PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), AHMEDABAD vs M/S. ZINZUWADIA AND SONS

C/TAXAP/125/2025 JUDGMENT DATED: 22/10/2026
(GJHC240778652024)
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 125 of 2025

FOR APPROVAL AND SIGNATURE:


HONOURABLE MR. JUSTICE BHARGAV D. KARIA

and
HONOURABLE MR. JUSTICE NIRZAR S. DESAI

==========================================================
Approved for Reporting Yes No
✓
==========================================================
PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), AHMEDABAD
Versus
M/S. ZINZUWADIA AND SONS
==========================================================
Appearance:
MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1
MR B S SOPARKAR(6851) for the Opponent(s) No. 1
==========================================================
CORAM: HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRZAR S. DESAI

Date : 22/10/2026

JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard Learned Senior Standing Counsel Mr.Varun K Patel
for the appellant and learned advocate Mr.B.S. Soparkar for
the respondent.
2. This appeal is filed under Section 260A of the Income-tax
Act, 1961 (for short, "the Act") by the appellant-revenue
proposing the following substantial questions of law arising out
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of the impugned order dated 10th May, 2024 passed by the
Income Tax Appellate Tribunal (for short, "the Tribunal") in
ITA No. 50/AHD/2021 for AY 2017-18;
“ (a) Whether on the facts and in the circumstances of
the case and in law, the learned ITAT has erred in
confirming the decision of CIT(A), of allowing relief of
Rs.6,92,85,082/ out of addition of Rs.7,88,85,082/- and
reducing the addition to Rs.96,00,000/- made by the
Assessing Officer u/s. 68 of the Income Tax Act, 1961 on
account of bogus sales made in the wake of
demonetization, without appreciating the evidence
including forensic evidences brought on record by the
Assessing Officer and in doing so, the learned ITAT has
ignored the law of human probability as laid down by
Hon'ble Supreme Court of India in the case of Sumati
Dayal vs. CIT, Bangalore (1995) AIR 2109, and also CIT,
West Bengal vs. Durga Prasad More 82 ITR 540 SC?
(b) Whether on the facts and in the circumstances of the
case and in law, the learned ITAT has erred in
confirming the decision of CIT(A) reducing the addition
made by the Assessing Officer u/s. 68 of the Income Tax
Act, 1961 on account of bogus sales made in the wake of
demonetization from Rs.7,88,85,082/-to Rs.96,00,000/- by
allowing relief of Rs.6,92,85,082/- to the assessee?
(c) Whether on the facts and in the circumstances of the
case and in law, the learned ITAT has erred in
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confirming the decision of CIT(A) of restricting the
addition to Rs.95,41,057/- as against Rs.1,14,24,765/-
made by the Assessing Officer for unexplained investment
in stock, without appreciating the evidences Including
forensic evidence brought on record by the Assessing
Officer and also overlooking a material fact that the
finding was admitted by the partner of the firm in his
statement recorded during the course of survey
proceeding, particularly when the assessee has informed
that they accept the difference of stock and the tax
liability arising upon such stock will be paid by them?
(d) Whether on the facts and in the circumstances of the
case and in law, the learned ITAT has erred in
confirming the decision of CIT(A) of deleting the addition
of Rs.13,33,961/ on account of excess cash, without
appreciating the evidences including forensic evidences
brought on record by the Assessing Officer and
overlooking a material fact that excess cash was admitted
by the partner of the firm in his statement recorded
during the course of survey proceeding?”
3. The brief facts of the case are as under;
3.1. The assessee is a jeweller, a partnership firm dealing in
gold and silver bullion and jewellry.
3.2. After demonetization on 08.11.2016 subsequent
information came into the possession of the Department that
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certain persons had adopted unscrupulous means to introduce
their unaccounted income in cash in the banks during the
demonetization period and on the basis of such information, a
search at the residence of the partner of the assessee firm was
carried out on 24.01.2017. Simultaneously, a survey was
carried out at the business premises of the assessee.
3.3. During the course of survey, a digital device was found
in the premises which was impounded, and thereafter data was
extracted. As per the forensic report, it was concluded that
sales for the period prior and during the demonetization period
had been recorded through backdating so as to justify the cash
deposited during the demonetization period, i.e. from
08.11.2016 to 31.12.2016, in illegal tender notes. The quantum
of such alleged backdated sales was noted to be
Rs.7,88,85,082/-.
4. Accordingly, during the assessment proceedings, the
Assessing Officer, considering the return filed by the assessee
on 31.10.2017 for Rs.26,39,110/-, and after considering the
replies to the queries raised by the Assessing Officer, concluded
that all the alleged backdated sales were bogus by noting the
following facts in the assessment order;
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“ 1) That on 8.11.2016, the assessee had made sales of
Rs.3.5 crores mostly in demonetized notes, serving 223
customers in the process from 8:00pm to 12 midnight.
This quantum of sales made in a single day was noted to
be 40 to 50 times higher than the daily average. It was
noted that it was virtually impossible to serve 223
customers in a short span of 240 minutes from 8:00pm to
12 midnight and further CCTV footage of the said day, as
evidence of the sales so made to so-many customers, was
not produced by the assessee;
That imaging of the digital data impounded during survey
was carried out, its forensic analysis done and as per the
forensic report, it was found that the sales entries made
between 8.11.2016 and 22.1.2017 were back-dated to
present that they pertained to earlier period. The total
value of the such sales was of Rs.7,88,85,082/-;
(ii) Cash sales during the de-monetization period in the
month of October and November showed abnormally high
increase - percentage wise when compared with that in
the same period in the preceding year, showing an
increase of 1673.10% in the month of October, and
1128.66% in the month of November, 2016, as compared
to the sales made in the month of October and
November, in the immediately preceding year i.e. 2015.”
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5. The Assessing Officer therefore passed an assessment order
under Section 143(3) read with Section 153A on 31.12.2018 by
assessing the total income at Rs.9,42,82,954/- , including the
additions of Rs.7,88,85,082/- under Section 68 as bogus sales
through backdating entries, based mainly on a forensic report
on the ORAV/FX Pro data, and on the ground that on one
single day, i.e. on 08.11.2016, it was impossible to make the
sales to 223 customers within a period of four hours, and it
was a pre-demonetization sales spike. The addition also
included Rs.1,27,58,762/- under Section 69B, which included
Rs.1,14,24,765/- towards stock and Rs.13,33,961/- towards
cash, based on a statement of the partner during the course of
survey.
6. Being aggrieved, the assessee preferred an appeal before
the CIT(Appeals), who deleted the entire addition of
Rs.7,88,85,082/- and reduced the stock addition to
Rs.95,41,057/-.
7. Being aggrieved, both the assessee and the revenue
preferred cross-appeals before the Tribunal. The Tribunal, by
the impugned order, dismissed both the appeals.
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8. Being aggrieved, the revenue has preferred this appeal
arising out of the order of the Tribunal in revenue's appeal.
9. The Tribunal, after considering the submissions made by
both the sides, as well as the facts and circumstances leading
to the additions made on account of a bogus sales and the
reasons assigned by the CIT(Appeals) to delete such additions,
concluded that no case was made out by the revenue for
holding the sales made by the assessee during the
demonetization period of Rs.7.88 Crore as bogus sales. The
Tribunal assigned the reasons as under;
“ 11. At the cost of repetition, it is stated that the case
of the Revenue is that the assessee being a jeweler, had
indulged in bogus billing of sales and thus generated cash
in its books so as to justify cash deposited in its bank
accounts during the de-monetization period; that in truth
or in reality, this cash was not generated out of the
actual sales done by the assessee, but was its
unaccounted income, which was introduced in its books
as bogus sales, and unaccounted income available with it
in cash which the assessee had allegedly routed back in
its books as bogus cash sales.
12. We are of the view that on first principles itself, this
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addition is not justified. As stated above, the case of the
Revenue is that the assessee had routed back its
unaccounted income by way of bogus sales. The fact of
the matter is, even this bogus sales has been reflected by
the assessee in its books of accounts as income. Whether
this is sales or whether it is unaccounted income of the
assessee, both are entitled to the same treatment of being
subjected to tax, which the assessee has already done by
treating it as cash sales. So nullifying the cash sales,
treating it as bogus sales, and then subjecting it to tax, is
in effect a sum-zero exercise.
