Case Law Details
Bimal Kunjbihari Gorai Vs ITO (ITAT Ahmedabad)
Demonetisation cash sales disbelieved: Jewellery trader’s books rejected, 68 addition & GP estimation upheld
ITAT Ahmedabad dismissed assessee’s appeal & upheld major additions arising from cash deposits during demonetisation. Tribunal confirmed rejection of books u/s 145(3) noting absence of quantitative stock register, unverifiable stock valuation, abnormal spurt in cash sales to numerous customers just below ₹2 lakh without identity details, & mismatch in GP. It upheld addition of ₹59.90 lakh u/s 68 treating cash deposits as unexplained, holding that alleged jewellery sales were not proved & explanation became wholly implausible in light of FIR against main supplier Hari Darshan Jewellers for large-scale banking fraud & fabricated stock statements. Tribunal also sustained GP estimation at 26.14% (same as preceding year) after rejection of books, holding estimation reasonable. Though CIT(A) had rightly deleted addition on opening stock on technical ground that section 68 does not apply to opening stock, Tribunal held that core factual defects remained unrebutted. Relying on Kachwala Gems, Durga Prasad More & settled law that tax authorities can look beyond façade of documents, ITAT concluded that assessee failed to discharge onus of proving genuineness of stock, sales & cash deposits; consequently, appeal was dismissed in entirety.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 30.10.2023 passed for A.Y. 2017-18.
2. The assessee has raised the following grounds of appeal:
“1. Rejection of books of accounts u/s.!45(31 of the Act:
(i) The learned C1T(A) has grievously erred in law and on facts in confirming the rejection of books of accounts by the AO under section 145(3) of the Act on the basis of the findings/observations given in the appellate order.
(ii) The learned CIT(A) erred in law and on facts in not appreciating the fact that AO has invoked the provisions of Section 145(3) of the Act merely on surmises and personal presumptions/assumptions without bringing on record any specific defect/discrepancy in the books of accounts maintained by the appellant which were duly audited.
In view of the above, the rejection of books results by the AO and confirmed by the learned CIT(A) being contrary to the facts of the case and settled legal principles, requires to be quashed.
2. Addition on account of cash deposited/in Bank A/c during demonetization period being sale proceeds u/s.68 of the Act
(i) The learned CIT(A) has grievously erred in law and on facts in confirming the addition of Rs.59,90,000/- on account of cash deposited in bank account during the demonetization period as unexplained cash credit u/s.68 of the Act on the basis of findings/observations given in the appellate order. In view of the facts, explanations and evidences filed during the course of assessment proceedings, the cash deposits aggregating to Rs.59,90,000/- in the bank account during the demonetization period as unexplained cash credit is wholly unjustified and bad in law and thus requires to be deleted.
(ii) The learned CIT(A) has failed to appreciate the fact that the total cash deposits aggregating to Rs.59,90,000/- in the bank accounts were the sale proceeds of gold/jewellery supported by purchase/sales bills, stock register/records and such sales being below Rs.2,00,000/- per transaction, it was neither required to obtain nor furnish the details of customers as per law.
In view of the above, the impugned addition of Rs.59,90,000/- being cash deposited during the demonetisation period being the sales consideration against the sale of gold/silver thus requires to be deleted.
3. Addition on account of alleged non-genuine and unexplained opening stock u/s. 68 of the Act – Rs.25,95.792/- [Being difference between the opening stock of Rs. 81,06,351/- Less net addition made by AO for opening stock at Rs.55.10.559/-
(i) The learned CIT(A) has grievously erred in law and on facts in allowing this ground of appeal by deleting only the net addition of Rs.55,10,559/- made by AO in the assessment order instead of deleting the whole value of opening stock at Rs.81,06,351/-and thereby confirming the addition of Rs.25,95,792/-which represents the cash sales from the said stock and included in the addition of Rs.59,90,000/- made for the cash deposited in the bank A/c during the demonetization period.
(iii) The learned CIT(A) has erred in law and on facts for not allowing part of the opening stock which have been sold during the year while lowering the addition on account of cash deposited in Bank A/c during the demonetisation period for an amount of Rs.25,95,792/-.
In view of the above, the addition confirmed to the extent of Rs.25,95,792/- towards the value of opening stock thus requires to be deleted.
4. Addition on account of estimation of G.P. – Rs.6,17,750/-
(i) The learned CIT(A) has grievously erred in law and on facts in confirming the addition of Rs.6,17,750/- made by the AO while estimating the GP @26.14% for the year in question which is the identical % of GP shown by the appellant in preceding year and reducing it by 8.26% being GP for the year in question on the basis of observations/ findings given in the appellate order.
(ii) The learned CIT(A) has grievously erred in law and on facts in not appreciating the fact that AO has neither rebutted nor controverted the explanation offered by the appellant for the % of GP for the year in question and the preceding year and merely on surmises and conjectures adopted the identical % of GP of the preceding year so as to make the addition.
In view of the above, the impugned addition of Rs.6,17,750/- on account of GP requires to be deleted.
