is dismissed.

60.GROUND NO. 5 of the revenue’s appeal reads as under :-

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. 2,05,65,901/- being unexplained money u/s 69A of the Act as per seized document SK-04.

60.1. This issue has been dealt with elaborately by us while dealing with ground no 10 of the assessee’s cross appeal for the instant year, wherein part sustenance of the addition by the Ld. CIT(A) has been deleted by us. Therefore, ground no 4 of the revenue’s appeal is dismissed

61. GROUND NO. 6 of the revenue’s appeal is read as under:-

In the facts and on the circumstances of the case and in law, the Ld. CIT (A)-3, Patna erred in holding that the unaccounted income should be telescoped against the unaccounted expenditure to determine the real income of the assessee.

61.1. Since we have deleted the addition on account of income from turnover of the alleged clandestine business of pan masala/gutkha against which Ld. CIT(A) has granted telescopic benefit, this ground of appeal of the revenue in rendered infructuous. Hence, ground no 6 of the revenue’s appeal is dismissed.

62. The appeal of the revenue is dismissed.

A.Y. 2023-24

ITA No. 328/PAT/2025(Assessee’s Appeal)

63. GROUND NO. 1 of the assessee’s appeal is read as under:-

For that, the order of assessment passed by the Ld AO is against the weight of facts, evidences on record & contrary to the law & circumstances of the case.

63.1. The issue is similar to ground no 1 of the assessee’s appeal in ITA No. 323/PAT/2025 for A.Y. 2018-19, which, has been dismissed by us. Accordingly, our decision would, mutatis mutandi, apply to ground no. 1 of this appeal as well. Consequently, the ground no. 1 is dismissed.

64. GROUND NO. 2 of the assessee’s appeal reads as under :-

The Ld AO has made an addition amounting to Rs.1,00,46,510/- on account of alleged undisclosed profit from the sales of coupon and thereafter the Ld CIT(A) confirmed the addition of Rs.4,06,412/-. In this regard, I would like to say that the addition is based on the documents found at the premises of my staff member, Mr. Sunil Kumar is entirely unfounded. These documents merely consist of order sheets that Mr. Kumar notes while working from his residence. His practice involves documenting order details, which are subsequently used to fulfill customer demands once payment is received or as instructed. These notes serve as a record-keeping mechanism for operational efficiency and do not represent any unaccounted income or undisclosed transactions profit from unaccounted sales of raj niwas pan masala. Therefore, the addition made is without any corroborative evidence and without any cross questioning from my staff and hence the addition is illegal and shall be deleted.

64.1. Ld. counsel for the assessee submitted that the addition originally made by the Learned Assessing Officer at ₹1,00,46,510/- and the addition ultimately sustained by the Learned CIT(A) at ₹4,06,412/- are both wholly unsustainable in aw as well as on facts. The entire addition originates from certain loose papers marked as SK-01 to SK-19 which were seized during the course of search conducted on 03.08.2022. It is an admitted and undisputed fact that none of these documents were found from the business premises of the appellant, nor from the residential premises of the appellant, nor from his possession. All the documents relied upon by the Revenue were found from the residence of Shri Sunil Kumar, an employee of the appellant. Therefore, the very foundation of the addition rests upon third-party documents and not upon any document belonging to or recovered from the appellant.

64.2. Ld. counsel further submitted that after careful examination of the seized papers clearly demonstrates that they are nothing more than rough sheets containing names, quantities, figures, calculations, corrections, overwriting, cancellations, tick marks and multiple recalculations. The papers do not contain the signature of the appellant. They do not contain any confirmation from any purchaser. They do not contain any acknowledgment of receipt of goods. They do not contain details regarding transportation, dispatch, mode of payment, receipt of consideration or completion of any transaction. In fact, several pages contain alternative quantities and revised figures written on the same page itself, clearly indicating that they are merely rough working sheets and not records of concluded transactions. The appellant had consistently explained throughout the assessment proceedings that these papers represented internal enquiry sheets, order notes, promotional scheme references and operational workings maintained at staff level by Shri Sunil Kumar while interacting with customers and dealers. This explanation has never been disproved by any independent evidence brought on record by the Revenue.

64.3. The Ld. DR supports the order of the AO and submitted that the entire addition made by the AO was sustainable in law and prayed for reversal of the Order of Ld. CIT(A).

64.4. After hearing the parties and pursuing the material available on record, we find that the Learned Assessing Officer nevertheless proceeded on the assumption that the term “coupon” appearing in certain papers necessarily represented discounts linked to undisclosed sales of Raj Niwas Pan Masala. However, no material whatsoever was found during search to establish that the notings represented actual sales transactions. No buyer was identified. No purchaser was examined. No retailer was examined. No pan shop owner was examined. No transporter was examined. No confirmation from any customer was obtained. No unaccounted stock corresponding to the alleged sales was found during search. No excess stock was detected. No undisclosed cash corresponding to the alleged turnover was discovered. No unaccounted bank deposits were found. No parallel books of account were recovered. No unaccounted purchases corresponding to the alleged sales were brought on record. Thus, there is absolutely no corroborative evidence linking the loose papers to any actual undisclosed business activity.

64.4.1. We find that the entire methodology adopted by the Learned Assessing Officer is itself based upon assumptions. The Assessing Officer observed that the coupon amount for the year under consideration aggregated to ₹27,09,415/-. Without any seized material, statement, document or evidence supporting such conclusion, the Assessing Officer arbitrarily assumed that the coupon value represented 5% of total turnover. On the basis of this assumption alone, he estimated the alleged turnover at ₹5,41,88,300/- by multiplying the coupon value twenty times. Thereafter, he applied a gross profit rate of 23.54% allegedly derived from selective interpretation of certain seized material and arrived at a gross profit figure of ₹1,27,55,926/-. From this amount, he reduced the coupon value of ₹27,09,415/- and ultimately computed an addition of ₹1,00,46,510/-.