13. Without prejudice to the above, the basis for treating
the cash sales of Rs.7,88,85,082/- as bogus is, we find,
based merely on circumstantial evidence. The case of the
Revenue in treating this sales as bogus is, as noted at
para 10.2 to 10.5 of his order, on the basis of :
• improbability of the assessee having made sales of
Rs.3.5 crores in one day i.e. on 8.11.2016 which was 40-
50 times the daily average, catering in all 223 customers
in 240 minutes with no evidence of the aforesaid facts
being demonstrated through CCTV footage of the said
date.( page 11 and para 10.2 page 46)
“10.2 Further on observation of the forensic report
it is noticed that the assessee has shown exorbitant
rise in cash sales post-demonetization. On 8/11/2016
when demonetization was declared at 08:00 pm,
they have shown to make sales to 223 customers
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within 4 hours i.e. One sales per 1.07 minutes
within which the entire sales cycle mentioned as
under right from the decision of customer to
purchase product, generation of bills and receipt of
cash is not possible to be handled by 2 accountants
deputed during that period. Further 223 customers
can not be served in such short time is established
as the retail sale process involves the following
steps:
(i) According to retail sale process, a retail
purchaser who is willing to purchase bullion /
jewellery shall first enter shop.
(ii) After that he will inquire about gold/silver rate
and / or specific design he is looking for and then
finalize the rate.
(iii) After finalizing rate, he will look multiple
pieces for making informed decision with the
assistance the employee (s). (iv) Then retail
customer will select the piece.
(v) There is no MRP printed in jewelery items (as it
is in day to day items) and fixing of price takes
time where relevant calculations are done by the
concerned employee. The employee will weigh and
then determine price as per rates.
(vi) After final weighing, quantity and rate will be
communicated and negotiations are made.
Subsequently the price is finalized.
(vii) Then the cash memo of retail sale will be
generated from computer and print out of the same
shall be taken.
(viii) Then after print of cash memo one copy will
be handed over to customer and in one copy the
customer signs acknowledging the delivery.
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(ix) Thereafter customer shall make the payment
which shall be verified and counted by the seller.
The entire process shall take at least minimum of
about 15 to 20 minutes. It is impossible to serve
223 customers from 8 pm to 12 midnight on the
8th November, 2016.”
• drastic increase in the quantum of cash sales reflected
by the assessee in the month of October-November2016,
1673% and 1128%, as compared to the sales made in the
preceding year in the same two months and as compared
also to sales made in the preceding month of the
impugned year, i.e. 871% increase in the month of
October 2016 and 72% increase in the month of
November 2016.(para 10.3 page 47-48)
“10.3 The past profile of the assessee analysed on
the issue of sales and amount deposited in bank
account which is reproduced as under:- period:
Month Amount Month Amount
Nov’26 45,12,000 Nov’16 705,00,000
Dec’15 68,95,000 Dec’16 2,00,000
Percentage rise in cash sales (%)
Month 2015–2016 2016–2017
(Cash) (Cash) Percentage
Rise in Cash
Sales (%)
April 19,38,114 8,58,515 -55.70
May 17,11,231 8,55,860 -49.99
June 25,67,400 4,80,250 -81.29
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July 24,94,875 36,75,799 47.33
August 33,26,281 32,97,467 -0.87
September 21,95,722 36,88,615 67.99
October 20,20,595 3,58,27,263 1673.10
November 50,29,122 6,17,90,604 1128.66
December 68,90,317 11,30,919 -83.59
January 86,27,922 23,10,527 -73.22
February 9,91,105 12,24,549 23.55
March 0 1,43,50,263 N.A.
• It is evident that the cash sales made in the
demonetization period has increased drastically when
compared with the similar period in preceding month.
The same is detailed below:
Month 2016–2017
(Cash) Percentage Rise in
Cash Sales (%) (Base
Considered as
Preceding Month)
July 36,75,799
August 32,97,467 -10.29
September 36,88,615 11.86
October 3,58,27,263 871.29
November 6,17,90,604 72.47
December 11,30,919 -98.17
January 23,10,527 104.31
February 12,24,549 -47.00
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March 1,43,50,263 1071.88
Identity of parties who made these purchases not
revealed since the bills contained only their names (para
10.4 page 48)
“10.4 The facts and circumstances leads to the
conclusion that the assessee has not done actual
sales on and before 8/11 / 2016 as claimed but has
manipulated the opportunity and generated sales
bills of cash sales to accommodate OHD Currency
which were not recorded in regular books of
However, majority of sales invoices generated on
and after 8/11 / 2016 contains only name of the
purchaser. Further the parties to whom additional
sales were disclosed without have their identity,
creditworthiness and genuineness of transaction. The
facts and circumstances leads to the conclusion that
the assessee has not done actual sales on 8/11 /
2016 as claimed but has manipulated the
opportunity and generated sales bills of cash sales
to accommodate OHD Currency.
forensic report and digital data showing that backdated
sales was recorded between 08/11/2016 and 22/11/2017
totalling in all Rs.7,88,85,082/-(page 13-32 and para 10.5
page 48 of AO’s order),
“10.5 In addition to that forensic report of
impounded digital data reveals that some entries
made were of a previous invoice date but with
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actual time stamping of a later date. So, appearing
at trailing record numbers / position in database.
Further the data was entered in a FoxBASE
Database using the Application named Ornet. The
Ornet Database file was found in Party AS-11
Zinzuwadia Showroom satellite/Zinzuwadia
servers_Shwrm/ junjunwadian sons hdd
2/img.junjunwadian sons hdd
2.EO1/Vol_vol4/ORN2008/DATA/ZINZUWAD/16-17/f
older. The foxBase data of different segments like
Sales, Vouchers and Others was exported in excels.
As per forensic experts after analysis of these data,
suspicious entries were found which are out of
order and are not in correct sequence. As per
standard, in FoxPro Database, the entries are
appended sequentially as a record number which is
automatically system generated based on actual
timestamping. Meaning that, whenever any entries
are made from front end screen of the application
to the database, such entry is always added the end
(bottom) of the existing data in the database file.
However, it was found that in this database, some
entries (Highlighted in yellow) made were of a
previous date but with actual timestamping of a
later date. So, appearing at higher record numbers
in a database. Such lots or groups / bunches of
entries are repeated continuously until 22/1/17
Therefore, it is concluded that all these entries as
shown below, have been made between 8/11/16 and
22/1/17 but through backdating attempt has been
made to present that these pertain to earlier period.
The total value of such non-sequential entries for
Sales is Rs.7,88,85,082/-.
In view of the above, a sum of Rs. 7,88,85,082/- is
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added to the total income of the assessee as bogus
sales through backdating entries in (OHD).”
14. Therefore, evidently, the entire case of the Revenue
rests on surrounding facts and circumstances, while the
facts on record in relation to these sales have remained
undisturbed and accepted. If sales is bogus, it is reflected
in some way in the books also with no corresponding
purchases booked or bogus purchases booked to
substantiate the bogus sales. If corresponding purchases
are not booked it impacts stock position either by way of
negative stock appearing in the books stock record and/or
physical stock not tallying with the book stock position.
This is elementary and logical. And it is based on this
actual data that the finding of bogus sales should have
arrived. The factum of bogus sales could have been
established as a matter of fact by finding bogus purchases
also made by the assessee and /or excess stock being
found physically to the same extent with the assessee.
15. On the contrary, we find, there is no anomaly noted
on the above counts by the AO. He has not found any
bogus purchases recorded by the assessee to justify bogus
sales. The AO in fact has accepted all purchases made by
the assessee. There is no finding of any anomaly in the
stock position also. No negative stock is found disclosed
in the records of the assessee. More pertinently even
survey action conducted by the Department did not
reveal any excess stock with the assessee commensurate
with bogus sales alleged to have been made by the
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assessee. While the allegation of bogus sales levelled in
the assessee is to the tune of Rs.7.88 Crs all allegedly
made during the demonetization period from 08-11-2016
to 31-12-2016, the survey conducted on the assessee
immediately thereafter on 24-01-2017, which ought to
have revealed excess stock to the said extent of bogus
sales, revealed only excess stock of Rs.1.14 Crs, restricted
to Rs.95 lakhs by the ld. CIT(A).
16. All books of accounts including stock records,
purchase and sales register, ledger journal and cash and
bank book were maintained by the assessee which finds
mention by the tax auditor in his report in Form 3CD
submitted along with the return of income and placed
before us at P.B 55-73. The complete quantitative tally of
principal items traded in by the assessee, giving opening
stock, purchases, sales and closing stock of each item was
disclosed in the Tax audit Report, which we have noted
at page 65 of the paper book. Daily stock statement of
items traded in, for the period 01-04-16 to 24-01-17 was
filed to the AO placed before us at P.B 187-188. Counter
wise item report of all items traded across the counter
during this period was also filed to the AO, placed at P.B
189-194. Even before us Trading Stock ledgers of all
items traded in were filed when the Ld. Counsel for the
assessee was specifically asked to do so at bar. 17.
