PRIYANKA SANDEEP RUNWAL,MUMBAI vs. THE DY CIT CC-4(1), MUMBAI

2. In the facts and circumstances of the case and the law, the n the facts and circumstances of the case and the law, the n the facts and circumstances of the case and the law, the Hon'ble Commissioner of Income Tax (Appeal) Hon'ble Commissioner of Income Tax (Appeal) - 52 has erred in 52 has erred in confirming the action of the Learned Deputy Commissioner of confirming the action of the Learned Deputy Commissioner of confirming the action of the Learned Deputy Commissioner of Income Tax, Central Circle Income Tax, Central Circle - 4(1) implicating the payment of 'On 4(1) implicating the payment of 'On- money' on purchase of jewellery of Rs. 56,00,000 as Unexplained purchase of jewellery of Rs. 56,00,000 as Unexplained purchase of jewellery of Rs. 56,00,000 as Unexplained Expenditure. Expenditure. Expenditure. The The The confirming confirming confirming action action action was was was made made made without without without appreciating the fact that no 'evidence' was 'provided' to the appreciating the fact that no 'evidence' was 'provided' to the appreciating the fact that no 'evidence' was 'provided' to the Appellant during the re Appellant during the re-assessment and based on third party assessment and based on third party statements recorded in the statements recorded in the search action on a third party and that search action on a third party and that no show-cause notice was given to the Appellant. The appellant cause notice was given to the Appellant. The appellant cause notice was given to the Appellant. The appellant prays that the said action of Hon'ble CIT(A) prays that the said action of Hon'ble CIT(A)-52 is dismissed and 52 is dismissed and the addition is deleted. the addition is deleted.

3. In the facts and circumstances of the case and the law, the 3. In the facts and circumstances of the case and the law, the 3. In the facts and circumstances of the case and the law, the Hon'ble Commissioner of Income Tax (Appeal) Hon'ble Commissioner of Income Tax (Appeal) - 52 has erred in 52 has erred in holding that the absence of cross holding that the absence of cross-examination of third party examination of third party deponents, not providing the Appellant with copies of third party deponents, not providing the Appellant with copies of third party deponents, not providing the Appellant with copies of third party statements and evidences relied on does not violate the principles statements and evidences relied on does not violate the principles statements and evidences relied on does not violate the principles of natural justice. The appellant prays that the order of the Hon'ble of natural justice. The appellant prays that the order of the Hon'ble of natural justice. The appellant prays that the order of the Hon'ble

Priyanka Sandeep Runwal Priyanka Sandeep Runwal CIT(A)-52 is dismissed, held to be bad in law and liable to be 52 is dismissed, held to be bad in law and liable to be 52 is dismissed, held to be bad in law and liable to be quashed.

4.1 Subsequently, information was received from the Deputy Subsequently, information was received from the Deputy Subsequently, information was received from the Deputy Director of Income-tax, Unit tax, Unit–3(4), Mumbai, that a search under 3(4), Mumbai, that a search under section 132 of the Act had been conducted in the case of Nirav Modi section 132 of the Act had been conducted in the case of section 132 of the Act had been conducted in the case of / Firestar Group which disclosed practices of accepting ‘On-Money’ / Firestar Group which disclosed practices of accepting ‘ / Firestar Group which disclosed practices of accepting ‘ (Cash) from their customers against the sale of diamond / gold sh) from their customers against the sale of diamond / gold sh) from their customers against the sale of diamond / gold jewellery. The information revealed that the Assessee had jewellery. The information revealed that the Assessee had jewellery. The information revealed that the Assessee had purchased various items from the Firestar group including but not purchased various items from the Firestar group including but not purchased various items from the Firestar group including but not limited to (i) Bangle worth limited to (i) Bangle worth ₹14,00,000, (ii) Ring worth 14,00,000, (ii) Ring worth ₹33,00,000/- and (iii) Earrings wo (iii) Earrings worth ₹9,00,000 aggregating to a total of aggregating to a total of ₹56,00,000 incurred through cash. The AO appraised the material incurred through cash. The AO appraised the material incurred through cash. The AO appraised the material on record, and came to believe that the Assessee on record, and came to believe that the Assessee prima facie prima facie had not shown the source of cash payment incurred and all other not shown the source of cash payment incurred and all other not shown the source of cash payment incurred and all other material facts necessary for determination of the income of the facts necessary for determination of the income of the facts necessary for determination of the income of the Assessee. Accordingly, the AO recorded reasons to believe that Assessee. Accordingly, the AO recorded reasons to believe Assessee. Accordingly, the AO recorded reasons to believe income escaped assessment and he income escaped assessment and he issued notice under section 148 issued notice under section 148 of the Act on 11/02/2019. of the Act on 11/02/2019.