64.4.2. We hold that having accepted that the Assessing Officer’s methodology was defective, the Learned CIT(A) ought to have deleted the addition in entirety. However, instead of deleting the addition, the Learned CIT(A) merely substituted one assumption with another assumption. The Learned CIT(A) held that the coupon rate should be considered at 20% instead of 5% and accordingly estimated undisclosed turnover at ₹1,35,47,075/-by applying the formula ₹27,09,415 × 100 ÷ 20. Thereafter, without any supporting evidence, a gross profit rate of 3% was applied and an addition of ₹4,06,412/- was sustained. It is observed that there is no evidence whatsoever on record establishing that coupon value represented 20% of turnover. No document mentions 20%. No statement mentions 20%. No seized paper contains such ratio. No customer or employee has ever confirmed such percentage. Therefore, the figure of 20% adopted by the Learned CIT(A) is as arbitrary and unsupported as the figure of 5% adopted by the Assessing Officer. The addition sustained by the Learned CIT(A) therefore continues to remain an addition based entirely upon conjectures and estimations.

64.4.3. We observe that Learned CIT(A) has principally sustained the addition on the observation that the coupon business “appears to involve some level of unaccounted transactions” and that the seized documents create a reasonable suspicion regarding undisclosed sales. With utmost respect, taxation cannot be based upon what merely appears to be the position. The law is well settled that suspicion, however strong, cannot take the place of evidence. An addition can be sustained only on the basis of legally admissible material establishing actual accrual of income. In the present case, neither the Assessing Officer nor the Learned CIT(A) has established a single completed sale transaction. Neither has identified a single purchaser corresponding to the alleged turnover. Neither has established receipt of sale consideration. Neither has established movement of goods. Neither has linked the alleged turnover with any stock discrepancy, cash flow, bank transaction or books of account. Consequently, the very existence of undisclosed turnover remains unproved.

64.4.4. A further fatal defect in the Revenue’s case is that although the entire addition is based upon documents allegedly maintained by Shri Sunil Kumar, the said Shri Sunil Kumar was never examined by the Assessing Officer. The assessment order itself records that Shri Sunil Kumar was never produced for verification. The person from whose residence the documents were recovered and who was allegedly maintaining those documents was never examined regarding the nature, purpose and contents thereof. Nor was any opportunity of cross-examination afforded to the appellant. When documents are recovered from a third party and are sought to be relied upon against an assessee, examination of the author or custodian of such documents becomes indispensable. The complete failure of the Revenue to examine Shri Sunil Kumar strikes at the root of the entire addition and renders the interpretation placed upon the documents entirely speculative.

64.4.5. The Hon’ble Supreme Court in Kishinch and Chellaram v. CIT (125 ITR 713) has held that material sought to be used against an assessee must be properly proved and the assessee must be afforded an opportunity to rebut the same. The Hon’ble Supreme Court in Dhakeswari Cotton Mills Ltd. v. CIT (26 ITR 775) has held that additions cannot be based upon suspicion, surmises and conjectures. The Hon’ble Supreme Court in CIT v. Daulat Ram Rawatmull (87 ITR 349) has categorically held that suspicion cannot take the place of evidence. The Hon’ble Delhi High Court in CIT v. S.M. Aggarwal (293 ITR 43) has held that loose sheets and scribblings without corroboration are merely dumb documents incapable of supporting additions. The Hon’ble Madhya Pradesh High Court in CIT v. Ashok Kumar Jain (351 ITR 74) has similarly held that documents seized from a third party cannot by themselves constitute evidence of undisclosed income without independent corroboration. In view of the above, we allow ground no 2 of the assessee’s appeal.

65. GROUND NO. 3 of the assessee’s appeal is read as under :-

That the Ld AO has made an addition of Rs.83,96,300/- as per point number 14.1 of the assessment order and the CIT(A) confirmed the addition of Rs.251889. In this regard, I would like to say that the addition is uncalled for as it is not supported by any corroborative evidence or logical explanation and hence is liable to be deleted.

65.1. Ld. counsel for the assessee submitted that the addition of Rs. 83,96,300 was made by the Assessing Officer on protective basis at para no. 14.1 of the assessment order and the consequential direction issued by the Learned CIT(A) to add a sum of Rs. 2,51,889 being 3% of the said amount as estimated profit is wholly unsustainable both on facts and in law and deserves to be deleted in entirety. He submitted thatthe foundation of the addition is extremely fragile as it rests solely on a WhatsApp chat extracted from the seized document RK-03 Page 1, which at best records a preliminary discussion or proposal does not contain any conclusive evidence that the transaction was actually concluded, goods were delivered or any consideration changed hands. Such loose and informal notings, without any supporting material, have been consistently held by courts to be in the nature of dumb documents which cannot form the basis of an addition in the absence of independent corroboration.

65.2. Ld. counsel submits that during the course of search, the assessee had made a statement under section 132(4) under extreme mental pressure and in a state of shock, stating that he had sent packets of Raj Niwas Pan Masala. He submitted that mere statement without any corroboration as no evidentiary value.

65.3. The Ld. DR submits that the addition made by the AO was based on cogent material and Ld. CIT(A) ought to have dismissed the appeal of the assessee is toto.

65.4. After hearing the parties and pursuing the material available on record, we find that the Ld. CIT(A) has nevertheless committed an error in directing addition of Rs. 2,51,889 as profit at the rate of 3%. This direction is equally without any factual or legal basis. There is no material whatsoever on record to establish that the assessee has actually earned any profit on the alleged transaction. Even the rate of 3% has been applied mechanically by CIT(A), only because the same rate was adopted while estimating profit on the main undisclosed turnover arising from coupon documents. Such an approach is arbitrary and contrary to the settled principle that estimation must be based on some rational and comparable data and not on ad hoc assumptions. Various courts have held that additions based on assumptions and estimates without any corroborative evidence are unsustainable in law.

65.4.1. We hold that the principle of real income, as consistently laid down by the Hon’ble Supreme Court, has been completely ignored in the present case. Income tax can be levied only on real income and not on hypothetical or notional income. The Hon’ble Supreme Court in CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC) has held that mere entries or possibilities cannot justify an addition unless it is established that real income has accrued to the assessee. In the facts of the present case, there is complete absence of any evidence to show that the assessee has actually received the sum of Rs. 83,96,300 or has earned any profit thereon. The Learned CIT(A) has proceeded on the assumption that since the receipt is from undisclosed Pan Masala business, profit at the rate of 3% must be added, without bringing any material on record to support such estimation. This approach is contrary to the fundamental principles governing taxation of income.