Despite all records placed before the AO no bogus
purchases were found to have been made by the assessee.
No negative stock was reported either by the tax auditor,
nor found by the AO, nor pointed out to us by the Ld.
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DR from the stock ledgers submitted during the course of
hearing before us and no corresponding excess stock was
found during survey conducted on the assessee by the
department.”
10. The Tribunal thereafter referred to the order passed by
the CIT(Appeals) at paragraphs 6.20 and 6.21, wherein the
CIT(Appeals) has noted that the fact of no excess stock being
found with the assessee during the survey in consonance with
the bogus sales alleged to have been made by the assessee,
and the purchase and availability of the stock not having been
disputed, the sales could not be held to be bogus sales.
Paragraphs 6.20 and 6.21 of the CIT(Appeals) reads as under;
“ 6.20 It is pertinent to note that during the course of
assessment proceedings, appellant has provided relevant
books of account including cash book, sales register,
purchase register, stock register etc and AO has not
proved that appellant was not having adequate stock for
making sales. Once AO has not disturbed purchase nor
doubted availability of stock, sales already recorded in
books of account cannot be held to be bogus sales.
Further, the value of excess stock found in possession of
appellant, i.e. physical stock over the accounted stock, as
on the date of search and survey i.e.24.01.2017 was as
per the valuation done by department itself as can be
seen from page no. 52 of the Order of the AO and such
excess stock has already been treated by the AO as
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investment not fully disclosed for the purpose of Section
69B of the Income Tax Act and added to the total
income of appellant. Therefore, where during the course
of search and survey, which took place after such a short
period of 2.5 months of the demonization period having
started and within 24 days of the said period having
ended, the excess stock was found in possession of
appellant as against the alleged bogus sale of
Rs.7,88,85,082/- and where the said amount of excess
stock has already been treated as not fully disclosed
investment u / s 69B of the Act and added to the total
income of appellant, no incriminating material can be
said to have been found and brought on record to
support the claim of such bogus sale of
6.21 Therefore, in absence of any doubt raised on the
genuineness of purchases, adequacy of stock and
reduction of stock in accounts corresponding to the
alleged bogus sale and in absence of any incriminating
material found in possession of appellant during the
course of search and survey action either in form of stock
or any other asset confirming the bogus sale of such a
huge amount of Rs. 7, 88,85,082/-, it shall be unfair and
unjustified to uphold the contention of the AO that the
appellant has generated cash bills to accommodate the
OHD currency. Therefore, the addition made based on
such contention in absence of any incriminating material
is not tenable in eyes of law.”
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11. The Tribunal also considered paragraph 6.11 of the
CIT(Appeals), wherein the contention of the Assessing Officer
that it was not possible to make sales to 223 customers in a
short span of 240 minutes on 08.11.2016. Paragraph 6.11 of
the CIT(Appeals) reads as under;
“ 6.11 On perusal of assessment order, it is observed
that AO has proceeded to make addition of treating
accounted sales in books of account as bogus sales
through backdating on assumption that it was not
possible to make such sale of huge jewellery post
announcement of demonetization. In the present case,
sales on 08/11/2016 was claimed to have been made for
Rs 3.58 crore out of aggregate addition of Rs 7.88 crore.
The following is the. few video and news items available
in public domain justifying that post declaration of
demonetization till the midnight of 8th November, 2016,
there were huge rush of people to buy the jewellery all
over the India.
Sr.No. Headline of News/video Link of Youtube Video
1 People rush to goldsmiths
in Jalandhar to convert
black currency into gold at
midnight!
https://www.voutube.com/wat
ch?v=mep1rEP1rENTuKiW
2 People rush to buy gold
jewellry after 500 & 1000
notes banned
https://www.youtube.com/wat
ch?v= bLfxEyWXVU
3 People take 'note' of
'change', rush to ATMs "
and jewellery
shops_Daijiworld Television
https://www.voutube.com/wat
ch?v=A 97EQ8RQ-Y0
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The AO has observed that it was impossible to cater such
huge customers in very short time, appellant has
provided its modus operandi of doing sales on a
particular day, how accounting was made etc., The
reasons provided by appellant from the perspective of a
prudent and pragmatic businessman as well as based on
the advanced billing technology adopted by appellant,
that due to unprecedented rush of customers post-
demonetization the appellant realized a huge business
opportunity and decided to keep showroom open till 12
o'clock of the night on 8th November 2016. The appellant
realized that it would not be possible to cater such huge
crowd of customers if the option of selection of
ornaments of their choice is provided and such option of
selection could also increase the risk of theft/ defalcation
of Gold Ornaments from showroom and therefore the
appellant decided not to give option of selection of
jewellery but to give readily prepared packet of Gold
Ornaments only; that the administrative staff and family
members were instructed to keep aside all other work
and to prepare such small package of gold ornaments,
two persons were exclusively allotted the work of
preparing and handling the bills to the customers through
the computerized billing process, due to barcode labels
on each and every jewellery/ornaments of showroom with
all the requisite details of Jewellery for preparing bills
mere scanning the barcode through barcode reader would
fetch all the details of the jewellery on the ORNET
Software for billing purpose and there is no need to enter
the details of the jewellery and therefore billing process
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was quick and easy. The circumstantial evidences as
referred supra and billing processes adopted to cater huge
rush, AO's contention that it was not possible to make
sale to 223 customers cannot be accepted.”
12. The Tribunal thereafter concurred with the findings of
fact of the CIT(Appeals) in paragraph 21, which reads as
under;
“ 21. As is evident from a bare perusal of the above he
found the assessee’s explanation plausible of having
managed its affairs in such a manner so as to grab the
opportunity of huge rush of public to jewellers on
account of demonetization announced by the Government
which was acknowledged by reports in the public
domain. No infirmity in the explanation of the assessee
has been pointed out to us during the course of hearing,
neither do we find any in the same. Therefore we find
no infirmity in the order of the Ld. CIT(A) accepting the
assesses explanation with regard to allegedly unusually
large number of customers catered to by the assessee on
one single day.”

13. With regard to the ground of the Assessing Officer that
sales made in the months of demonetization being abnormally
unusually high as compared to that in the corresponding
months of the preceding year or preceding months of the same
year, the Tribunal referred to paragraph 6.18 of the
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CIT(Appeals) and concurred with it. Paragraph 6.18 of the
CIT(Appeals)'s order reads as under;
“ 6.18 So far as comparison of sales made by AO in
current year as well as preceding year including month to
month comparison, The contention of the AO is not
found tenable for the fact that comparability of previous
year's data of appellant's business with the current year's
data is not possible as the full- fledged retail business of
the appellant was started from July, 2016 only. The said
fact has not been denied by AO as well. Such retail sale
business usually takes a period of 2 to 3 months for the
sales to pick up. Further, as has already been held
earlier, because of such unprecedented and unpredicted
move of the government declaring demonetization of
OHD (Old High Denomination) notes of Rs.500 and Rs.
1,000, the lack of immediate clarity with regard to the
said scheme and the rife of rumors all over social and
other medias, a large section of people all around the
nation, in the fear of losing the value of money held by
them in form of cash, rushed to the ornament showrooms
for purchasing the gold ornaments / bullion so as to
maintain the value of their cash in form of investment in
gold. This peculiar aspect of the F.Y. 2016-17 makes the
cash sales data of the demonetization period i.e. 08- 11-
2016 to 31.12.2016 incomparable to the said data of
corresponding period of F.Y.2015-16 along with the fact
that the retail sales was started by the appellant only
from July 2016. The said historic and peculiar aspects of
F.Y.2016-17 do not make the increase in cash sales
during the demonization period, in any manner,
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implausible and beyond belief. Furthermore, on perusal of
the comparative data of Month of March for F.Y. 2016-17
and F.Y. 2015-16 as provided in the show cause notice
dated 11.10.2018 as well as the Assessment Order, it is
deduced that during the Month of March 2016 there was
not a single amount of cash sales made by the appellant
whereas in the Month of March 2017, the cash sales was
Rs.1,43,50,263/-. Further, the hike in cash sales for the
March'17 when compared to the preceding Month of
February'17 was 1074.88%. However, no explanation was
required by the AO with regard to the hike in the Month
of March'17 in the show cause notice whereas the highest
hike is witnessed in the said month of March'17 only
based on both yearly and monthly comparison. This,
calling a spade a spade, shows the selective approach
that has been adopted in course of the assessment.
Addition made based on such selective approach, if
sustained, would be unjust, unfair and infirm in the eyes
of law and therefore, such ground of addition is not
found lawful and hence is not tenable.”
