J V Jewellers Vs ITO (ITAT Rajkot)
Unaccounted Purchases: ₹13.07 Lakh Addition Reduced to 8% Profit, Without Section 115BBE
The controversy
Should the entire value of purchases allegedly made outside the books be assessed as unexplained expenditure under section 69C, or should the addition be restricted to an estimated profit element?
In a decision expressly confined to its peculiar facts, the Rajkot Tribunal reduced an addition of ₹13,07,275 to ₹1,04,582, representing 8% of the disputed purchases. It further directed that the sustained addition be taxed at normal income-tax rates, without applying section 115BBE.
The assessee thus obtained substantial relief, although its explanation was not accepted in full.
A supplier’s search triggered the addition
J V Jewellers filed its return for AY 2023–24 declaring total income of ₹18,920. The return was selected for scrutiny, and notices under sections 143(2) and 142(1) were issued.
The dispute arose from information obtained during a search conducted on 13 September 2023 in the case of Tirth Gold, a manufacturer and wholesale distributor of gold and studded jewellery.
According to the Department, pre-search enquiries indicated that Tirth Gold used software to record both accounted transactions and transactions conducted outside its regular books. Digital accounting information obtained during the search allegedly reflected unaccounted purchases by the assessee.
The Assessing Officer relied on this material to conclude that purchases of ₹13,07,275 had not been recorded in the assessee’s books.
One matching entry strengthened the Department’s case
The assessment order noted that an entry of ₹1,85,840 in the supplier’s records exactly matched a bill furnished by the assessee.
The assessee maintained that this particular transaction was genuine and already recorded in its books. It also relied on a confirmation from Tirth Gold concerning that transaction.
However, the Assessing Officer treated the supplier’s digital information as reliable evidence of the disputed purchases. He rejected the assessee’s alternative request to restrict the addition to a profit percentage and assessed the entire ₹13,07,275 as unexplained expenditure under section 69C.
The CIT(A) upheld the addition.
Third-party data and denial of cross-examination
Before the Tribunal, the assessee challenged the evidentiary foundation of the addition. Its authorised representative argued that the seized ERP data belonged to a third party and could not establish unaccounted purchases without corroborative evidence.
The data was described as a “dump document”. The assessee also complained that complete copies of the material and statements relied upon had not been provided, and that cross-examination had been denied despite a specific request.
It submitted that relevant bank statements and books of account had been furnished during assessment.
The Revenue defended the addition, arguing that cross-examination was unnecessary because the assessment rested on documentary evidence.
The explanation was not fully satisfactory
The Tribunal recorded that an opportunity for cross-examination had not been provided. Nevertheless, it did not delete the addition outright on that ground.
It found that the assessee had not satisfactorily explained the transactions and had not furnished the entire supporting documentation before the lower authorities.
This finding is significant. The decision does not hold that third-party ERP information is inherently inadmissible, nor does it establish that denial of cross-examination automatically invalidated this assessment. The relief ultimately granted arose from the assessee’s alternative plea for estimation.
The assessee suggested that an addition could be made by reference to its gross profit rate of 2.5%. The Tribunal accepted the approach of estimating profit, but adopted a higher rate.
Taxing income rather than the entire amount
The Tribunal referred to CIT v. Williamson Financial Services, citing the Supreme Court’s observation that income-tax is levied on income computed under the Act, rather than merely on gross receipts.
It also relied on the jurisdictional Gujarat High Court decision in CIT v. President Industries. That case concerned suppressed sales and recognised that the entire sale proceeds do not necessarily constitute income, because the seller has incurred a cost in acquiring or processing the goods. The taxable component is the profit embedded in those receipts.
Drawing on this reasoning, the Tribunal considered it appropriate to estimate the profit element in the present case.
Eight per cent addition at normal rates
The Tribunal held that an addition of 8% of ₹13,07,275, amounting to ₹1,04,582, would sufficiently address the revenue leakage.