Priyanka Sandeep Runwal Priyanka Sandeep Runwal In response to the notice u/s 148 of the Act, the In response to the notice u/s 148 of the Act, the In response to the notice u/s 148 of the Act, the Assessee filed the return of income the return of income declaring total income at ₹ ₹29,05,430. The Assessing Officer issued requisite statutory notices to which the Assessing Officer issued requisite statutory notices to which the Assessing Officer issued requisite statutory notices to which the Assessee complied with from time to time. Reassessment was Assessee complied with from time to time. Reassessment was Assessee complied with from time to time. Reassessment was completed and Order u/s 147 r/w 143(3) was passed on pleted and Order u/s 147 r/w 143(3) was passed on pleted and Order u/s 147 r/w 143(3) was passed on 10/12/2019 determining the total income at 10/12/2019 determining the total income at ₹85,05, ,430.

4.5 Aggrieved, the Assessee filed Appeal before the Ld. CIT(A) and Aggrieved, the Assessee filed Appeal before the Ld. CIT(A) and Aggrieved, the Assessee filed Appeal before the Ld. CIT(A) and objected to the additions made by the Assessing Officer. The Ld. objected to the additions made by the Assessing Officer. The Ld. objected to the additions made by the Assessing Officer. The Ld. CIT(A) passed an order on 14/10/2024 dismissing the appeal of the der on 14/10/2024 dismissing the appeal of the der on 14/10/2024 dismissing the appeal of the Assessee on all grounds. Assessee on all grounds.

4.6 Aggrieved by the Order of the Ld. CIT(A), the Assessee filed 4.6 Aggrieved by the Order of the Ld. CIT(A), the Assessee filed 4.6 Aggrieved by the Order of the Ld. CIT(A), the Assessee filed tax Appellate Tribunal ( in short the Appeal before the Income Income-tax Appellate Tribunal ( in short the Tribunal) by way of raising grounds as reproduced abov by way of raising grounds as reproduced above. by way of raising grounds as reproduced abov 4.7 Ground No. 1 challenging the validity of the notice u/s 148 of Ground No. 1 challenging the validity of the notice u/s 148 of Ground No. 1 challenging the validity of the notice u/s 148 of the Act was not pressed by the Assessee and therefore the same is the Act was not pressed by the Assessee and therefore the same is the Act was not pressed by the Assessee and therefore the same is dismissed as infructuous. dismissed as infructuous.

Ground Nos. 2 & 3 Ground Nos. 2 & 3 – Addition of ₹56,00,000/- on account of alleged cash purchase of jewellery alleged cash purchase of jewellery (“on-money”)

4.8 In Ground Nos. 2 and 3, the assessee has assailed the In Ground Nos. 2 and 3, the assessee has assailed the In Ground Nos. 2 and 3, the assessee has assailed the addition of ₹56,00,000/ 56,00,000/- made by the Assessing Officer as made by the Assessing Officer as unexplained expenditure, allegedly incurred towards cash purchase unexplained expenditure, allegedly incurred towards cash purchase unexplained expenditure, allegedly incurred towards cash purchase of jewellery from entities of the Nirav Modi / Firestar group. The of jewellery from entities of the Nirav Modi / Firestar group of jewellery from entities of the Nirav Modi / Firestar group