14. Referring to the above, the Tribunal held that the
anomaly as noted by the learned CIT(Appeals) could be
adequately explained by the usual rush of public to buy
jewellry during demonetization, which was acknowledged by
the reports in public domain. The Tribunal therefore noted that
no infirmity in the same nor the DR was able to point out
why the explanation of the assessee was unacceptable.
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15. Regarding the allegation of backdating of the entries of
sales resorted by the assessee, which was based on the forensic
report of the digital data found during the survey, the Tribunal
referred to paragraphs 6.22 to 6.27 of the CIT(Appeals), which
reads as under;
“ 6.22 So far as allegation of back dating entries in
ORNET Software and reliance placed on forensic report,
AO has mainly contended that as per the standard, in
FoxPro Database using the application named ORNET, the
entries are appended sequentially as a record number
which is automatically system generated based on actual
time stamping and therefore, whenever any entries are
made from front end screen of the application to the
database, such entry is always added to the end (bottom)
of the existing data in the database file. However, as
further stated by the AO, the forensic report of the
impounded data revealed that some entries of cash sales
made were of a previous invoice and previous date but
with actual time stamping of a later date. Such entries
were considered as suspicious and not in correct
sequence. AO further stated that such entries are repeated
in the database till 22/01/2017 and therefore, he went on
to make addition of such suspicions entries appearing in
the Ornet Software from 08.11.2016 to 22.01.2017 the
aggregate amount of which came to Rs. 7,88,85,082/-.
6.23 The AO had, with the same contention on the basis
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of which the impugned addition has been made, issued
the show cause notice on 11.10.2018 against which
appellant has filed its written submission dated
17/12/2018 as reproduced herein above. The appellant in
reply to same had submitted that it is not only when the
new i.e. fresh entry is made from front end screen of the
application to the database that the addition to the end
(bottom) of the existing data in the database file takes
place and new transaction ID is generated but it is also
when any old voucher is opened and "save" or "Print"
button is clicked, under modification mode in order to
give appropriate effects, ORNET, the software used by
appellant for accounting purpose, adds new records in the
same database which in turn creates new transaction ID
in the table by deleting the old records. Further, in case
if voucher is reopened and "print" button is pressed for
the purpose of reprinting, the effect of "save" button will
be generated, causing generation of a new record number
and thus, its sequencing will also get changed as
explained above. From this, the appellant made it clear
that sequencing of sales entry changes as and when any
sales entry is either printed/Viewed or opened/closed
after recording it in the ORNET database/software.
In nutshell, it has been contended by the appellant that
after the last made entry in the ORNET, the next
entry/record can take place not only by making a new /
fresh entry but the same can also take place by
reopening and then saving or printing the already made
i.e.old entry as well. This results in the change of
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sequence of entries and the old entry that has been
reopened and saved later on is then viewed below the
new/fresh entries that were made in the software actually
after such old entry was reopened and resaved/printed.
6.24 The appellant has also provided an example in the
Para 2.3(b) of the reply submitted to AO on 17.12.2018
so as to bring understating about the said situation. It
has been demonstrated to the AO in the assessment
proceedings that in first situation, the Voucher Number
S/1 is recorded on date 1/5 / 2018 S/2 on 2/5/2018 S/3
also on 2/2/2018 S/4 on 3/5/2018 and S/5 on 5/5/2018
in that sequence. Thereafter, when in the second
situation, the Voucher number S / 2 was reopened and
then saved a new sequence was generated whereby
Voucher number S / 2 which was reopened and saved
got placed below Voucher Number S/5 with no change
arriving in their date of record. Further, all the above
contentions of appellant have been supported by the
letter dated 14.12.2018 of D'soft Infotech Pvt Ltd i.e
Developer of ORNET software/database wherein the above
mentioned functionality of the Database/software is
confirmed by the Developer.
On understanding of the above facts and technical aspects
of ORNET software, I am satisfied with the contentions
provided by the appellant especially where no specific
contradiction to the contentions of appellant has been
made in the forensic report. The peculiar and exceptional
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aspects of the software have not been commented upon
by the forensic audit team and only general aspects of
the functionality of the software have been dealt with by
them. Further, the software developer itself has provided
the functionality details of the software which clearly
corresponds with the contentions of appellant. The AO
has neither considered the contentions of the appellant
nor the letter/report submitted by the software developer
at the time of passing order. It is observed on perusal of
the AO's order that the submission of appellant dated
17.12.2018 has been reproduced by the AO in the said
order, but no reason whatsoever has been provided as to
why such explanations and contentions of appellant were
not acceptable especially in view of the fact that the
same was confirmed by the software developer itself. No
reason was provided in the order as to why the
functionality details of the software as provided by the
software developer itself in letter dated 14.12.2018
confirming the contentions of appellant were not
acceptable. If there was any doubt about the authenticity
of the letter of software developer in the mind of AO or
if there was any confusion with regard to any aspect of
the same, the AO could, in the interest of justice, have
asked the software developer to provide further details
and explanations through the power conferred upon u/s
133(6) of the Act as the letter of developer dated
14.12.2018 had all necessary contact details and address
of the developer for the said purpose. By providing the
letter of software developer confirming the contention
and view of appellant, the appellant had duly discharged
the onus of proof cast upon it. The AO on the other
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hand failed to bring on record any proof or material that
would have effect of outweighing and rebutting the
contentions of appellant duly supported by the letter of
software developer. Therefore AO did not discharge the
onus of proof. Therefore, the addition made by the AO
without discharging the onus of proof cast upon it cannot
be said to have given effect to the correct position of law
and hence is unjust and unfair.
6.25 Further, the act of AO of not providing any
explanation and reason for not accepting the contentions
of appellant which was backed by logical and technical
reasoning as well as necessary evidence in form of
confirmation of expert i.e. software developer cannot be
said to be in line with the principle of natural justice.
The Hon'ble High Court of Punjab and Haryana in the
case of Anupam Kapoor 299 ITR 0179has held as under:
"....There was no material before the AO, which could
have lead to a conclusion that the transaction was
simplicitier a device to camouflage activities, to defraud
the Revenue. No such presumption could be drawn by
the AO merely on surmises and conjectures. In the
absence of any cogent material in this regard, having
been placed on record, the AO could not have reopened
the assessment.
It is settled law that suspicion, howsoever strong cannot
take the place of legal proof."
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In the ITAT Delhi bench 'C' Pavitra Realcon (P.) Ltd. v.
Assistant Commissioner of Income-tax, Central Circle-32,
New Delhi [2017] 87 taxmann.com 142 (Delhi Trib.) it
has been held that even if how strong is the
presumption/assumption, it could not be basis for any
addition.
6.26 Further, I find the explanations and contentions of
appellant satisfactory for the reasons given in Para herein
above and for the fact that the said logical and technical
explanations are also supported by the software developer
itself and also that no specific contradiction with regard
to the same is found in the forensic report as has been
stated earlier. Further, I also find favour with the
contention of appellant that in the case of periodic
review of the books of accounts and compliance
purposes, many entries need to be reopened for checking
purpose as well as the adjustment /pending/rectification
entries need also be passed, that such act of reopening
and saving old entries and passing the
pending/rectification entries in its original date in the
software cannot be taken to consider such entries as non
genuine and that such non-sequential entries appear
throughout the year and not only during demonetization
period.
Having regard to the above discussed facts and in
absence of any incriminating material found during the
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course of search and survey action and any dispute with
regard to the adequacy of stock as discussed in Para
herein above, the addition is not sustainable on this
ground.
6.27 It is observed that in present case, while passing the
assessment order, AO has not doubted purchases recorded
in books of account or closing stock shown at year end
and only treated accounted sales as bogus sales and liable
for tax u/s 115BBE. However, this contention cannot be
accepted for the reasons that once sales are recorded in
books of accounts and corresponding purchases are not in
doubt, it cannot be subject matter of addition u/s 68
r.w.s 115BBE of the Act.