65.4.2. In view of the above discussion, we hold that the direction of the Learned CIT(A) to make addition of Rs. 2,51,889 is without any evidentiary support, is based on surmises and conjectures, and is contrary to the real income theory and settled judicial precedents. The addition is liable to be deleted in full. Hence, Ground No. 3 of the assessee is allowed and the addition of Rs. 2,51,889 sustained by the Ld. CIT(A) is hereby deleted.

66. GROUND NO. 4 of the assessee is read as under :-

That the Ld AO has made an addition of Rs.800000/- as per point number 14.2 of the assessment order and The CIT(A) confirmed the addition of Rs.24000. In this regard, I would like to say that the addition is uncalled for as it is not supported by any corroborative evidence or logical explanation and hence is liable to be deleted.

66.1. Facts relevant to this ground of appeal are that the Assessing Officer has made an addition of Rs. 8,00,000 as per para no. 14.2 of the assessment order and the Learned CIT(A) has confirmed the addition of Rs. 24,000 being 3% of the said amount.

66.2. The addition originates from a solitary WhatsApp chat extracted from the seized document RK-03, Page 17, which allegedly records that on 19.05.2022, the assessee received a sum of Rs. 8,00,000 in cash from one Ashish Ji. The Assessing Officer treated this as an unaccounted receipt and proposed a protective addition of Rs. 8,00,000 on the ground that in case the main addition on undisclosed Pan Masala income fails, this amount may be brought to tax. The Learned CIT(A), while accepting that no separate addition of the principal amount of Rs. 8,00,000 is warranted as the same is already covered under the main undisclosed Pan Masala income addition, has nevertheless directed the Assessing Officer to make an addition of Rs. 24,000 being 3% of Rs. 8,00,000 as estimated profit.

66.3. After hearing the parties, we observe that the entire foundation of the addition rests on a WhatsApp chat, which is nothing but a dumb document containing informal recording of a proposed or possible transaction. There is absolutely no corroborative material on record to establish that the transaction actually took place, that cash of Rs. 8,00,000 was received, or that any income accrued to the assessee. No cash was found during the search corresponding to this amount, no confirmation has been obtained from Ashish Ji, and there is no entry in the books of account or any other document to support the transaction.

66.3.1. The Learned Assessing Officer has proceeded merely on the basis of the WhatsApp chat without making any further enquiry or verification. No statement of Ashish Ji was recorded, no investigation was conducted to ascertain the source or nature of the transaction, and no opportunity was given to the assessee to cross-examine or rebut the person from whom the amount is alleged to have been received. The Hon’ble Supreme Court in Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC)has laid down that any material sought to be used against an assessee must have a live nexus with him and must be established through legally admissible evidence. In the absence of any such evidence, the addition is liable to be deleted.

66.3.2. We hold that the direction to add Rs. 24,000 as profit at the rate of 3% is also arbitrary and without any basis. There is no material on record to show that the assessee has earned any profit on this transaction. The rate of 3% has been applied mechanically only because the same rate was adopted while estimating profit on the main undisclosed turnover. The Hon’ble Madhya Pradesh High Court in CIT v. Balchand Ajit Kumar (2003) 263 ITR 610 (MP) has held that additions based on assumptions and estimates without corroborative evidence are unsustainable. The principle of real income, as laid down by the Hon’ble Supreme Court in CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC), mandates that income tax can be levied only on real income and not on hypothetical or estimated income in the absence of positive material establishing accrual of income.

66.3.3. In view of the foregoing, we hold that the direction of the Learned CIT(A) to make addition of Rs. 24,000 is without any evidentiary support, is based on surmises and conjectures, and is contrary to the principles of real income. The addition is liable to be deleted in full. Hence ground no 4 of the assessee appeal is allowed.

67. GROUND NO. 5 of the assessee’s appeal reads as under :-

That the Ld AO has made an addition of Rs.2284500/- as per point number 15 of the assessment order and the CIT(A) confirmed the addition of Rs.68535. In this regard, I would like to say that the addition is uncalled for as it is not supported by any corroborative evidence or logical explanation and hence is liable to be deleted.

67.1. Facts relevant to the addition made by the AO are that the addition of Rs. 22,84,500/- has been made by the Learned Assessing Officer on a protective basis under para no. 15 of the assessment order. The Assessing Officer has proposed this addition on the basis of certain incriminating materials found during the search and seizure action conducted on 03.08.2022 at the residential and business premises of the assessee as well as at the premises of his close relatives and associates, namely Sri Pawan Kumar Singhania, Sri Suresh Kumar alias Khetan, Sri Pradeep Kumar Sharma, Sri Sunil Kumar and Sri Anil Agarwal. During the course of the said search, various documents were seized which have been marked as RK-01 to RK-06, RKPS-1 to RKPS-9, ASKK-01, PSH-01 to PSH-06, SK-01 to SK-19, RN-01 to RN-02, MAE-01 to MAE-03 and PGS-01 to PGS-03. The addition under para no. 15 appears to have been made on the basis of certain notings and WhatsApp chats found in the seized document RK-03, which the Assessing Officer has interpreted as reflecting unaccounted receipts related to the Pan Masala business of the assessee.

67.2. After hearing the parties and pursuing the material available on record, we find that the Assessing Officer has proceeded on the assumption that the said amount of Rs. 22,84,500 represents undisclosed income from the Pan Masala business and has proposed a protective addition on the ground that in case the main addition on undisclosed Pan Masala income fails, this amount may be brought to tax. However, there is no independent or corroborative evidence on record to establish that the assessee has actually received the sum of Rs. 22,84,500 or that any income has accrued to him from the said transaction. No cash corresponding to this amount was found during the search, no confirmation has been obtained from the other party to the transaction, and there is no entry in the books of account or any other contemporaneous document to support the same.

67.2.1. The Learned CIT(A), while correctly holding that no separate addition of the principal amount of Rs. 22,84,500 is warranted as the same is already included in the main addition of undisclosed Pan Masala income of Rs. 1,00,46,510 made on the basis of coupon documents found in the seized material, has nevertheless directed the Assessing Officer to make an addition of Rs. 68,535 being 3% of Rs. 22,84,500 as estimated profit. This direction is equally unsustainable. There is no material on record to establish that the assessee has earned any profit on the alleged transaction of Rs. 22,84,500. The rate of 3% has been applied mechanically only because the same rate was adopted while estimating profit on the main undisclosed turnover arising from coupon documents found during the search. In view of the foregoing, we hold that the direction of the Learned CIT(A) to make addition of Rs. 68,535 is without any evidentiary support and is based on surmises and conjectures, and is contrary to the real income theory. The addition is liable to be deleted in full. Hence ground no 5 of the assessee’s is allowed.