It directed the Assessing Officer to restrict the addition accordingly and expressly apply normal income-tax rates, rather than section 115BBE.
The appeal was therefore partly allowed, reducing the addition by ₹12,02,693.
The Tribunal specifically cautioned that its decision was based on the peculiar facts and the smallness of the amounts involved, and should not be construed as laying down propositions of general application.
Author’s comments
The decision provides useful relief, but its limits deserve equal attention. President Industries concerned suppressed sales, whereas the present addition concerned alleged unexplained purchase expenditure. The Tribunal used the profit-estimation approach in this particular setting; it did not establish a universal rule that every section 69C addition must be restricted to profit.
The order also does not explain a detailed computational basis for choosing 8% instead of the suggested 2.5%.
For practitioners, the strongest takeaway is the possibility of advancing a properly framed alternative estimation plea, alongside the primary challenge to third-party evidence. Here, that plea secured both a substantial reduction and an express direction excluding section 115BBE.
A valuable factual precedent—best cited with its own express qualification.
Cases Discussed
1. CIT v. Williamson Financial Services [2007] 165 Taxman 638 (Supreme Court)
2. CIT v. President Industries [2002] 124 Taxman 654 (Gujarat High Court)
FULL TEXT OF THE ORDER OF ITAT RAJKOT
1. This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeal) vide order 24.09.2025, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) read with section144B of the Act, dated 14.03.2025.
2. The grounds of appeal raised by the assessee are as follows:
1. The Ld. CIT(A) has erred in law as well as on fact by upholding an addition made by Ld. AO amounting to Rs. 13,07,275/- being treated as unexplained expenditure u/s 69C of the Act.
2. The Ld. CIT(A) has erred in law as well as on fact by upholding action of Ld. AO by not providing opportunity of being heard and making addition on the basis of material seized from premises of third party and statement recorded during the course of search without providing full copies of said material and statement recorded during the course of search and their cross examination though specifically requested, violating principle of natural justice.
3. Brief facts qua the issue are that in this case, the assessee has filed Income Tax Return (ITR) on 30.09.2023, declaring total income at Rs.18,920/- and the case has been selected for scrutiny. In view of the above, notices u/s.143(2), and u/s.142(1) were issued to the assessee. As per information available with the Income Tax Department, as obtained during the search action carried out on 13.09.2023, the assessee has made unaccounted purchases from M/s Tirth Gold. A Search and seizure operation was launched on 13.09. 2023 in the case of Tirth Gold at Surat and Rajkot. Tirth Gold was established on 28.05.2016. It is engaged in the manufacture and wholesale distributorship of gold jewellery and studded gold jewellery. It has reported turnover of Rs. 99.89 crores for AY 2022-23. Its key persons are Mr. Pradip Parshottam Bhuva and Mr. Paresh Lakhabhai Vasani. Notably, Mr. Pradip Parshottam Bhuva, who also happens to be one of the key persons of the subject POPL, is also the controlling partner in a Jewellery & Bullion Firm by the name of M/s Tirth Gold. The Tirth Gold has several sister concerns of the same name at Rajkot, Ahmedabad, Bengaluru and Delhi. During the pre-search investigations, it was gathered through discreet enquires that the subject is using one software to record both accounted as well as the unaccounted/out of the books/cash transactions. During the search proceedings, Shri Paresh Lakhabhai Vasani, partner who was present during the search proceedings at the business premises of the subject Tirth Gold situated at 34, 2nd Floor, Bhagunagar Society, Matawadı, L.H. Road, Surat, was requested to provide the books of account of the subject. It was learnt that the subject Tirth Gold maintains its accounts on Financial Year basis (from 01st April to 31st March) in digital format. Thus, it can be easily concluded that the information obtained during the search is accurate. The entry of Rs. 1,85,840/- is exactly tallying with the copy of bill submitted by the assessee. The assessee has relied on various court decisions and requested that if its submission is not acceptable then the entire purchase amount should not be added. Alternatively, the income may be determined by applying the net profit ratio method. The contention of the assessee was not accepted by the assessing officer. Therefore, assessing officer held that assessee had made purchases which are not recorded in its books of account, therefore, an amount of Rs.13,07,275/- was be treated as unexplained expenditure u/s.69C and added to total income of the assessee.