Hon'ble Ahmedabad ITAT in case of Vishal Export in ITA
No. 1684/Ahd/2004 dated 07.08.2009 held as under:
"The assessee had made export of goods to M/s Arina
worth of Rs.70,00,000/- in the A.Y.1998-99. The AO
having only such information that the assessee had also
made so called bogus export to M/s Arina, he alleged
that the assessee is also involved in such kind of bogus
export of goods by over invoicing and receiving money
from Russia on large scale. The assessee submitted that
the AO has just made an assumption that the assessee
has also made bogus export to Russia merely on the basis
of information that some parties are involved to make
bogus export to M/s Arina, Moscow, however as a matter
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of facts the name of the assessee is not found in the
proceedings carried out by the DRI, New Delhi. For other
years similar allegations were made for some other
genuine parties. The AO on such basis made addition of
Rs.70,00,000/-, Rs.64,00,000/-, Rs., 1,06,00,000/-
Rs.72,00,000/- in the A.Ys. 1998-99, 1999-00, 2000-01
and 2001-02 respectively after holding that the bogus
export proceeds are nothing but the receiving back of
money of the assessee's own money initially sent abroad
through hawala. The assessee submitted before us that it
had shown Rs.70,00,000/-, Rs.64,00,000/-, Rs.,
1,06,00,000/- and Rs. 72,00,000/- for the A.Y.1998-99,
Α Υ . . 1999-00, . . 2000-01 and A.Y.2001-02 respectively Α Υ
in the Profit & loss account as sales which has been
offered for taxation. The assessee also submitted that the
AO has even accepted such turnover for working out
deduction u/s 80HHC of the Act. The assessee further
submitted that when it had already offered sales
realization of Rs.70,00,000/-, Rs.64,00,000/-, Rs.,
1,06,00,000/- and Rs.72,00,000/- for the Α Υ . . 1998-99,
Α Υ . . 1999-00, . . 2000-01 and A.Y.2001-02 respectively Α Υ
as sales and such income is accepted by the AO to be the
income of the assessee for respective years, addition of
the same amount once again u/s 68 of the Act would
tantamount to double taxation of the same income.
Having regard to the facts of the case, it was argued that
addition in these assessment years is based on some
information gathered in some other party's case and
without concrete evidences concerning the assessee. In
any case, this amounts to double taxation of the same
income, when the assessee has already offered the same
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income in the Profit & Loss account as sales.
5. After hearing the rival contentions and going through
the facts of the case, it is a fact that the AO has
accepted such turnover for working out deduction
u/s.80HHC of the Act. We find that when the assessee
has already offered sales realization as sales and such
income is accepted by the AO to be the income of the
assessee for respective years, addition of the same
amount once again u/s.68 of the Act would tantamount
to double taxation of the same income. Accordingly, we
upheld the order of CIT(A) on this common issue. This
common issue of the Revenue's appeals is dismissed."
The Hon'ble Gujarat High Court in above case in Tax
Appeal No 2471 of 2009 dated 03.07.2012 has held as
under:
"6. Having heard learned counsel for the parties and
having perused the documents on record, we are in
agreement with the above view of the Tribunal.
According to the Assessing Officer, Rs.70 lakhs
represented bogus sales and therefore the eligibility of the
assessee's deduction under section 80HHC of the Act
came to be reduced by such amount. Having done so,
the Assessing Officer further proceeded to add the same
amount under section 68 of the Act.
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7. In view of the above situation, we do not find any
reason to interfere with the Tribunal's order. Before
closing, however, one issue needs clarification. As noted
earlier, C.I.T. (Appeals) had allowed the appeal of the
assessee in toto. He, in fact, reversed the Assessing
Officer's finding that the sale was bogus and that no
export was made. On this basis, he not only deleted
addition under section 68 of the Act, but also directed
that the assessee shall be entitled to deduction under
section 80HHC of the Act for such disputed amount also.
This aspect of the matter was not decided by the
Tribunal though both sides presented their rival
contentions. In fact the Tribunal's finding that Assessing
Officer's order would amount to double taxation proceeds
on the basis that such amount of Rs.70 lakhs is deleted
while working out section 80HHC benefits. If C.I.T.
(Appeals)'s conclusion that the amount in question
represented genuine exports sale was sustained, there was
no question of double taxation. Ordinarily, therefore, we
would have been inclined to remand the proceedings
before the Tribunal for a finding on this issue. However,
learned counsel for the assessee clarified that the assessee
does not claim any deduction under section 80HHC of the
Act to the extent of such disputed amount of Rs.70 lakhs.
In other words, he agreed that the Assessing Officer's
working out of the deductions under section 80HHC of
the Act on the export sale of the assessee of Rs.585.21
crores against the original claim of the assessee of such
deduction of Rs.585.91 crores is correct. He submitted
that, in fact, in the present case, such diminution of the
assessee's eligibility for deduction under section 80HHC of
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the Act would have no bearing on the assessee's ultimate
tax liability. With respect to this last submission, we
express no opinion. However, in view of a clear stand
taken before us and the statement made, we are not
required to remand the proceedings before the Tribunal
to the above limited extent also.”
16. Considering the above findings of fact recorded by the
CIT(Appeals), the Tribunal observed as under;
“ 25. The assessee’s explanation with regard to the
allegation of backdating of entry was that the date noted
in the transaction was the date when the transaction was
last opened either for recording/ editing or any such
purpose. Therefore date recorded of transaction in the
digital data did not necessarily represent the date of
recording the transaction but represented the date when
the transaction was last viewed. And on the basis of this
date no inference of backdating of transaction could
therefore be arrived at. This fact was demonstrated also
by the assessee to the AO during assessment proceedings.
The Ld. DR was unable to point out any infirmity in the
assessee’s explanation. We therefore do not find any
infirmity in the order of the Ld. CIT(A) accepting assesses
explanation with regard to the allegation of the AO of
backdating entries of sales.
26. In view of the above we do not find any infirmity in
the order of the ld. CIT(A) finding merit in the
explanation given by the assessee of the anomalies and
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discrepancies noted vis-à-vis sales made of
Rs.7,88,85,082/- prior and during de-monetization, and
we completely agree with the ld. CIT(A) that the
purchases and stock available with the assessee having
not been disputed by the AO, the question of bogus sales
being made therefore, does not arise. As also the fact
that no actual excess stock was found by the Department
during survey conducted on the assessee post-
demonetization commensurate to the bogus sales alleged
to have been made by the assessee. We have no
hesitation therefore in confirming the order of the
ld.CIT(A) deleting the entire sales of Rs.7,88,85,082/- on
account of bogus sales.”
17. With regard to the challenge made by the revenue to the
order of CIT(Appeals) restricting the addition made by the
Assessing Officer on account of excess stock found during the
survey and deleting entirely the addition made on account of
excess cash found during the survey, the Tribunal has recorded
the fact that on survey conducted on the business premises of
the assessee on 24.01.2017, physical stock taking of various
items traded in by the assessee was done and compared with
the stock as per books, which revealed various anomalies,
which was confronted to the partner, Shri Kishor Soni, of the
assessee. Considering the statement of the partner of the
assessee firm, excess stock and unaccounted sales, addition of
Rs.1,14,24,765/- was made by the Assessing Officer.
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18. The CIT(Appeals), during the course of the hearing, found
that on account of unaccounted sale of 18CT gold diamond
jewellry weighing 1063.05 grams noted from the storage of
physical stock on the first floor of the business premises of the
assessee, the Assessing Officer noted shortage of such stock by
1063.05 grams, whereas registered valuer during the survey
noted the excess stock of 1510.210 grams of 18CT gold
diamond jewellry from the first floor. The CIT(Appeals)
therefore, considering both the data, held that there was
actually excess stock of such jewellry to the extent of
difference between that noted by the Assessing Officer and
registered valuer of 447.157 grams. Accordingly, when the
Assessing Officer made an addition of Rs.23,34,464/- on
account of unaccounted sale of such jewellry, the CIT(Appeals)
held that addition to be made on account of unaccounted
investment in excess stock to the tune of Rs.9,81,957/- being
the difference of the excess stock found by the AO and as per
the registered valuer. The CIT(Appeals) also noted that addition
made by the Assessing Officer of Rs.1.14 Crore including on
account of unaccounted sale to the tune of Rs.53,12,201/-,
which could be attributed to unaccounted investment made in
excess stock by the assessee, further reduced the addition made
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by the Assessing Officer to the said extent. Relevant finding of
the CIT(Appeals) as per paragraphs 8.4. to 8.8 reads as under;
“ 8.4 On the basis of statement of partner recorded
during the course of survey as referred above, the
Assessing Officer has made impugned addition, and has
worked out unaccounted sale of 18CT diamond jewellery
(as per Sr.No.iv in above para) as under:
Particulars Qty in Gms
Unaccounted sale of jewellery
found from first floor (6310.210
being stock as per books-5299.03
being physical stock)
1011.207
Unaccounted sale of 14 CT found
from first floor being stock as per
books as no physical stock was
found
51.846
Total 1063.053

It is seen that the Assessing Officer has made addition on
two grounds i.e. in respect of excess physical stock found
in respect of certain items of jewellery and other one on
account of unaccounted sale of certain other type of
jewellery. The addition on account of discrepancy in
stock as per above extract of statement of a partner
aggregating to Rs 1,14,24,765 has been worked out as
per the difference between the physical stock found on
the ground and first floor of the showroom and stock as
per books on the date of survey.
