ITAT Deletes Jewellery Additions but Sustains ₹20 Lakh Cash Addition

Vijay Agarwal Vs DCIT (ITAT Agra)

Jewellery Explained, Cash Story Rejected: ITAT Splits Relief in Search Cases

One search, different outcomes

In Vijay Agarwal v. DCIT and Soni Jewellers v. DCIT, ITA Nos. 72 and 86/Agr/2026, Assessment Year 2022-23, the Agra Bench of the Income Tax Appellate Tribunal examined additions arising from a search involving related jewellery businesses.

By its order pronounced on 5 October 2026, the Bench comprising Shri Sunil Kumar Singh, Judicial Member, and Shri Brajesh Kumar Singh, Accountant Member, deleted substantial jewellery additions in Vijay Agarwal’s case but sustained ₹20 lakh of unexplained cash. In Soni Jewellers’ case, two disputed jewellery issues were restored to the Assessing Officer for verification, while the remaining unexplained difference was confirmed.

The decision illustrates how ownership evidence, valuation consistency and contemporaneous accounting records can produce different results within the same search.

Physical stock exceeded the book valuation

Vijay Agarwal carried on jewellery business through his proprietary concern, M/s Niranjan Lal Hari Shankar, Aligarh. A search under section 132 was conducted on 6 February 2022 at the residential and business premises connected with him and the Soni Jewellers group.

The jewellery stock recorded in the Tally accounts was valued at ₹2,78,75,647, whereas the departmental valuer determined its value at ₹6,14,65,533.

Certain explanations were accepted, including jewellery linked to the assessee’s father’s will and jewellery received from customers for repairs. A gross profit adjustment was also allowed. However, disputes remained concerning family jewellery kept in custody, deductions for arriving at net gold weight and a residual difference.

The assessee also pointed out an alleged ₹1 lakh discrepancy between the stock difference in the show-cause notice and the addition made. The Tribunal ultimately dealt with the disputed components individually.

In-laws’ jewellery kept for safekeeping accepted

A significant component was ₹27,30,000, representing jewellery which the assessee claimed belonged to his father-in-law and mother-in-law and was kept in the showroom as “amanat” for security purposes.

An affidavit from his father-in-law, Shri Shiv Kumar Agarwal, aged 85, stated that 100 grams belonged to him and 500 grams belonged to his wife, Smt. Urmila Agarwal. They had no bank locker and were unable to visit the bank. The showroom had a strong room suitable for safekeeping.

The Revenue authorities rejected the explanation on the ground that identity and other particulars were not established.

The Tribunal noted that the affidavit contained the deponent’s identity and address. Accepting the explanation of the super senior citizen, it deleted the addition of ₹27,30,000.

Inconsistent net-weight deductions could not support additions

The assessee next challenged the departmental valuer’s deductions while converting gross jewellery weight into net weight.

For 22-carat ornaments, the valuer allowed an average deduction of only 1.8% at the proprietary concern, compared with 14.5% for ornaments of the same purity at Soni Jewellers on the same day. This resulted in a disputed valuation difference of ₹5,19,437.

The Tribunal relied on the unquestioned comparative chart placed on record and deleted this addition.

For 18-carat ornaments, the deduction was 15.3%, compared with 18.48% allowed at Soni Jewellers. The Tribunal found the resulting addition arbitrary and unsupported by logical reasoning. It accordingly deleted ₹20,22,325.

However, the remaining stock difference of ₹1,13,667 was not explained and was confirmed.

₹20 lakh cash explanation failed the consistency test

Cash of ₹20,35,895 was found at the proprietary concern. During the search, Vijay Agarwal stated that it belonged to that concern.

In his subsequent statement, he claimed that ₹20 lakh belonged to Soni Jewellers, a partnership involving his wife and sons. His explanation was that the money had been handed over for depositing in the bank but remained at his showroom because he had to attend an urgent meeting.

The Tribunal found two material weaknesses. First, the cash transaction was not entered contemporaneously in Soni Jewellers’ cash book; the entry was made only after the search. Secondly, the assessee did not explain the meeting’s nature, venue or urgency.

