PCIT Vs Kross Diamonds Pvt. Ltd. (Delhi High Court)
No Unexplained Expenditure Addition Because Purchases Were Verified Through Banking Channels; Cash Sales Below Rs. 2 Lakh Not Sufficient to Invoke Section 69C, Says Delhi High Court; Delhi High Court Dismisses Revenue Appeal Because AO Accepted Purchases as Genuine; Genuine Import Purchases Cannot Be Treated as Bogus Because Sale Proceeds Were Deposited in Cash
The matter before the Delhi High Court involved multiple appeals raising identical questions of law. The Court considered the facts from ITA No. 675/2025 concerning Kross Diamonds Pvt. Ltd., a company engaged in importing diamonds from various countries in accordance with the Customs Act, 1962 and other applicable laws.
During assessment proceedings, the Assessing Officer (AO) observed that the assessee had issued 6,358 cash sale bills, each valued below Rs. 2 lakh, aggregating to approximately Rs. 97.12 crore. The AO formed the view that since the source of purchases was the cash generated from these sales, the purchases amounting to approximately Rs. 97.13 crore were not properly explained. Consequently, the AO made an addition under Section 69C of the Income Tax Act, 1961 on the ground that the source of expenditure remained unexplained.
The assessment order specifically recorded that the AO did not doubt the genuineness of the purchases themselves and accepted that the purchases had actually been made. However, according to the AO, although the purchases were genuine, the expenditure relating to such purchases could still be disallowed because the source of funds used for the purchases allegedly remained unexplained.