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8.5 Further the appellant has contended that 18 Ct. Gold
jewellery of 1510.210 grams as physically found by the
IT department appointed registered valuer Shri Kamlesh S
Nahar on the first floor of the showroom on the date of
survey has not been considered - by the Assessing Officer
while counting physical stock at the time of making
addition of the excess stock on this count. In support the
appellant enclosed extract of the Valuation report of
registered valuer namely Shri S Nahar which is
reproduced herein under -
DDIT : MR. CHANDRA PRAKASH MEENA Date :
25/01/2017
UNIT : 2 (3), Ahmedabad
The following Jewellery & Gold etc. Articles are
belonging to M/s. Zinzuwadia & Sons
Address : Venus Amadeus, Jodhpur Cross Road, Satellite,
Ahmedabad
The same has been examined by me to the best of my
knowledge. I assess the respective value, Description No.
of Pieces weight & net total weight of each article as
mentioned in the FORM-08 under section 34-AB of
Wealth Tax Act, 1957 Purpose for which Valuation is
made.
Sr.
No.
Particular Gross Wt.
Net Wt.
Dia.
Gold
Avg.
Dia.
Avg.
per ct.
Value (Rs.)
Grms.
Grms.
Cts.
rate
per 10
Grms.
SUMMARY
1 Gold Jewellery
32,655.630 32,655.630 26,820 875,82,400
(91.6%)
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(ground floor)
2 Gold Jewellery
1,421.170 1,421.170 21,960 31,20,889
(75%) (ground
floor)
3 Gold Bar
(ground floor)
2,270.100 2,270.100 29,460 66,87,715
4 Gold Jewellery
1,963.230 1,510.210 21,960 33,16,421
(75%) (1st
floor)
5 Diamond
Jewellery
(75%) (1st
5,299.003 674.68 21,960 48,500 447,39,320
floor)
6 Diamond
Jewellery
(91.6%) (1st
902.926 114.68 26,820 49,500 80,98,300
floor)
TOTAL 44,059.039 789.36
7 Silver (ground
59.4 Kg 59.4 Kg 24,56,130
floor)
(Total
Valuation of
1560,01,174
Rs. Fifteen
Crore, Sixty
Lac, One
Thousand, One
Hundred,
Seventy Four
Only)
It is observed that while computing unaccounted sales
referred supra and as mentioned in statement recorded
during the course of survey, Assessing Officer has
considered physical stock of 5299.03 Gms in respect of 18
CT gold ornaments. Further on perusal of physical stock
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inventory prepared by registered valuer as on the date of
survey, there was stock of 1510.210 Gms of 18 CT gold
jewellery in addition to 5299.03 Gms but Authorised
officer at the time of survey has not considered such
physical stock of 1510.210 Gms. while arriving at the
figure of shortage of stock and consequently working of
the unaccounted income and therefore, the same is
required to be taken into account for adjudicating this
ground of appeal of the appellant. This contention of the
appellant is found correct factually and legally also in
view of the decision of Hon’ble Agra ITAT in the case of
ACIT Vs Maya Trading Co 34 Taxman.com 144 wherein it
was held that "Where assessee was able to show that
admission made during survey by surrendering income on
excess stock was incorrect, on basis of seized material
itself, addition was unjustified". Hon'ble Delhi High court
in the case of CIT VsDhingra Metal Works 196 taxman
488 has held as under:
"Section 133A of the Income-tax Act, 1961 - Survey
- Assessment year 2005-06- Whether though an
admission made during survey is extremely
important piece of evidence, it cannot be said to be
conclusive and it is open to person, who has made
admission, to show that it is incorrect - Held, yes -
During survey operation at business premises of
assessee-firm, revenue noticed some discrepancies in
stock - As partner of assessee was not able to
explain difference in stock at that time, he offered
certain income for assessment - Subsequently,
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assessee submitted that said statement about stock
was incorrect, and that impugned discrepancy had
been reconciled - Consequently, assessee withdrew
offer of additional income for assessment - Assessing
Officer did not accept assessee's plea and assessed
income as per statement given by partner - Whether
as assessee had been able to explain discrepancy in
stock found during course of survey, Assessing
Officer could not have made said addition solely on
basis of statement made by partner on behalf of
assessee - Held, yes
8.6 To make it clarify further considering the above
working, it is once again noted that the Assessing Officer
has assessed unaccounted sale of 1063.053 Grams in
respect of the 18 Ct. Gold Jewellery meaning thereby the
accounted stock of 18 Ct. Gold Jewellery in the books of
the appellant on the date of survey was found more than
that of physically found stock by 1063.053 Grams.
However, as discussed above, the of the appellant of
1510.210 grams of 18 Ct. Gold Jewellery found on the
first floor not considered and included in the physical
stock found (although evident from the valuer's report
reproduced above) by the Assessing Officer being found
acceptable ipso facto results into excess stock (i.e.
physical stock over book stock) of the 18 Ct. Gold
Jewellery by 447.157 grams. [1510.210 grams of stock
not considered in physical count (-) 1063.053 grams
found short] as on the date of survey. Accordingly, the
value of such excess stock of 447.157 gms of 18 CT gold
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jewellery comes to Rs. 9,81,956/- (447.157 Grams *21960
per 10 grams as on the date of survey). The same is
unaccounted investment in the said jewellery.
8.7 Having regard to the above discussion and after
taking effect of 1510.210 grams of physical stock of 18 ct
Gold Diamond jewellery not considered in the physical
count, the addition to be made in respect of excess
stock/unaccounted sale is re-worked out as under:
Sr.
No.
Particulars Weight Rate per 10
Amount (Rs.)
grams
(i) Excess Stock 22 ct. gold
as per Para 11.3 of the
Order of the Assessing
Officer
3105.833 26820 8329844
(ii) Excess Stock of Silver as
per Para 11.3 of the
Order of the Assessing
Officer
788.68 32611
(iii) Excess Stock of 24 Ct.
bullion as per Para 11.3
of the Order of the
Assessing Officer
66.75 29,460 196645
(iv) Excess Stock of 18ct gold
diamond jew. as
discussed herein above \
[(-) 1063.053 +
1510.210\]
447.157 21,960 9,81,957
(v) Unaccounted sale of 22
ct. Diamond jew. as per
Para 11.3 of the Order of
the Assessing Officer
78.524 26,820 210601
(vi) Unaccounted sale of
Diamond as per Para
66.12 48,500 320600
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11.3 of the Order of the
Assessing Officer
Total undisclosed income
in stock
1,00,72,258
It is pertinent to note that in the case of appellant, as per
the reworking made above there is excess stock as per
Sr.No.i to iv of the table above as well as shortage of
stock as per the Sr.No.v & vi of the above table.
Accordingly the excess stock is re-worked out on the basis
of above working at Rs.95,41,057(83,29,844+32,611+
1,96,645+,9,81,957) and shortage of the stock being
unaccounted sale reworked out to Rs
5,31,201(2,10,601+3,20,600).
8.8 In this regard the appellant has submitted that the
unaccounted sale proceeds of Rs.5,31,201/- as noted above
could be considered as invested in the excess stock found
of the gold ornaments at Sr.No.i to iv of the above table.
In other words, no double addition to the extent of
Rs.5,31,201/- on account of unaccounted sale proceeds
could be made, over and above to the unaccounted
investment of Rs.95,41,057/- being excess stock of the
items at Sr.No.i to iv of the table above. The submission
of the appellant is found acceptable factully as well on
law as there could not be the double addition of the
unaccounted sale proceeds. Thus, working of excess stock
found during the course of survey proceedings in case of
appellant in the above mentioned table amounts to Rs
95,41,057/- in place of Rs.1,14,24,765/-.”
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19. The Tribunal, after considering the above findings,
concurred with the addition sustained by the CIT(Appeals) of
Rs.95,41,057/- and deletion of addition of the cash found
during the course of survey, by observing as under;
“ 30. Before us the Ld. DR was unable to controvert the
factual finding of the Ld. CIT(A) resulting in restricting
the addition made by the AO on account of excess stock
of Rs.1,14,24,765/- to Rs.95,41,057/-. He was unable to
controvert the fact noted by the Ld. CIT(A) that the
registered valuer had found excess physical stock of 18Ct.
gold jewellery from first floor of the business premises of
the assessee of 1510.210 gms which the AO had noted to
be short by 1011.207gms. In the light of the same we do
not find any infirmity in the order of the Ld.CIT(A)
adjusting the data of stock of gold jewellery found from
first floor premises of the assessee to this extent resulting
in addition being restricted only to the resultant excess
jewellery found of 447 147 gms. Also we do not find any
infirmity in the Ld.CIT(A)’s order telescoping the addition
made of investments in excess stock against the addition
of unaccounted sales found to have been made by the
assessee.