Considering the inconsistent statements and absence of supporting details, the Tribunal confirmed the ₹20 lakh addition.

Soni Jewellers: verification rather than deletion

In the connected appeal, Soni Jewellers claimed that jewellery valued at ₹90,62,355 belonged to Vijay Agarwal and had been disclosed by him under IDS, 2016. However, item-wise particulars necessary to match that disclosure with the jewellery found were unavailable. The Tribunal directed verification by the Assessing Officer.

A further dispute concerned a net valuation difference of ₹54,65,322 relating to gold and kundan ornaments. The assessee argued that the valuer’s average deduction of 29% was insufficient, referring to purchase invoices showing deductions of approximately 50% or more. This issue was also restored for verification.

The unexplained residual difference of ₹1,06,313 was confirmed. Accordingly, Vijay Agarwal’s appeal was partly allowed, while Soni Jewellers’ appeal was partly allowed for statistical purposes.

Author’s Comments

The order demonstrates that a search addition must survive examination of its individual components. Jewellery physically present in a showroom does not, by that fact alone, resolve its ownership, and valuation differences require a defensible basis.

At the same time, the cash finding highlights the weakness of explanations supported by entries made after the search. Family relationships and a plausible narrative could not overcome inconsistent statements and missing contemporaneous records.

The kundan issue remains open: the Tribunal did not prescribe a universal 50% deduction. It directed factual verification. Evidence secured relief; unexplained differences and an unsupported cash story did not.

FULL TEXT OF THE ORDER OF ITAT AGRA

The facts and issues involved in both these appeals are almost identical, hence, for the sake of convenience and brevity, these appeals are being decided by this common order. The facts of ITA No. 72/Agr/2026 are only being narrated as under.

ITA No. 72/Agr/2026

2. This appeal has been preferred against the impugned order dated 14.01.2026 passed in Appeal No CIT(Appeals)-IV/KNP/10028/2021-22 by the ld Commissioner of Income Tax(Appeals), Kanpur [hereinafter referred to as the “CIT(A)] u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act), for the A.Y. 2022-23, wherein ld CIT(A) has dismissed assessee’s appeal.

3.(i) The brief facts of the case are that the assessee carries on a business of gold and diamond jewellery and of silver items/ utensils in the proprietorship under the name and style of M/s Niranjan Lal Hari shankar at Phool Chowk, Aligarh. Assessee had filed return of income for A.Y. 2022-23 on 29.09.2022, declaring total income of Rs. 25,33,670/-. Further a search and seizure action u/s 132(1) of the Act was carried out on 06.02.2022 in the residential premises of assessee and M/s Soni Jewellers Group of Aligarh. Various assets/ books of account and documents were found and seized during the course of search. It was found that the stock of jewellery on the date of search as per the books of account maintained in tally data was Rs. 2,78,75,647/- whereas the stock valuation, as per departmental registered valuer, was found to be Rs. 6,14,65,533/-. The department was partly satisfied in respect of jewellery amounting to Rs. 84,00,255/- found in the showroom on account of will executed by assessee’s father late Shri Hari Shankar Agarwal, the jewellery amounting to Rs. 96,42,314/- received from customer for repair work and also deducted the margin of GP rate (16.64%) from the valuation done by DVO amounting to Rs. 1,01,61,888/-.

(ii) Statutory notices u/s 143(2) and 142(1) of the Act were issued and served upon the assessee, seeking clarification in respect of the difference in physical stock determined by the department’s valuer’s report with respect to the stock recorded in assessee’s books of accounts. The excess stock was determined as per following descriptions”

Apart from the aforestated excess stock, a cash of Rs. 20,35,895/- was also found in the showroom of the assessee.