The appellant craves leave to add, amend, alter, modify or delete any of the above grounds and to submit additional grounds at the time of hearing of the appeal.”
3. The brief facts of the case are that the assessee filed his return of income for A.Y. 2017-18 on 22.02.2018 declaring a total income of Rs. 6,05,960/-. The case was selected for scrutiny on account of substantial cash deposits made during the demonetization period. During the assessment proceedings, the Assessing Officer noted that the assessee had deposited cash of Rs. 59,90,000/- in his Bank of Baroda account between 09.11.2016 and 30.12.2016. The assessee submitted that the deposits were made from the cash sales of gold jewellery. On examination of the books and stock records, the Assessing Officer observed that the assessee had made cash sales of 1235 grams of 24-carat gold jewellery over five dates between 02.11.2016 and 08.11.2016 aggregating to Rs. 39,10,250/-. The Assessing Officer noted that these sales arose mainly from an opening stock of 1255.58 grams, of which 1060.69 grams were purchased from a single party, Shri Haridarshan Jewellers, on 03.10.2016, with no payments made towards the purchase up to year-end. The Assessing Officer also observed that sales had been recorded to 60 customers over a short period, with all invoices (except one) being below Rs. 2 lakh and without any customer identity particulars. The Assessing Officer was also not satisfied with the stock pattern, the absence of quantitative records, and the filing of the preceding year’s return after demonetization, which showed income under section 44AD of the Act. Considering the explanation unsatisfactory, the Assessing Officer rejected the books of account under section 145(3) and (i) made an addition of Rs. 59,90,000/-as unexplained cash credits under section 68 of the Act (ii) treated the opening stock of Rs. 81,06,351/- as non-genuine and added Rs. 55,10,559/-under section 68 of the Act and (iii) estimated gross profit by adopting a G.P. rate of 26.14% from the preceding year and added Rs. 6,17,750/- to the income of the assessee. The Assessing Officer also initiated penalty proceedings under section 271AAC and applied tax under section 115BBE.
4. In appeal, the CIT(Appeals) first examined Ground No. 1 relating to rejection of books. After referring to the defects noted by the Assessing Officer absence of quantitative stock register, unverifiable stock valuation, abnormal pattern of sales, and mismatch of GP rate with prior years the CIT(A) upheld the rejection of books under section 145(3) of the Act, by placing reliance on judicial precedents. The ground was dismissed. In respect of Ground No. 2 concerning the addition of Rs. 59,90,000/- under section 68 of the Act, the CIT(A) held that the assessee had failed to substantiate the sale pattern or establish the genuineness of cash sales with supporting evidence, nor had he complied with notices during appellate proceedings. The CIT(A) confirmed the addition and dismissed this ground. On Ground No. 3 relating to the addition of Rs. 55,10,559/- as unexplained opening stock, the CIT(A) held that opening stock cannot be considered a “credit” for the purpose of section 68 of the Act and he further observed that once books are rejected, no addition can be made on the basis of the same books. Relying on Indwell Constructions and other judicial pronouncements, the CIT(A) deleted this addition and allowed this ground. Ground No. 4 related to the addition of Rs. 6,17,750/- on estimation of G.P. at 26.14%. The CIT(A) held that once the books were rejected, income had to be estimated on turnover and therefore upheld the addition made by the Assessing Officer. This ground was dismissed. Accordingly, the CIT(Appeals) partly allowed the appeal by deleting the addition relating to opening stock but sustained the rejection of books and the additions made under section 68 as well as the G.P. estimation.
5. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee in part.
6. Before us, the ld. counsel for the assessee reiterated the submissions made before the Assessing Officer and CIT(Appeals) and submitted that the Department has not doubted the sales made by the assessee. the assessee had furnished the stock summary before the Tax Department, VAT returns had been furnished by the assessee to substantiate the sales made, the sales had been accepted by the Assessing Officer as being part of turnover, that the assessee had paid for the gold purchased in the next year and also argued that details of case sales and cash deposited had been duly submitted before Tax Department. Accordingly, the ld. counsel for the assessee submitted that CIT(Appeals) erred in sustaining the additions.
7. In response, Ld. DR placed reliance on the observations made by CIT(Appeals) in the appellate order. Ld. DR submitted that that majority of purchases were made from one party namely M/s Hari Darshan, but an FIR had been filed against the said party with respect to a financial fraud committed on Union Bank. As per the said FIR, the said party submitted fabricated stock statements to induce Union Bank to give higher credit to the said party. Therefore, evidently the assessee had not purchased the said bullion from the said party and the purchases as well as the sales were fabricated.