In the result, we hold that the Ld.CIT(A) has rightly
restricted the addition on account of excess stock found
during survey to Rs.95,41,057/-
31. As for the issue of addition made account of cash
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found during survey, the facts are that while the books
showed cash balance of Rs.15,96,561/- the physical cash
found during survey was Rs. 2,62,600/-.
32. The assessee explained the same as attributable to
cash purchases made out of the Books of the assessee and
cash withdrawals, both of which were duly accounted for
post survey and the cash purchases disallowed u/s 40A(3)
of the Act by the assessee in the return of income filed.
The AO was not convinced with the same but the Ld.
CIT(A) found merit in the contention of the assessee and
deleted the addition made. The explanation of the
assessee is reproduced at page 59 of the AO’s order as
under:
“3.1 With regard to the cash difference of Rs.
13,33,961/- found at the time of survey, we wish to
state that physical cash found at the time of survey
was Rs.2,62,600/- whereas cash as per books of
accounts was Rs. 15,96,561/- as is evident on page
no.18 of the statement of Mr Kishore K Soni.
Further, out of the said cash difference of
Rs.13,33,961/-, amount of Rs.5,93,082/- pertains to
unaccounted cash purchase which is duly recorded
in books of accounts post survey and disallowed u/s
40A(3) of the IT Act in the return of Income of AY
2017-18. With respect to remaining cash difference
of Rs.7,40,879/- we wish to state that the said
difference is due to unaccounted cash withdrawals
made by the partners which is duly recorded in the
books of accounts by the firm post survey. To
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substantiate abovementioned fact, we are attaching
herewith copy of capital account of partners and
copy of relevant pages of the cash book highlighting
the entries of withdrawal by the partners and
entries of payment made towards purchase vide
Annexure- 5. Hence, we submit that the difference
of cash has been duly considered in the books of
accounts and thereby the said difference in cash
stands explained and accordingly, your good self is
requested not to make addition on this count.
3.2 Without prejudice to above, we wish to state
that cash as per booksof accounts exceeds physical
cash and it is not the case where physical cash
exceeds cash as per books of accounts. Accordingly,
it is not the case of unaccounted cash and thus no
addition should be made in the hand of the assessee
firm on account of difference of cash.”
20. Learned Senior Standing Counsel, Mr. Varun K. Patel for
the appellant, submitted that both the CIT(Appeals) and the
Tribunal have committed a grave error in ignoring the findings
recorded by the Assessing Officer by deleting the addition of
Rs.7,88,85,082/- and reducing the addition to Rs.96 lakhs
made by the Assessing Officer under Section 68 of the Act, as
well as restricting the addition to Rs.95,41,057/- as against
Rs.1,14,24,765/- made by the Assessing Officer for unexplained
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investment in stock and deletion of addition of Rs.13,33,961/-
on account of excess cash, without appreciating the evidence,
including the forensic evidence brought on record by the
Assessing Officer, and overlooking the material fact that excess
stock and cash were admitted by the partners of the firm in
the statement recorded during the course of survey
proceedings.
20.1. It was further submitted that on account of
demonetization, the modus operandi adopted by the assessee
was to introduce the cash by showing bogus sales on
08.11.2016, which is proved by the forensic evidence brought
on record by the Assessing Officer, and both the CIT(Appeals)
and the Tribunal ignored the impossibility of catering to 223
customers within 240 minutes on 08.11.2016. In support of his
submission, reliance was placed on the decision of the Hon'ble
Himachal Pradesh High Court in the case of J.M.J Essential Oil
Company v. Commissioner of Income Tax, Shimla, reported in
[2019] 415 ITR 17. Reference was also made to the
reconciliation of the difference of book stock and physical
stock, as per statement recorded during the survey, and
difference of book stock and physical stock as considered in
the return of income submitted by the assessee, to point out
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that such reconciliation is not based upon any reliable
materials, in as much as the Assessing Officer has given the
cogent reasons for making addition of Rs.1.14 Crore for the
excess stock found during the course of survey.
20.2. It was submitted that the CIT(Appeals) has compared the
excess stock found during the course of survey with that of the
registered valuer, and thereby, without any basis, reduced the
same by adjusting the stock found during the course of survey
and as per the valuation report. It was submitted that the
Tribunal, without assigning any reasons, has upheld the order
of the CIT(Appeals) by reproducing the same, ignoring the
findings of the Assessing Officer which goes to the root of the
matter for making addition of Rs.1.14 Crore towards excess
stock found during the course of survey.
20.3. Learned Senior Standing Counsel Mr. Patel invited the
attention of the Court to the detailed findings of the Assessing
Officer based upon the statement of the partner of the assessee
firm recorded during the course of survey as well as the reply
tendered by the assessee to point out that the Assessing Officer
found the reply as a vague and general reply, without proving
any nexus with difference of physical stock and as per books
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of account found during the course of survey was reconciled,
as the difference was already admitted and accepted by the
partner of the assessee firm in the statement recorded during
the course of survey. It was, therefore, submitted that both
the CIT(Appeals) and the Tribunal had committed an error and
ought to have confirmed the order passed by the Assessing
Officer for excess stock and cash found during the course of
survey.
20.4. It was further submitted that neither the CIT(Appeals)
nor the Tribunal have discussed the forensic report on record,
which clearly shows that the sales made by the assessee firm
during the demonetization period was recorded as a backdated
sales, and without showing as to how the forensic report is not
reliable, both the CIT(Appeals) and the Tribunal have relied
upon the possibility of making sales to 223 customers within
240 minutes on 08.11.2016 and thereafter depositing the
demonetized currency up to 31.12.2016 by the assessee firm as
a genuine sales, on the ground that there was stock available
with the assessee and therefore, the sales cannot be considered
as a bogus sales, ignoring the fact that the assessee has
adjusted the stock resulting into excess stock during the course
of survey conducted on 24th January 2017. It was therefore
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submitted by learned Senior Standing Counsel Mr. Patel that
that the orders passed by the CIT(Appeals) and the Tribunal
are perverse orders, and appeal requires consideration
20.5. It was also submitted by learned Senior Standing
Counsel Mr. Patel that the SLP arising out of the order of the
Hon'ble Himachal Pradesh High Court in the case of JMJ
Essential Oil Company is also dismissed as reported in [2020]
113 taxmann.com 463 (SC).
20.6. It was therefore submitted that, as held by the
Himachal Pradesh High Court, the Assessing Officer was
justified in considering the bogus sales as income of the
assessee under Section 68 as well as excess stock and cash
found during the course of survey under Section 69B of the
Act, because the assessee has failed to discharge the burden
cast upon it to show that such bogus sales as per the forensic
report was genuine sales, and did not refer to stock on the
date of demonization on 08.11.2026 as well as as the assessee
has failed to reconcile the stock on the date of demonetization
with the sales effected during the window of four hours on
08.11.2016. It was therefore submitted that CIT(Appeals) and
the Tribunal have ignored this vital aspect by dismissing the
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appeal of the revenue, and hence the same requires further
scrutiny by this Court on the questions of law proposed by the
revenue.
21. Per contra, learned advocate Mr. B.S. Soparkar for the
respondent-assessee, appearing on caveat, submitted that there
are concurrent findings of fact recorded by both the
CIT(Appeals) and the Tribunal and no incriminating material
was found during the course of survey at the business premises
of the assessee or during the search proceedings at the
residential premises of the partner of the assessee firm so as to
justify the allegation of bogus sales of Rs.7.88 Crore.
21.1. It was submitted that the CIT(Appeals) and the Tribunal
have recorded the findings after perusing the stock register
placed on record by the assessee firm, including the
reconciliation statement of the stock for the sales made after
announcement of the demonetization on 08.11.2016. It was
also pointed out that the CIT(Appeals) and the Tribunal have
recorded the finding with regard to the contention of the
Assessing Officer for unexplained decline in gross profit rate to
the effect that the GP rate fell sharply in the post-
demonetization period compared to the pre-demonetization
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period and explanation tendered by the assessee was
unsatisfactory, but the undisputed fact remains that the excess
stock found during the survey was not reflected in the books,
and CIT(Appeals) held that the books are liable to be rejected
under Section 145 and estimated a fresh gross profit addition
of Rs.96 lakhs as normal business income, which is not under
Section 68 linked to the low GP period, giving relief for the
balance amount of Rs.6,92,85,082/-. It was therefore submitted
that not the entire addition of Rs.7.88 Crore is accepted by the
CIT(Appeals) and the Tribunal, and the contention of the
revenue with regard to the low GP rate is accepted by the
CIT(Appeals) and the Tribunal. It was further submitted that
there is no evidence on record brought by the revenue with
regard to the bogus sales, and contention raised on behalf of
the revenue that the onus is upon the assessee is also not
tenable in absence of any primary documentary evidence on
record to show that there was a bogus sale, except the forensic
report of backdated entries of the sales. However, the fact
remains that the assessee had made the sales on 08.11.2016 in
lieu of the available stock on record, which is not in dispute.