4. Aggrieved, by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the Assessing Officer, therefore, assessee is in appeal before this Tribunal.
5. I have heard, both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Learned Counsel for the assessee argued that the foundation of the addition is the ERP data of M/s Tirth Gold seized during search, which should not be relied on without corroborative evidence. It is “dump document”. The ld. Counsel submitted that no corroborative material was brought on record. The plea of violation of natural justice due to denial of cross-examination should be accepted. The alternative plea of ld.Counsel is that only the profit element should be taxed. The ld.Counsel placed reliance on confirmations from Tirth Gold for the one transaction of Rs.1,85,840/- and stated that transaction was already accepted and recorded in the books, therefore, no addition should be made in the hands of the assessee. Alternatively, Ld. Counsel for the assessee submitted that an estimated addition may be made in the hand of assessee considering the GP rate 2.5% in the assessee’s case under consideration.
6. On the other hand, the Ld. DR for the Revenue submitted that there was no need to provide the opportunity of cross-examination because the addition was made based on the evidences. The Ld. DR also relied on the findings of the assessing officer.
7. I have considered the submissions of both the parties. I note that search was conducted in the case of Tirth Gold and the addition was made in the hand of the assessee on account of purchases made from the Tirth Gold to the tune of Rs.13,07,275/-. The Ld. Counsel submitted that during the assessment proceedings the assessee submitted that it is not in bogus purchase and also furnished before the assessing officer the relevant bank statement, books of accounts. The opportunity of cross-examination was also not provided to the assessee. However, I note that assessee has not explained the transaction in satisfactory manner and did not submit the entire documents and evidences before the lower authorities to prove his claim. Besides, Ld. Counsel for the assessee, alternatively, argued that an estimated addition may be made in the hand of assessee. Taxing the receipts only has never been the motto of the Income-tax Act. In this regard, the observation of the Supreme Court in CIT v. Williamson Financial Services [2007] 165 Taxman 638 (SC) is reproduced below:
“It is important to bear in mind that u/s 4, the levy is on total income of the assessee computed in accordance with and subject to the provisions of the Income Tax Act. What is chargeable to tax under the Income Tax Act is not the gross receipt but the income under the Income Tax Act. The tax is on income but not on gross receipts.”
8. Where suppression of sales receipts is involved, the question is whether the entire sales or only a percentage of profit should be adopted as income. In CIT v. President Industries [2002] 124 Taxman 654 (Gujarat), the Assessing Officer had found evidence of suppression of sales. He adopted the entire receipt (sales) as income but the Hon’ble Jurisdictional High Court has held that the entire undisclosed receipts (sales) cannot constitute income. The sales only represent the price received by the seller of the units for which the seller has already incurred the cost in order to acquire or process the inventory. Therefore, it is the realization of excess consideration over the cost incurred which should be assessed as profit or income. In other words, profit component embedded in the sales could be treated as income.
9. Therefore, considering these facts, profit element should be estimated in the hands of the assessee. I note that it would be sufficient to plug the leakage of revenue, if 8% of Rs.13,07,275/-, is added in the hands of the assessee, which comes to Rs.1,04,582/-. Therefore I direct the Assessing Officer to make the addition in the hands of the assessee to the tune of Rs.1,04,582/-, by following the normal rate of income tax ( not u/s115BBE of the Act).I emphasise that this decision is rendered on the peculiar facts of this case and having regard to the smallness of the amounts involved, and, therefore, it cannot be construed as laying down propositions of law of general applications.
10. In the result, appeal of the assessee, is partly allowed, in above terms.
Order is pronounced in the open Court Today on 30/09/2026.