68. GROUND NO 6 of the assessee’s appeal is read as under:-

That the Ld AO has made an addition of Rs.408000/- as per point number 13.2 of the assessment order and the CIT(A) confirmed the addition of Rs.408000. In this regard, I would like to say that the addition is uncalled for as it is not supported by any corroborative evidence and also confirmed without any cross questioning of the person of whose the statement of oath is relied on and hence is liable to be deleted.

68.1. After hearing the parties and on pursuing the material available on record, we find that the addition of Rs. 4,08,000 has been made by the Learned Assessing Officer on the basis of the statement recorded under section 132(4) of one of the persons whose premises were also searched on 03.08.2022. The Assessing Officer has relied upon the said statement to make the addition without bringing any independent or corroborative material on record to support the same. It is settled law that a statement recorded during search, by itself and without any corroborative evidence, cannot form the sole basis of an addition, more particularly when the said statement is not put to the assessee for rebuttal and no opportunity is granted to cross-examine the deponent.

68.1.1. It was submitted by the counsel of the assessee that during the course of assessment proceedings, the assessee was never confronted with the specific statement on the basis of which the addition has been made, nor was any opportunity given to the assessee to cross-examine the person whose statement has been relied upon by the Learned Assessing Officer. The fact could not be controverted between us. The Hon’ble Supreme Court in Andaman Timber Industries v. Commissioner of Central Excise (2015) 281 CTR 241 (SC) has categorically held that the right to cross-examine is an integral part of the principles of natural justice and denial of such opportunity vitiates the order. Similarly, the Hon’ble Supreme Court in State of Punjab v. Bhag Singh (2003) 263 ITR 391 (SC) has held that where an order is passed on the basis of a statement of a third party without affording an opportunity of cross-examination to the affected party, the same is violative of the principles of natural justice and is liable to be set aside.

68.1.2. The Hon’ble Calcutta High Court in CIT v. Eastern Commercial Enterprises (1994) 210 ITR 103 (Cal) has also held that an addition made solely on the basis of a statement recorded during search, without any independent corroboration and without giving an opportunity to the assessee to cross-examine the deponent, cannot be sustained. In the present case, the Learned Assessing Officer has made the addition of Rs. 4,08,000 merely on the basis of the statement of a third party without bringing any other material on record to establish that the said amount represents undisclosed income of the assessee. No cash, no document, and no other evidence has been brought on record to corroborate the statement relied upon. In view of the foregoing, the addition of Rs. 4,08,000 sustained by the Learned CIT(A) is solely on an uncorroborated statement without any opportunity of cross-examination, and is liable to be deleted. Hence, Ground No. 6 be allowed and the addition of Rs. 4,08,000 be deleted.

69. GROUND ON 7 of the assessee’s appeal reads as under :-

That the Ld AO has made an addition of Rs.3,02,400/- as per point number 13.3 of the assessment order and the CIT(A) confirmed the addition of Rs.3,02,400. In this regard, I would like to say that the addition is uncalled for as it is not supported by any corroborative evidence or logical explanation and hence is liable to be deleted.

69.1. After hearing the parties and pursuing the material available on record, we observe that the addition of Rs. 3,02,400 has been made by the Learned Assessing Officer purportedly on the basis of certain statements recorded during the search and seizure action conducted on 03.08.2022 at the residential and business premises of the assessee as well as at the premises of his close relatives and associates, namely Sri Pawan Kumar Singhania, Sri Suresh Kumar alias Khetan, Sri Pradeep Kumar Sharma, Sri Sunil Kumar and Sri Anil Agarwal. During the course of the said search, various documents and materials were seized which have been marked as RK-01 to RK-06, RKPS-1 to RKPS-9, ASKK-01, PSH-01 to PSH-06, SK-01 to SK-19, RN-01 to RN-02, MAE-01 to MAE-03 and PGS-01 to PGS-03.

69.1.1. It is observed that the AO has made the addition of Rs. 3,02,400 merely on the basis of the interpretation of the aforesaid statements and seized documents without bringing any independent or contemporaneous evidence on record to establish that the assessee has actually earned or received any undisclosed income of Rs. 3,02,400. During the course of assessment proceedings, the assessee had repeatedly requested the AO to provide the specific basis, the exact seized material, and the statement on the basis of which the was proposed. However, no satisfactory clarification or opportunity was given to the assessee to rebut the same. The addition has been made in a mechanical and arbitrary manner without any proper application of mind or without establishing any live nexus between the seized material and the addition made.

69.1.2. It is further observed that the addition has been made without any corroborative material such as bank statements reflecting the transaction, cash found during search corresponding to this amount, confirmation from the other party, delivery challans, or any entry in the books of account. The entire addition rests solely on the interpretation of certain statements and loose documents found during the search, which by themselves do not conclusively establish that any income has accrued to the assessee.

69.1.3. It is also relevant to note that during the search and post-search proceedings, statements of Sri Suresh Kumar alias Khetan and Sri Pradeep Kumar Sharma were recorded. In his statement, Sri Suresh Kumar alias Khetan had initially made certain statements but later retracted the same through a detailed explanation, stating that the same were made under mental pressure and were not correct. Despite such retraction, the Learned Assessing Officer has proceeded to make the addition without bringing any independent material to corroborate the statement relied upon.

69.1.4. In view of the foregoing paras, the addition of Rs. 3,02,400 sustained by the Learned CIT(A) is without any evidentiary support, is based on surmises and conjectures, and is contrary to the real income theory. The addition is liable to be deleted in full. Hence, Ground No. 7 is allowed and the addition of Rs. 3,02,400 is hereby deleted.

70. GROUND NO 8 of the assessee’s appeal records as under :-

That the Ld AO has made an addition of Rs.45,71,250/- on account of unaccounted purchase of the land through undisclosed cash and the CIT(A) confirmed the addition of Rs.500000. In this regard, I would like to say that during the course of the assessment, the said document was prepared solely by Shri Bimal Kumar Lohia and was presented to us for confirmation regarding the potential purchase of property at a consideration value that he deemed fit, as outlined in the agreement paper attached to the document. However, after reviewing the proposed terms, we did not agree to the consideration value mentioned. As a result, the document was neither signed by me nor by Shri Shubham Singhania. Therefore, without any legal validity of the paper, the addition made by the Ld AO is improper and shall be deleted.