(iii) Assessee filed reply before the Assessing Officer and submitted that the gold ornaments amounting to Rs. 27,30,000/- were kept in the showroom as Amanat gold of Shri Shiv Kumar Agarwal and Smt. Urmila Agarwal, who are assessee’s father in law and mother in law respectively. Assessee further submitted that DVO deducted average 1.8% to arrive at the net weight in respect of the valuation of 22K gold ornaments shown at Sr. No. 25 of DVO’s report, whereas in the valuation report prepared at the premises of M/s Soni Jewellers, the registered valuer had deducted 14.5% to arrive at the net weight, that caused the difference in value by Rs. 5,19,437/-. The assessee, further submitted that the valuer has deducted average 15.3% to arrive at the net weight in respect of the 18K gold ornaments shown at Sr. No. 1 to 18 and 24 to 26 in DVO’s report, whereas the valuation report prepared by the same valuation officer on the same day in respect of M/s Soni Jewellers, he deducted 18.48% to arrive at the net weight, that caused difference in the value by Rs. 20,22,325/-.

(iv) As regards the recovery of cash of Rs. 20,35,895/-, assessee submitted that on 05.02.2022, when assessee came to the showroom of M/s Soni Jewellers, which is a partnership firm of jewellery of assessee’s wife Smt. Amarta Agarwal and his two sons, Manit Agarwal and Anubhav Agarwal, the cash of Rs. 20,00,000/- was handed over to him by the partners of M/s Soni Jewellers for depositing the same in the bank account on next working day. Assessee took the cash to the business premises of his proprietorship concern M/s Niranjan Lal Hari Shankar, however due to an important phone call for attending certain meeting he left, leaving the impugned cash there. On being late due to meeting, he asked the staff to close the showroom, causing the cash of Rs. 20,00,000/- remaining in the showroom of M/s Niranjan Lal Hari Shankar.

(v) The ld assessing officer was, however, not satisfied with the explanation submitted on behalf of assessee and added Rs. 54,85,459/- as excess stock and Rs. 20,00,000/- as unexplained cash in the total income of the assessee, vide assessment order dated 30.03.2024 passed u/s 143(3) of the Act.

4. Assessee preferred an appeal before ld CIT(A), who dismissed assessee’s appeal, confirming the addition made in line of the assessment order.

5. Appellant assessee has preferred this second appeal on the following grounds:

“1. That the Ld. CIT(Appeal) has erred both on facts and in law in confirming the addition of Rs. 54,85,429/- made by the Assessing Officer for so called excess stock of jewellery found at the showroom of M/s. Niranjan Lal Hari Shanker, Aligarh during the course of search, treating the same to be undisclosed business income of the assesse.

2. That the Ld. CIT(Appeal) while confirming the addition of Rs. 54,85,429/-, as made by the Assessing Officer has wrongly, arbitrarily and on her own presumption has rejected the submission filed, the reconciliation statement of the stock filed and has further erred in rejecting the following undisputed facts: –

(i) Affidavit of Shri Shiv Kumar Agarwal (father of assessee’s wife) as regard gold jewellery kept for security purpose with assesse.

(ii) Mistake in allowing lessor reduction to arrive at 22K and 18K gold jewellery, in the Department Approved Valuer Report, as has been allowed by the Valuer in his report in assesse sister concern case M/s. Soni Jewellers, Aligarh.

3. That there is apparent mistake of Rs. 1,00,000/- in the amount of addition of Rs. 54,85,429/- which has been arbitrarily rejected by Ld. CIT(Appeal).

4. That under the facts and circumstance of the case and the legal position the addition of Rs. 54,85,429/- made by Assessing Officer and confirmed by Ld. CIT(Appeal) deserves to be deleted.

5. That the Ld. CIT(Appeal) has erred both on facts and in law in confirming the addition of Rs. 20,00,000/- made by Assessing Officer on the ground that the source of cash found during the course of search from the business premises of the assesse is dubious.

6. That while confirming the impugned addition of Rs. 20,00,000/- the Ld. CIT(Appeal) has wrongly, arbitrarily and on her own presumption has rejected the submission filed, the statements recorded, facts of the case and the documents filed.

7. That under the facts and circumstances of the case and the legal position the addition of Rs. 20,00,000/- made by Assessing Officer and confirmed by Ld. CIT(Appeal) deserves to be deleted.

…….”

