Gujarat HC Upholds Deletion Of ₹7.88-Crore Bogus-Sales Addition Against Jeweller, Citing Stock Available During Demonetisation

The respondent, a jewellery partnership firm, was assessed for AY 2017–18 after a search and survey.

The Assessing Officer treated ₹7,88,85,082 in reported sales as bogus and backdated, relying principally on a forensic examination of accounting-software data and the sales spike around demonetisation.

The Officer also made additions under Section 69B for excess stock and cash.

The CIT(A) deleted the sales addition, recomputed the stock addition, and deleted the cash addition; the Tribunal dismissed both parties’ appeals.

The Revenue appealed under Section 260A of the Income-tax Act, 1961

Section 260A permits a High Court appeal only where a substantial question of law arises; concurrent factual findings of the CIT(A) and Tribunal are not to be displaced absent legal error or perversity.

Section 68 concerns unexplained credits, while Section 69B concerns investments or expenditure not fully disclosed in the accounts; the statutory provisions do not justify an addition merely on suspicion where the relevant transactions and explanations have been examined on the evidence.

Section 145 permits rejection of books, but that does not, by itself, negate the evidentiary value of stock records and reconciliations.

The Revenue relied on *Sumati Dayal v. CIT* and *CIT v. Durga Prasad More* for the principle of human probabilities, and on *J.M.J. Essential Oil Company v. CIT*; the High Court resolved the appeal on the concurrent factual findings and the record before it

The Court noted that the Tribunal and CIT(A) had considered the stock records and reconciliation and found sufficient stock available to support the sales.

The software developer’s explanation that reopening, saving, or printing an existing voucher could alter its sequence was not rebutted by the forensic report or by the Assessing Officer; the authorities were therefore entitled to reject the inference that the sequence anomalies proved backdating.

The Court also accepted the finding that the demonetisation-related sales spike was plausibly explained and that the sales had already been recorded as income, making a further Section 68 addition on the same amount unwarranted.

As to stock, the registered valuer’s record of 1,510.210 grams of jewellery omitted from the survey team’s count supported the CIT(A)’s recalculation, which the Tribunal affirmed.

The cash discrepancy was explained by recorded cash purchases and partner withdrawals.

The Revenue did not establish perversity or identify material facts ignored by the appellate authorities

It dismissed the Revenue’s appeal, leaving undisturbed the deletion of the alleged bogus-sales and excess-cash additions and the restriction of the stock addition to ₹95,41,057