70.1. After hearing the parties and on pursuing the records available on record, we find that the addition of Rs. 45,71,250 has been made by the AO solely on the basis of a document which was found and seized during the search and seizure action conducted on 03.08.2022 at the residential and business premises of the assessee. The said document is stated to be in the nature of a draft agreement or proposal for purchase of certain land. It is important to note that the said document was prepared solely by one Shri Bimal Kumar Lohia and was presented to the assessee for his consideration and confirmation. The document contained proposed terms of purchase, including the consideration amount, which were suggested by Shri Bimal Kumar Lohia according to his own understanding and convenience. After carefully reviewing the proposed terms, the assessee did not agree with the consideration value mentioned in the document. As a result, the document was never signed either by the assessee or by Shri Shubham Singhania, who was also named as a proposed party to the transaction.

70.1.1. It is further submitted by the Ld. counsel that the document in question is nothing but an unsigned draft or preliminary proposal which never reached the stage of a concluded agreement or contract. The document does not bear the signatures of any of the parties and does not reflect any mutual understanding, acceptance or concluded bargain between the parties. It merely records certain discussions or proposals which were at a nascent stage and which ultimately did not fructify into any transaction. There is absolutely no material on record to show that any actual purchase of land was carried out pursuant to the said document, that any sale deed was executed and registered, that any payment was made, or that any cash actually changed hands. The Learned Assessing Officer has proceeded to make the addition of Rs. 45,71,250 merely on the basis of this unsigned and unexecuted document, without bringing any corroborative evidence on record to establish that any real transaction took place or that any undisclosed cash was utilized for purchase of land.

70.1.2. We observe that the ld. CIT(A) has recorded a finding of fact at Pg. 46 of his order, which could not be controverted before us. He has categorically stated, and rightly so, on perusal of records, that the documents unequivocally prove that the original agreement for purchase of property was never executed as all the advances were returned/set off. However, cash payment of Rs. 5,00,000/- was made for which the assessee has not explained any source.

70.1.3. In view of the foregoing, we confirm the addition of Rs. 5,00,000 sustained by the Learned CIT(A). Hence, ground no 8 of the assessee’s is dismissed.

71. GROUND NO 9 of the assessee’s appeal is read as under :-

That the Ld AO has made an addition of Rs.1,00,00,000/- on account of unaccounted or unexplained money given to various person and The CIT(A) confirmed the addition of Rs.6000000/-. In this regard, I would like to say that during the course of the assessment, it was submitted that these transactions pertain to advances that were given to and received from staff members during the normal course of business operations. Additionally, I would like to emphasize that the amounts reflected in these transactions represent figures in thousands, not in lakhs as might be misconstrued. Also, I offered to cross verify the same through testimony of staff members which was not availed by the Ld AO. In view of the same, the addition has been made without going through facts and figures and the addition made is arbitrary and is liable to be deleted.

71.1. After hearing the parties and on perusing the material available on record, we find that the addition of Rs. 1,00,00,000/-made by the AO on account of alleged unaccounted or unexplained money given to various persons and the confirmation of Rs. 60,00,000/- by the Learned CIT(A) as the residual addition is wholly unsustainable both on facts and in law and deserves to be deleted in its entirety.

71.1.1. We observe that the addition of Rs. 1,00,00,000/- was made by the AO on the basis of certain noting’s and entries found in the documents seized during the search and seizure action conducted on 03.08.2022 at the residential and business premises of the assessee as well as at the premises of his close relatives and associates, namely Sri Pawan Kumar Singhania, Sri Suresh Kumar alias Khetan, Sri Pradeep Kumar Sharma, Sri Sunil Kumar and Sri Anil Agarwal. During the course of the said search, various documents and materials were seized which have been marked as RK-01 to RK-06, RKPS-1 to RKPS-9, ASKK-01, PSH-01 to PSH-06, SK-01 to SK-19, RN-01 to RN-02, MAE-01 to MAE-03 and PGS-01 to PGS-03. The addition has been primarily based on certain notings found in the seized document RK-03 and the statements of Sri Suresh Kumar alias Khetan and Sri Pradeep Kumar Sharma recorded under section 132(4) and section 133A of the Act respectively.

71.1.2. During the course of assessment proceedings, the assessee had filed detailed replies dated 13.12.2024, 18.12.2024 and 20.12.2024, wherein it was clearly explained that these transactions pertained to advances which were given to and received from staff members and other persons associated with the business in the normal course of business operations. It was specifically submitted that these were routine business advances which were given and received back from time to time as per the requirements of the business and were duly accounted for in the books of account maintained by the assessee. The assessee had also offered to produce the concerned staff members and other persons before the Learned Assessing Officer for verification and cross-examination so that the true nature of these transactions could be established. However, the said offer was not availed by the Revenue.

71.1.3. It is further observed that the amounts reflected in the seized documents represent figures in thousands and not in lakhs, as has been misconstrued by the AO while making the addition. The AO has proceeded on an erroneous interpretation of the figures without properly appreciating the nature, scale and context of the transactions. Despite the clear explanation offered by the assessee in his written submissions and the willingness to produce the concerned staff members for verification, the AO made the addition of Rs. 1,00,00,000/- in a mechanical and arbitrary manner without conducting any further enquiry or verification. The addition has been made without bringing any corroborative evidence on record to show that the amounts in question represent undisclosed income of the assessee or that the same were not business advances as explained by the assessee.

71.1.4. The Learned CIT(A), while reducing the addition, has still confirmed Rs. 60,00,000 as residual addition. We hold that once the assessee had offered a plausible and reasonable explanation regarding the nature of the transactions and had also offered to produce the concerned staff members for verification, the burden shifted upon the Revenue to disprove the explanation with positive and independent evidence. The Revenue has failed to discharge this burden. No independent verification was carried out by the Revenue, no statement of the staff members or other persons was recorded to contradict the explanation of the assessee, and the offer of the assessee to produce them for cross-verification was not availed. In such circumstances, the confirmation of even the residual addition of Rs. 60,00,000 by the Learned CIT(A) is liable to be deleted.