6. Perused the records and heard ld representatives for the appellant assessee and ld CIT DR for the respondent revenue.

7. On the basis of various grounds raised hereinabove, the main point for determination under appeal is, as to whether ld CIT(A) has erred in confirming the addition of Rs. 54,85,429/- as excess stock of jewellery and cash of Rs. 20,00,000/- found in the premises of assessee’s proprietorship concern M/s Niranjan Lal Hari Shankar, Aligarh?

8. Ld representative for the appellant assessee has first submitted that figures exhibited in the show cause notice dated 01.03.2022, were shown as Rs. 53,85,429/- which is wrongly added as Rs. 54,85,429/-. Secondly, ld AR submits that the date of search is 06.02.2022 as against 06.02.2023 mentioned in the impugned order. The assessee further submits that he is the head of the family and carries on jewellery business in the name and style of his proprietorship concern M/s Niranjan Lal Hari Shankar in the old and interior city of Aligarh, whereas assessee’s wife Smt. Amarta Agarwal and his two sons Manit Agarwal and Anuhbav Agarwal carried on business of jewellery in partnership in the name of M/s Soni Jewellers, Samad Road, Aligarh. All persons live in the one house. The search and seizure action was carried on 06.02.2022 both at business premises and the common residential house of the aforesaid two entities. It is further submitted that the arbitrariness of the DVO in arriving at the net weight of gold ornaments while preparing valuation report at the aforesaid two different premises was brought to the notice of the assessing officer and the ld CIT(A) but for no avail. The amanat jewellery belonging to the father in law and mother in law of the assessee has also been wrongly added, ignoring assessee’s submissions. Ld AR submits that the addition of cash of Rs. 20,00,000/- has also been wrongly added, ignoring the fact that the same was recorded in the books of accounts (cash book) of the Soni Jewellers. Prayed to allow the appeal.

9. Ld CIT (DR) has submitted that the ld CIT(A) has rightly confirmed the additions made by the ld Assessing Officer. Prayed to dismiss assessee’s appeal.

10. We notice that the assessee has challenged two additions (i) Rs. 54,85,459/- made on account of excess stock of gold ornaments and (ii) cash of Rs. 20,00,000/- found in the premises of assessee’s proprietorship concern M/s Niranjan Lal Hari Shankar, Phool Chowk, Aligarh.

11. As regards the addition of Rs. 54,85,459/- is concerned, it consists of differed part additions tabulated hereinabove.

(i) Rs. 27,30,000/ – This amount has been added against the gold ornaments, which according to the assessee were amanats of assessee’s father in law and mother in law named above and were kept in the showroom for security purposes as the assessee’s showroom had a strong room. We notice that an affidavit of assessee’s father in law Shri Shiv Kumar Agarwal was filed before the assessing officer, which is part of assessee’s paper book at page no. 36, according to which the deponent deposed before the ld Addl. CIT Central Circle, Aligarh (AO), that he is a 85 years old senior citizen and the gold ornament, weighing 100 g belongs to him and gold ornament weighing 500g belongs to his wife Smt. Urmila Agarwal, further deposing that they are unable to go to bank and have no locker. The identity and address of the deponent is mentioned in the affidavit. However, the revenue authorities have rejected this claim by stating that the identity etc is not established. We have no hesitation to accept the explanation of the deponent who is super senior citizen. The said addition of Rs. 27,30,000/- made against the amanat jewellery stands deleted.

(ii) Rs. 5,19,437/- was added as difference in the value due to lesser deduction in respect of 22K gold ornament to arrive at net weight, ignoring the fact that the DVO, arbitrarily deducted 1.8% in respect of 22K gold ornaments shown at sr.no. 25 of DVO’s report as against the deduction of 14.5%, made in the valuation report prepared by him in respect of same purity of gold at the premises of M/s Soni Jewellers on the same day. The unquestioned comparative chart is part of assessee’s paper book at pages 37 to 43. The aforesaid addition of Rs. 5,19,437/- on account of difference in value stands deleted accordingly.