21.2. Learned advocate Mr.Soparkar submitted that the
CIT(Appeals) and the Tribunal have arrived at a concurrent
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finding that the sales were already recorded and taxed as
income in the hands of the assessee, and treating the same
amount as unexplained cash credit would result into double
taxation, as the character of receipt cannot change from sales
to unaccounted income, once such income is offered to tax by
the assessee. The Tribunal has confirmed the findings of the
CIT(Appeals) that there was no bogus purchases, no negative
stock, no excess stock found during survey commensurating
with the alleged bogus sales, as the case of the revenue was
purely based on suspicion and surrounding circumstances in
absence of any incriminating material. It was therefore
submitted that both the CIT(Appeals) and the Tribunal have
rejected the theory of backdated entries by giving cogent
reasons. It was, therefore, submitted that reliance on forensic
report, more particularly, the sequence number anomaly, was
attributable to a software error arising from reopening/resaving
entries, which cannot be considered as a proof of backdating,
and the Departmental Representative was also not able to rebut
the same before the Tribunal. It was therefore submitted that
both the CIT(Appeals) and the Tribunal have accepted the
practical, hard reality of demonetization rush explained by the
assessee on 08.11.2016 which resulted in the sales spike,
supported by the physical stock available with the assessee,
which is not disputed by the Assessing Officer in making the
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addition on account of bogus sales. It was further submitted
that the Tribunal has also rejected the appeal of the assessee
challenging the addition on account of confirming the GP
addition of Rs.96 lakhs and no further appeal is filed by the
assessee.
21.3. Learned advocate Mr. Soparkar referred to and relied
upon the paper book filed before the Tribunal and stock
registers separately produced on record to show that the
purchase, sales, and quantity of stock could reconcile, which
was available with the assessee on the date of the
demonetization.
21.4. It was submitted that the purchase register from
01.04.2016 to 31.03.2017 is available at page Nos. 196 to 209
of the paper book filed before the Tribunal, whereas the sales
register from 01.01.2017 to 31.01.2017 is available from page
Nos. 210 to 216, and there is reconciliation of the stock on the
purchase and sales. Therefore, there was sufficient stock
available with the assessee at the relevant point of time.
21.5. Learned advocate Mr. Soparkar also placed on record
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the trading stock ledger so as to tally the purchase and sales
shown in the purchase register and stock register placed on
record.
21.6. In support of his submission, reliance was also placed
on the decision of this Court in case of The Principal
Commissioner of Income Tax v. Jewel World, rendered on
23.06.2026 in Tax Appeal No. 554 of 2025.
21.7. Regarding the issue of addition of excess stock of
Rs.1.14 crore restricted to Rs.95 lakhs under Section 69B of
the Act, it was submitted that CIT(Appeals) and the Tribunal
have accepted the factual contention of the assessee that
quantity of 18CT gold jewellry of 1510.210 grams lying in the
vault on the first floor was not included by the survey team by
taking the physical stock count, which distorted stock shortage
computation. It was therefore submitted that after adjusting for
the vault stock and reworking item-wise figures, the
CIT(Appeals) recomputed the correct excess stock valuation at
Rs.95,41,057/- as against Rs.1.14 crore as per the assessment
order, and since the books had already been rejected under
Section 145 of the Act and gross profit addition of Rs.96 lakhs
had already been confirmed, the CIT(Appeals) held that such
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addition would cover the excess stock findings and no separate
addition was required for the unexplained stock investment to
avoid double addition of the same underlying discrepancy. It
was submitted that the Tribunal also recorded that during the
course of survey, when the statement of Shri Kishor Soni,
partner of the assessee firm, was recorded which was
considered by the Assessing Officer to make addition of Rs.1.14
Crore, the CIT(Appeals) arrived at a factual finding that
registered valuer had found excess 1510.210 grams of 18CT
gold jewellry on the first floor, which was not considered
during the course of survey, and therefore, the reworking of
the excess stock was made to Rs.95,41,051/-. Similarly, for the
excess cash of Rs.13,33,961/-, the CIT(Appeals) accepted the
reconciliation submitted by the assessee to the effect that such
excess cash represented the purchases already disallowed under
Section 40A(3) in the return of income as the same is already
offered to tax by the assessee's own action and the balance
was explained by the partners' withdrawal recorded in the
books post-survey. It was therefore, submitted that in view of
such findings of fact recorded by both the CIT(Appeals) and
the Tribunal, no interference is required to be made in the
impugned order passed by the Tribunal.
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22. Having heard the learned advocates for the parties and
considering the facts of the case as well as the concurrent
findings arrived at by the CIT(Appeals) and the Tribunal, it
appears that on 08.11.2016, when demonetization was
announced, there was a heavy rush to purchase the jewellry by
the citizens and such fact is judicially noted by us.
23. It is not in dispute that there was a sufficient stock
available in the physical form as well as on record of the
assessee to justify the sales made during the 240 minutes
available on 08.11.2016. Therefore, the theory of backdated
entries based upon the forensic report referred to and relied
upon by the Assessing Officer is rightly not accepted by the
CIT(Appeals) and the Tribunal.
24. In the facts of the case, the Assessing Officer has tried to
correlate the sales made during the demonetization period and
the excess stock found during the course of survey. According
to us, both the CIT(Appeals) and the Tribunal have rightly
separated both the issues, as the CIT(Appeals) has retained the
GP addition of Rs.96 lakhs, which is upheld by the Tribunal
by dismissing the appeal filed by the assessee due to the
rejection of the books of accounts. Mere rejection of the books
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of accounts would not obviate the stock register maintained by
the assessee. Both the CIT(Appeals) and the Tribunal have
referred to and relied upon the reconciliation of the stock on
the date of demonetization as well as while reconciliation
submitted by the assessee at the time of survey. Therefore, in
view of such findings of fact recorded by both the CIT(Appeals)
and the Tribunal, it would be difficult for this Court to accept
the contention raised on behalf of the revenue that there was a
bogus sales on account of the backdated entries in the books
of accounts of the assessee, where such books of accounts are
already rejected under Section 145 of the Act resulting into
addition of Rs.96 lakhs on account of the gross profit ratio
worked out by the CIT(Appeals), which is accepted by the
assessee by not preferring further appeal against the order of
dismissal of the appeal of the assessee by the Tribunal.
25. With regard to the excess stock addition restricted by the
CIT(Appeals) and the Tribunal, as well as the deletion of the
excess stock found during the course of survey, which was
considered for addition to be made under Section 69B of the
Act, there are concurrent findings of fact recorded by both the
CIT(Appeals) and the Tribunal, and on considering such
findings, we are of the opinion that the same cannot be
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considered as perverse in absence of any material to show such
perversity or any factors which are ignored or factors which
are considered which is irrelevant as per the revenue. It is also
pertinent to note that the contention raised on behalf of the
revenue that the onus would be on the assessee to prove that
the addition made by the Assessing Officer under Section 68
and 69B does not represent the unaccounted cash introduced
by the assessee in the record. It is pertinent to note that both
the CIT(Appeals) and the Tribunal have arrived at a concurrent
finding of fact that the assessee has offered the entire sales
made during the period, which is accepted by the Assessing
Officer, moreover the purchases shown in the books of
accounts made by the assessee are not at all disturbed. Only
on the ground that the assessee has shown the cash sales due
to demonetization, cannot be considered as a factor to shift the
onus on the assessee for making addition under Section 68 of
the Act so as to tax the assessee at a higher rate of tax under
Section 115BBE of the Act, inasmuch as the assessee has
already offered the entire sales for tax by including the same
under the sales income.
26. In view of the concurrent findings of fact, the contention
raised on behalf of the revenue is also not acceptable in the
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facts of the case.
27. In view of the foregoing reasons, we are of the opinion
that there is no legal infirmity in the impugned order of the
Tribunal, and no question of law, much-less any substantial
question of law, can be said to arise from the impugned order.
Therefore, the appeal is accordingly dismissed.
(BHARGAV D. KARIA, J)
(NIRZAR S. DESAI,J)
BHAVIN MEHTA
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