71.1.5. In view of the foregoing, it is held that the residual addition of Rs. 60,00,000 sustained by the Learned CIT(A) is without any evidentiary support, is based on surmises and conjectures. The addition is liable to be deleted in full. Hence, Ground No. 9 of the assessee is allowed and the addition of Rs. 60,00,000 is hereby deleted.

72. GROUND NO 10 of the assessee’s appeal is read as under:-

That the Ld AO has made an addition of Rs.9,77,271/- on account of difference in the investment declared by me for the property and valuation made by the valuation officer by disregarding the submission made and The CIT(A) confirmed the addition of Rs.4,88,635/-. The addition made is not proper and shall be deleted because the valuation has been made by the valuation officer as on date which consists of the current market price on the date of the valuation. This is unjustified because the price shall be taken of the period when the actual investments were made and also the valuation officer has not factored in the discounts availed by me for the bulk purchase order placed by me which is also evident from the purchase bill submitted by me. Therefore, if the same is considered, the valuation will be around the same amount as declared by me. Therefore, in the light of the same, the addition shall be deleted.

72.1. This ground is not pressed by the appellant. Hence, ground no 10 of the assessee is dismissed.

73. GROUND NO 11 of the assessee’s appeal is read as under :-

That The Ld AO has made an addition of Rs.3,13,01,566/- on account of unaccounted transaction with the MCX for commodity trading and the CIT(A) confirmed the addition of Rs.31,00,000. However, this addition has been made arbitrarily by cherry picking my reply during the course of the assessment. That the concept of margin money has been considered but the concept of the square off of the lot has not been considered which calculates the net profit or loss from the transaction. Thus, if the profit or loss is considered the addition would be deleted because the addition is based on margin money which is not even paid by me for the MCX transaction. Therefore, the entire addition is baseless and uncalled for and is against the principle of natural justice and therefore shall be deleted.

73.1. We have dealt with the instant issue while dealing with ground no. 8 of the assessee’s appeal in ITA no 327/KOL/2025 relating to AY 2022-23, wherein we have allowed assessee’s ground on similar issue in toto. The said finding shall apply mutatis mutandi in the instant case. Hence, the ground no 11 of the assessee’s appeal is allowed.

74. GROUND NO 12 of the assessee’s appeal reads as under:-

That The Ld AO has made an addition of Rs.89,43,132/- on account of unaccounted cash transaction and The CIT(A) confirmed the addition of Rs.2,68,294/-. In this regard, I would like to say that these transactions are related to the confirmation of the transactions which are already accounted for in the books of accounts and therefore the addition made is illegal and shall be deleted.

74.1. Ld. counsel of the assessee submitted that the addition originally made by the AO at ₹89,43,132/- under section 69A of the Income Tax Act, 1961 on account of alleged unaccounted cash transactions and the addition ultimately sustained by the Learned CIT(A) at ₹2,68,294/- are both unsustainable in law and on facts. The entire addition is founded upon assumptions drawn from certain alleged WhatsApp chats and selective reliance upon portions of the statement recorded during the course of search proceedings, without there being any independent evidence establishing either the receipt of unexplained money or the existence of any undisclosed asset, investment or income in the hands of the appellant.

74.2. The Ld. counsel has further submitted that the AO has alleged that one person referred to as “Dada Ji, Bura Bazar, Kolkata” was engaged in selling pan masala in Kolkata and was making payments to the appellant through note-number-based cash transactions. On this basis, the Assessing Officer prepared a chart containing alleged receipts aggregating to ₹89,43,132/- on various dates between 07.05.2022 and 02.08.2022, comprising amounts of ₹37,43,132/-, ₹7,00,000/-, ₹9,00,000/-, ₹6,00,000/-, ₹10,00,000/-, ₹5,00,000/-, ₹5,00,000/-, ₹5,00,000/- and ₹5,00,000/- respectively. Merely on the basis of these figures, the Assessing Officer concluded that the entire amount represented unexplained money liable to be taxed under section 69A. However, neither the assessment order nor any seized material establishes that the appellant was found to be the owner of any unexplained cash corresponding to these figures. No cash was found during the search corresponding to the alleged amount of ₹89,43,132/-. No unexplained asset was discovered. No unaccounted investment was identified. No bank deposit corresponding to the alleged receipts was brought on record. In fact, the addition has been made without establishing the basic jurisdictional requirement of section 69A, namely that the assessee must be found to be the owner of unexplained money.

74.3. Ld. counsel further submitted that during the course of assessment proceedings the appellant specifically requested the Learned Assessing Officer to provide the seized documents and material from which the impugned figures had been derived. The appellant repeatedly sought the relevant seized references so that an effective explanation could be furnished. However, despite these requests, the AO neither confronted the appellant with the complete material relied upon nor provided the necessary seized references. Instead of furnishing the material, the AO simply observed that the appellant was making excuses and proceeded to draw an adverse inference. Ld. counsel therefore pleaded that in view of above, adverse inference be drawn against the revenue.

74.4. The Ld. DR appearing for the revenue supported the order of the AO and submitted that the addition was justifiably made on the basis of digital evidence recorded from assessee’s mobile.

74.5. After hearing both the parties and pursuing the material available on record, we find that the CIT(A) himself abandoned the very foundation on which the Assessing Officer had invoked section 69A. The Learned CIT(A) did not uphold the finding that the amount represented unexplained money. Rather, the Learned CIT(A) held that the impugned receipts appeared to form part of the undisclosed turnover of alleged pan masala business and accordingly treated the amount as turnover rather than unexplained cash. Having held so, the Learned CIT(A) applied the same estimated gross profit rate of 3% which had been adopted in relation to the alleged undisclosed turnover from coupon transactions and sustained an addition of ₹2,68,294/- being 3% of ₹89,43,132/-.

74.5.1. We hold that this finding itself demonstrates the unsustainability of the original addition. Once the Learned CIT(A) accepted that the amount represented business turnover and not unexplained money, the addition under section 69A ceased to survive altogether. The entire basis adopted by the Assessing Officer stood demolished. However, having discarded the Assessing Officer’s theory of unexplained money, the Learned CIT(A) proceeded to sustain an estimated addition by merely applying a gross profit rate of 3%. Such an approach is equally unsustainable because there is no independent evidence establishing that the alleged receipts represented undisclosed turnover in the first place.