(iii) Rs. 20,22,322/- was added as difference in the value due to lesser margin deduction in 18K gold ornament to arrive at net weight, ignoring the fact that the DVO, arbitrarily deducted 15.3% in respect of 18K gold ornaments shown at sr.no. 1 to 18 and 24 to 26 of DVO’s report as against the deduction of 18.48%, made in the valuation report prepared by him in respect of same purity of gold at the premises of M/s Soni Jewellers. Such an arbitrary addition without any logical deduction or reason is unsustainable. The addition of Rs. 20,22,325/- stands deleted.

(iv) Rs. 1,13,667/- This addition due to remaining difference remains unexplained on behalf of assessee, hence this amount deserves to be confirmed.

12. As regards the addition of Rs. 20,00,000/- made out of total cash amount of Rs. 20,35,895/- received from the premises of assessee’s proprietary concern, is concerned, we notice that, in the statement of the assessee recorded during the search, he stated that the cash of Rs. 20,35,895/- belonged to his proprietory concern M/s Niranjan Lal Hari Shankar, however, in his post search statement recorded on 30.03.2022, he stated that out of the aforesaid recovered cash of Rs. 20,35,895/-, the cash of Rs. 20,00,000/- belonged to M/s Soni Jewellers, Samad Road, Aligarh, claiming that his son Manit Agarwal (partner of M/s Soni Jewellers) gave him the cash to keep it at home to deposit into the bank. The remaining amount was stated to be from the sale proceeds of his business.

13. We take note of the admitted fact that the said cash was not entered in Soni Jeweller’s cash book contemporaneously but only after the search proceedings. Assessee did not make any honest effort to explain in respect of the nature, venue & urgency of the said meeting, which was to be attended by him on 05.02.2022 due to which the said cash was left in his business premises. Had there been any urgent meeting due to which assessee left the cash at his business premise, he would have explained the details of such urgency before the assessing officer. We do not find any such details. Assessee’s inconsistent explanation does not appeal to reason. The aforesaid addition of Rs. 20,00,000/- is thus confirmed. The aforesaid point is accordingly determined partly in favour of the assessee. The appeal is liable to be allowed in part.

ITA No. 86/Agr/2026

14. This case also relates to the same search action and limited only to the extent of addition on account of (i) jewellery which was disclosed in IDS-2016 on behalf of the assessee Mr. Vijay Agarwal amounting to Rs. 90,62,355/-. The itemwise description of jewellery claimed to have been disclosed by the assessee Mr. Vijay Agarwal is not on record to verify the claim of assessee that it belonged to Mr. Vijay Agarwal with respect to the stock found at the premises of assessee. This fact requires verification at the end of assessing officer.

(ii) The difference in value due to difference in gross and net weight of gold and kundan ornaments amounting to Rs. 66,67,750/- reduced by the sales of jewellery amounting to Rs. 12,02,428/- not recorded in the books of accounts on the date of search, (66,67,750 – 12,02,428) = Rs. 54,65,322/-. Assessee has drawn the attention of the bench to the items at sr. no. 2, 3 and 4 of the valuation report which are gold and kundan ornaments. Ld AR submits that the registered valuer in the valuation report has deducted average 29% to arrive at the net weight, whereas in kundan ornaments, the average margin to arrive at net weight is about 50%, ld AR has further drawn the attention of the bench towards copy of purchase bill of kundan ornaments purchased in F.Y. 2021-22, stating that about 50% or more has been deducted by the sellers in their invoice to arrive at the net weight in purchase bill of kundan ornaments. This factual matrix needs verification at the level of the assessing officer.

(iii) The remaining unexplained difference of Rs. 1,06,313/- stands confirmed.

15. In view of the aforesaid discussion, we deem it just and proper to restore the matter back to the file of ld assessing officer to pass order a fresh in accordance with law after verification as observed in (i) and (ii) of this para 14 and after affording adequate opportunity of hearing to assessee.

16. In the result, the assessee’s appeals viz ITA No. 72/Agr/2026 is partly allowed and ITA No. 86/Agr/2026 is partly allowed for statistical purposes.

Order pronounced on – 05.10.2026