8. In view of the above facts, the arguments advanced by both sides, and the material placed on record, we find no merit in the appeal of the assessee. The Assessing Officer had rejected the books of account under section 145(3) of the Act after identifying multiple discrepancies, including the absence of quantitative stock records, unverifiable stock valuation, abnormal sales pattern during the demonetisation period, and a sudden spike in cash sales recorded to 60 retail customers—almost all below Rs. 2,00,000/- without any details of identity, PAN, or address. These findings were affirmed by the CIT(Appeals), who relied on binding judicial precedents including Kachwala Gems v. JCIT (2007) 288 ITR 10 (SC), Awadhesh Pratap Singh Abdul Rehman & Bros. v. CIT (1994) 210 ITR 406 (All), Bastiram Narayandas v. CIT (1994) 210 ITR 438 (Bom), and G. Raja Gopala Rao v. DCIT (ITA No. 293/Vizag/2016, ITAT Visakhapatnam), wherein rejection of books was upheld when stock registers were not maintained, quantitative records were unreliable, or the accounts failed to reflect a true and correct state of affairs. The assessee has not produced any fresh material to rebut these findings or to demonstrate that the defects noted by the tax authorities were unfounded. Accordingly, the rejection of books stands confirmed.
9. With respect to the addition of Rs. 59,90,000/- under section 68, we observe that the assessee has failed to substantiate the explanation that the cash deposits represented genuine jewellery sales. The Assessing Officer had clearly demonstrated that the pattern of alleged sales was inconsistent with past trading behaviour, lacked supporting documentation, and was uncorroborated by purchase history. This conclusion is materially strengthened by the FIR placed on record by the learned Departmental Representative, concerning M/s Hari Darshan Jewellers—the very party from whom the assessee claimed to have purchased 70% of its stock prior to demonetisation. The FIR reveals that M/s Hari Darshan Jewellers, operated by Shri Kaushik Vrajlal Patadia and family, was involved in a large-scale banking fraud of over Rs. 10.36 crores, which included the use of fabricated stock statements, diversion of funds, disappearance of stock, and complete absence of genuine business activity. The FIR records that only 25% of the declared stock was ever found during inspection, and the remaining stock was non-existent and removed from the premises. These findings establish a pattern of systematic fabrication of stock and transactions, which directly undermines the assessee’s claim of having purchased genuine stock from the said party. In light of this FIR and the admitted fact that no payment was ever made by the assessee to M/s Hari Darshan Jewellers for the alleged bulk purchase during this year, the explanation that such stock was available for sale becomes wholly untenable. The assessee has failed to demonstrate with any reliable evidence that the purchases were genuine, that the stock existed, or that the alleged jewellery sales actually took place. The assesse’s explanation is not only unsatisfactory but is rendered implausible by the external corroborative evidence contained in the FIR against the supplier.
10. Regarding the addition on account of opening stock of Rs. 81,06,351/-, we find that the Assessing Officer had treated a portion thereof as non-genuine based on the finding that the opening stock figure was inflated to justify the sudden surge of alleged cash sales. The CIT(Appeals) granted partial relief solely on the legal principle that section 68 does not apply to opening stock. However, even after deleting the addition on technical grounds, the core factual defects—absence of stock records, unverifiable purchases, and the fabricated nature of transactions with M/s Hari Darshan Jewellers—remain uncontroverted. The assessee has failed to demonstrate that the opening stock figure was genuine or supported by credible inventory records. In any event, the deletion of this addition does not alter the substantive correctness of the remaining additions made by the Assessing Officer, which are independently sustainable.
11. With respect to the addition of Rs. 6,17,750/- on account of estimated gross profit, the Assessing Officer in our view had rightly applied a G.P. rate of 26.14%, consistent with the preceding year, after rejecting the books. The law is well established that, once books are rejected, the Assessing Officer is empowered to estimate profits on a reasonable basis—CIT v. McMillan & Co. (1958) 33 ITR 182 (SC) and CIT v. A. Krishnaswamy Mudaliar (1964) 53 ITR 122 (SC). The assessee has brought nothing on record to demonstrate that the G.P. estimation was arbitrary or excessive. Thus, the finding of the CIT(Appeals) sustaining this addition calls for no interference.
12. As regards the assessee’s submission that sales were accepted as part of turnover and VAT returns were filed, we note that mere reflection of figures in VAT returns or books does not establish the genuineness of transactions when the underlying stock itself is unverifiable or sourced from a party engaged in large-scale financial fraud. The Hon’ble Supreme Court in Durga Prasad More v. CIT (1971) 82 ITR 540 (SC) held that taxing authorities are entitled to look beyond the facade of documents to examine the real nature of transactions. In the present case, the existence of the stock itself is doubted, the sales are unverified, and the pattern of transactions indicates manipulation designed to justify cash deposits during demonetization.
13. In view of the above facts, the categorical findings of the Assessing Officer and the CIT(Appeals), and the corroborative evidence arising from the FIR indicating large-scale fabrication of stock and manipulation of transactions by M/s Hari Darshan Jewellers, we hold that the assessee has failed to discharge the onus cast upon him under the Act. The explanations furnished are neither supported by reliable evidence nor credible in light of surrounding circumstances. All grounds raised by the assessee are devoid of merit and stand dismissed.
14. Accordingly, the appeal of the assessee is dismissed.
This Order pronounced in Open Court on 10/12/2025
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