74.5.2. We not that the addition sustained by the Learned CIT(A) is therefore based on a chain of presumptions. Firstly, it is presumed that the WhatsApp chats represent actual receipts. Secondly, it is presumed that such receipts represent turnover. Thirdly, it is presumed that such turnover pertains to undisclosed pan masala business. Fourthly, it is presumed that a gross profit rate of 3% should be applied thereon. None of these presumptions is supported by independent evidence. No corresponding sales have been identified. No buyer has been identified. No stock discrepancy has been found. No transportation records have been discovered. No cash corresponding to the alleged receipts has been found. No books of account have been rejected. Consequently, the entire addition remains unsupported by evidence.

74.5.3. We find that at page 76 of the assessment order, the A.O. recorded that the assessee, vide his reply dated 13.12.2024, had requested to provide the relevant seized documents from where the figures in question have been taken. The A.O. has brushed aside this important request on the plea that assessee is making baseless excuses.It is a settled law that when an adverse material is sought to be used while framing assessment, it is incumbent that a copy thereof must be provided to the assessee. In the instant case, we find that request made by the assessee have been rejected on a frivolous ground. We, therefore, agree with the assessee plea that adverse inference be drawn against the Revenue in this regard. We, therefore, hold that in such circumstances, the very foundation for making addition is non-existent. The material in question was neither provided to the assessee during assessment nor the same was produced before us.

74.5.4. Accordingly, we hold that the addition of ₹89,43,132/-made by the AO under section 69A is without any basis and is as such, the addition of ₹2,68,294/- sustained by the Ld. CIT(A) is wholly unsustainable in law and on facts. Hence, Ground No. 12 of the assessee’s appeal is allowed.

75. GROUND NO 13 and 14 of the assessee’s appeal are general in nature and requires no adjudication.

76. The appeal of the assessee is partly allowed.

A.Y.:2023-24

ITA No.404/PAT/2025(Revenue’s Appeal)

77. GROUND NO. 1 of the revenue’s appeal is read as under:-

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. 1,26,07,864/- being suppression of GP from sale of Raj Niwas Pan Masala.

77.1. Ld. counsel for the assessee submitted that the Departmental ground challenging the deletion of the gross profit addition of Rs. 1,26,07,864/- is wholly misconceived and deserves to be dismissed.

77.2. He submitted that the addition was made by the Assessing Officer by applying an artificial gross profit rate of 23.54% on the assumed turnover of Rs. 6,41,14,085/-. This rate was derived from a single purchase invoice dated 27.07.2022 (seized document SK-01, Page 5 – GST invoice issued by Malwa Packaging, Kota) which is nothing but a dumb document and as much as nowhere the assessee’s name has been mentioned therein. The Assessing Officer then assumed a sale price of Rs. 3.62 per pouch on the basis of selective reading of the statement of Shri Pradeep Kumar Sharma (Question Nos. 20 & 37 recorded on 04.08.2022) and derived the GP rate of 23.54%. These figures are not supported by any contemporaneous purchase or sales invoices of FY 2022-23. Further, the said statement has subsequently been retracted.

77.3. Ld. counsel submitted that no incriminating material evidencing unaccounted sales for the relevant year was found during search. No parallel books, kaccha bills, or unaccounted cash corresponding to the alleged suppressed turnover were discovered. The addition was founded entirely on presumptions and conjectures. The order of the Learned CIT(A) deleting the addition of Rs. 1,26,07,864/- is fully justified on facts and in law and calls for no interference.

77.4. Ld. DR appearing for the Revenue submitted that the A.O. was fully justified in estimating the suppressed G.P. on the turnover of Pan Masala business. He supported the order of the A.O.

77.5. After hearing the parties and perusal of records, we hold that the Ld. CIT(A) was justified in deleting the impugned addition. Ld. CIT(A) has passed a well-reasoned order deleting the addition in question. He has categorically held that the estimation resorted to by the A.O. was without any basis but was based on pure guess work. We find that the A.O. has relied upon the statement of the staff Sri Pradeep Kumar recorded on oath on 04.08.2022, which has been retracted within a reasonable period i.e., on 18.08.2022 (placed at pg. 48 of the P/Book). We have earlier held that a retracted statement has no evidentiary value. We further note that the invoice of M/s Malwa Packaging dated 27.07.22, reproduced at page no. 36 of the assessment order, does not bear the name of the assessee. The A.O. has failed to bring on record any material to prove that the same belonged to the assessee. The A.O. does not state also wherefrom the same was found and seized.

77.5.1. We, therefore, find no reason to interfere with the order of the Ld. CIT(A). Hence, Ground No. 1 of the departmental appeal is dismissed.

78. GROUND NO. 2 of the revenue’s appeal reads as under :-

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. 96,40,098/- being undisclosed business income from sale of pan masala.

78.1. We have elaborately dealt with the instant issue while deciding ground no 2 of the assessee’s appeal in ITA no 326/PAT/2025 for the same year, wherein we have allowed the appeal of the assessee relating to part sustenance of the addition by the Ld. CIT(A). Hence, the ground no 2 of the revenue’s appeal is dismissed

79. GROUND NO. 3 of the revenue’s appeal reads as under :-

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. 40,71,250/- being undisclosed investment in purchase of land

79.1. We have elaborately discussed the issue while dismissing the assessee’s appeal relating to part sustenance of additions of Rs 5,00,000/- in the instant year, wherein we have after discussing the complete facts, held that the documents unequivocally proves that the original agreement for purchase of property was never executed as all the advance were returned/set off. Accordingly, we dismiss ground no 3 of the revenue’s appeal

80. GROUND NO. 4 of the revenue’s appeal reads as under :-

That on the facts and circumstances of the case and in law the Ld. CIT(A)-3, Patna erred in deleting the addition of Rs. 40,00,000/- being unexplained money u/s 69A of the Act. In regard to the above ground, it is respectfully submitted that the Departmental ground deserves to be dismissed.

80.1. We have discussed this issue elaborately while allowing the assessee’s appeal relating to part sustenance of addition by the Ld. CIT(A) to the tune of Rs 60,00,000/-in the instant year. Hence ground no 4 of the revenue’s appeal is dismissed.

81. GROUND NO. 5 of the revenue’s appeal reads as under :-

That on the facts and in the circumstances of the case and in law the Ld. CIT(A)-3, Patna erred in admitting the additional evidences under Rule 46A and in deleting the addition of Rs. 10,65,558/- being unpaid statutory liabilities.

81.1. After hearing the parties, we find that the Ld. CIT(A) has allowed the appeal of the assessee by holding that GST payable as on 31.03.2023 was paid by the assessee on 20.04.2023. Thus, the appeal was allowed by admitting additional evidence in violation of Rule 46A. We, therefore, restore this issue to the file of the A.O., who shall examine the evidence of payment of GST and accordingly decide the issue. The appeal of assessee is partly allowed for statistical purposes.

82. GROUND NO. 6 of the revenue’s appeal reads as under :-

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. 1,10,95,644/- being unexplained sundry creditor.

82.1. After hearing the parties and pursuing the material available of record, we find that the addition on account of sundry creditors and advance from customers was made without any specific query or opportunity during assessment proceedings. The assessee had submitted the details of sundry creditors and advance from customers on 20.12.2024 and had requested the Assessing Officer to ask for confirmation of any specific creditor if required. No further notice or investigation was carried out. Ld. CIT(A) has rightly deleted the addition by holding that the AO could have issued notice u/s 133(6) to the sundry creditors which has not been done.

82.1.1. We therefore find no reason to interfere with the order of the Ld. CIT(A). Hence, ground no 6 of the revenue’s appeal is dismissed.

83. GROUND NO. 7 of the revenue’s appeal reads as under :-

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. 4,88,635/- being undisclosed investment in construction of building at Jawaharlal Road, Muzaffarpur.

83.1. After hearing the parties and pursuing the material available on record, we find that the addition was made on the basis of the DVO valuation report relating to investment in construction of building. The counsel of the assessee has contended that the valuation by the DVO was based on current market rates of steel, cement and other materials instead of the historical costs prevailing at the time of actual construction. Bulk purchase discounts availed by the assessee, which are evident from the purchase bills already submitted, were also not considered by the DVO. We find that the Learned CIT(A) has rightly appreciated that the addition was made without proper verification and without confronting the assessee with the specific basis. He has rightly held that due to substantial variation in values, 50% addition is sustainable. The order of the Learned CIT(A) deleting the addition is correct and deserves to be upheld. Accordingly, we dismiss the ground no 7 of the revenue’s appeal

84. GROUND NO. 8 of the revenue’s appeal reads as under :-

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. 1,97,51,320/- being unexplained investment in purchase of stock.

84.1. After hearing the parties and pursuing the material on record, we find that during the course of search on 03.08.2022, no discrepancy in stock was found at any of the godowns which could justify the addition. The assessee had submitted the details of inventory held in the books as on the date of search vide reply dated 20.12.2024. The Assessing Officer did not point out any discrepancy or irregularity in the details provided. The addition was made on a purely presumptive basis without any supporting evidence. The Learned CIT(A) has rightly deleted the addition. Accordingly, we dismiss the ground no 8 of the revenue’s appeal also.

85. GROUND NO. 9 of the revenue’s appeal reads as under :-

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. 10,00,000/- being cash payment made to Sri Dinesh Kumar Motani.

85.1. We find that the addition was made on the basis of a document found in RPKS-01 without establishing that any actual transaction took place between the assessee and Sri Dinesh Kumar Motani. The assessee had submitted that no transaction happened and only Rs. 5,00,000/- was paid (Rs. 1,00,000/-through banking channel and Rs. 4,00,000/- in cash), which was subsequently returned by Sri Dinesh Kumar Motani through proper banking channel. This is evident from the books of account. No concrete evidence was brought on record by the Revenue to support the addition of Rs. 10,00,000/-. The Learned CIT(A) has rightly deleted the addition by appreciating evidence on record, being seized document RPKS 01, rightly holding the said document to be a loose document lacking authentication or context . The order deserves to be upheld and we hold so. Accordingly, we dismiss the ground no 9 of the revenue’s appeal.

86. GROUND NO. 10 of the revenue’s appeal reads as under :-

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. 2,82,01,566/- being unexplained expenditure in commodity trading through hawala.

86.1. We have elaborately discussed this issue while deciding Ground No. 11 of the assessee’s cross appeal relating to the instant year. Accordingly, we find no merit in the Revenue’s appeal. Hence, Ground No. 10 of the Revenue’s appeal is dismissed.

87. GROUND NO. 11 of the revenue’s appeal reads as under :-

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. 27,30,000/- being unexplained money found at the time of search and seizure.

87.1. After hearing the parties and pursuing the material on record, we find that Cash of Rs. 27,30,000/- was found during search which was explained as belonging to the HUF and was duly reflected in the books of the HUF. The Learned CIT(A) has rightly appreciated that once the cash is explained in the books of the HUF, no addition can be made in the hands of the assessee. The order of the Learned CIT(A) on this issue is correct and deserves to be upheld. Accordingly, we dismiss the ground no 11 of the revenue’s appeal.

88. GROUND NO. 12 of the revenue’s appeal is read as under:-

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. 86,74,838/- being unaccounted transaction through WhatsApp chat.

88.1. We have dealt with this issue elaborately while deciding Ground No. 12 of the assessee’s cross appeal for the instant year. Accordingly, we find no merit in the Revenue’s appeal. Hence, Ground No. 12 of the Revenue’s appeal is dismissed.

89. GROUND NO. 13 of the revenue’s appeal is read as under:-

That on the facts and in the circumstances of the case and in law the Ld. CIT(A)-3, Patna erred in holding that the unaccounted income should be telescoped against the unaccounted expenditure to determine the real income of the assessee.

89.1. This ground of the Revenue is infructuous inasmuch as we have already allowed Ground No. 2 of the assessee’s cross appeal for the instant year challenging the addition on account of alleged undisclosed GP from sales of coupon. Similar addition on account of undisclosed GP from coupon in A.Y. 2022-23 in ITA No. 327/Pat/25 has been deleted by us. Hence, ground no. 13 of the revenue is dismissed.

90. Ground No. 14 and 15 are general grounds and require no adjudication.

91. The appeal of the revenue is partly allowed for statistical purposes.

92. To sum up, both the appeals of the assessee and Revenue are disposed off as indicated above.

Order pronounced in the open court on 16.07.2026.