Priyanka Sandeep Runwal Priyanka Sandeep Runwal principal grievance of the assessee is that the addition is founded principal grievance of the assessee is that the addition is founded principal grievance of the assessee is that the addition is founded exclusively on third-party digital material and statements recorded party digital material and statements recorded party digital material and statements recorded during search and survey operations in the case of a third party, during search and survey operations in the case of a third party, during search and survey operations in the case of a third party, without furnishing such material to the assessee and without without furnishing such material to the assessee without furnishing such material to the assessee granting an opportunity of cross granting an opportunity of cross-examination, despite specific examination, despite specific requests made during the assessment proceedings. requests made during the assessment proceedings.

4.9 A search and survey action was carried out by the Investigation A search and survey action was carried out by the Investigation A search and survey action was carried out by the Investigation Wing in the case of the Nirav Modi group, including Firestar Wing in the case of the Nirav Modi group, including Firestar Wing in the case of the Nirav Modi group, including Firestar Diamond Pvt. Ltd., Kala Ghoda, Mumbai. During the course of such iamond Pvt. Ltd., Kala Ghoda, Mumbai. During the course of such iamond Pvt. Ltd., Kala Ghoda, Mumbai. During the course of such action, it was allegedly noticed that the group was engaged in action, it was allegedly noticed that the group was engaged in action, it was allegedly noticed that the group was engaged in making cash sales of jewellery without recording the same in the making cash sales of jewellery without recording the same in the making cash sales of jewellery without recording the same in the regular books of account. regular books of account. During the course of the search, c During the course of the search, certain digital records were found which, according to the Revenue, digital records were found which, according to the Revenue, digital records were found which, according to the Revenue, reflected such sales made outside the books. It was further alleged reflected such sales made outside the books. It was further alleged reflected such sales made outside the books. It was further alleged that the stock corresponding to such cash sales was adjusted that the stock corresponding to such cash sales was adjusted that the stock corresponding to such cash sales was adjusted through branch transfers and that the cash component was not through branch transfers and that the cash component was not through branch transfers and that the cash component was not disclosed in the books of account. Statements of certain employees closed in the books of account. Statements of certain employees closed in the books of account. Statements of certain employees and sales personnel of the group were recorded under section 131 and sales personnel of the group were recorded under section 131 and sales personnel of the group were recorded under section 131 of the Act, wherein a general modus operandi of accepting cash, of the Act, wherein a general modus operandi of accepting cash, of the Act, wherein a general modus operandi of accepting cash, partly or wholly, against jewellery sales was stated. The name of the partly or wholly, against jewellery sales was stated. The name partly or wholly, against jewellery sales was stated. The name assessee was stated to appear in such digital records for three assessee was stated to appear in such digital records for three assessee was stated to appear in such digital records for three assessment years, namely A.Y. 2014-15 (₹56,00,000/ assessment years, namely A.Y. 2014 56,00,000/-), A.Y. 2015- 16 (₹10,00,000/-) and A.Y. 2016 ) and A.Y. 2016-17 (₹36,50,000/-), aggregating to ), aggregating to ₹1,02,50,000/-. On the basis of such information the As . On the basis of such information the As . On the basis of such information the Assessing

Priyanka Sandeep Runwal Priyanka Sandeep Runwal Officer inferred that for the year under consideration, the assessee Officer inferred that for the year under consideration, the assessee Officer inferred that for the year under consideration, the assessee had purchased jewellery in cash amounting to ₹56,00,000/ had purchased jewellery in cash amounting to 56,00,000/-, details of which were tabulated as under: of which were tabulated as under:

S.No. Date Collection Collection- Sales person FS Style Product Selling value CASH Selling value wise 1 16.05.2013 Embrace Embrace Aparna ES- Bangle INR INR INR Chudasama BG346PP 14,00,000 14,00,000 14,00,000 2 11.11.2013 Celestial Celestial Aparna SO-RG330 Ring INR INR INR Solitaire Solitaire Chudasama 33,00,000 33,00,000 33,00,000 Program Program 3 27.11.2013 Fluire Aparna FL-ER578 Earrings INR INR INR Collection Collection Chudasama 9,00,000 9,00,000 9,00,000 TOTAL INR INR 56,00,000 56,00,000 4.10 The Assessing Officer called upon the assessee to explain the The Assessing Officer called upon the assessee to explain the The Assessing Officer called upon the assessee to explain the source of investment in the aforesaid jewellery. The assessee source of investment in the aforesaid jewellery. The assessee source of investment in the aforesaid jewellery. The assessee categorically denied having purchased any jewellery from Shri Nirav categorically denied having purchased any jewellery from Shri Nirav categorically denied having purchased any jewellery from Shri Nirav Firestar Diamonds during the relevant year. It was Modi or Firestar Diamonds during the relevant year. It was Firestar Diamonds during the relevant year. It was contended that the information received from the Investigation contended that the information received from the Investigation contended that the information received from the Investigation Wing, allegedly comprising loose sheets or digital data bearing the Wing, allegedly comprising loose sheets or digital data bearing the Wing, allegedly comprising loose sheets or digital data bearing the assessee’s name, as well as the statements of third-party assessee’s name, as well as the statements of third assessee’s name, as well as the statements of third never furnished to the assessee. It was further employees, were never furnished to the assessee. It was further never furnished to the assessee. It was further submitted that no evidence had been brought on record by the submitted that no evidence had been brought on record by the submitted that no evidence had been brought on record by the Assessing Officer to demonstrate that any actual cash had Assessing Officer to demonstrate that any actual cash had Assessing Officer to demonstrate that any actual cash had exchanged hands between the assessee and the alleged seller. The exchanged hands between the assessee and the alleged seller. The exchanged hands between the assessee and the alleged seller. The assessee also contended assessee also contended that the Assessing Officer failed to that the Assessing Officer failed to establish either the source of the alleged cash or its deployment by establish either the source of the alleged cash or its deployment by establish either the source of the alleged cash or its deployment by the seller through any cogent evidence. the seller through any cogent evidence.

Priyanka Sandeep Runwal Priyanka Sandeep Runwal It was further submitted that neither the statements relied It was further submitted that neither the statements relied It was further submitted that neither the statements relied upon were supplied to the assessee nor was the assessee upon were supplied to the assessee nor was th upon were supplied to the assessee nor was th confronted with the same. The assessee specifically sought cross- confronted with the same. The assessee specifically sought cross confronted with the same. The assessee specifically sought cross examination of the concerned employees of Firestar Diamonds, examination of the concerned employees of Firestar Diamonds, examination of the concerned employees of Firestar Diamonds, which was denied. Reliance was placed on the judgment of the which was denied. Reliance was placed on the judgment of the which was denied. Reliance was placed on the judgment of the Hon’ble Supreme Court in Hon’ble Supreme Court in Andaman Timber Industries v. CCE Andaman Timber Industries v. CCE (Civil Appeal No. 4228 of 2006, dated 02.09.2015) to contend that Appeal No. 4228 of 2006, dated 02.09.2015) to contend that Appeal No. 4228 of 2006, dated 02.09.2015) to contend that statements of third parties cannot be used against an assessee statements of third parties cannot be used against an assessee statements of third parties cannot be used against an assessee without affording an opportunity of cross without affording an opportunity of cross-examination. examination.

4.12 The assessee also raised a legal objection to the application of The assessee also raised a legal objection to the application of The assessee also raised a legal objection to the application of the presumption under section 292C of the Act, contending that the presumption under section 292C of the Act, contending that the presumption under section 292C of the Act, contending that such presumption is available only against the person from whose such presumption is available only against the person from whose such presumption is available only against the person from whose possession the documents are found and cannot be mechanically possession the documents are found and cannot be mechanically possession the documents are found and cannot be mechanically extended to a third party. extended to a third party..

4.13 The Assessing Officer, however, The Assessing Officer, however, noted that the Nirav Modi noted that the Nirav Modi group had adopted a systematic modus operandi of under-invoicing group had adopted a systematic modus operandi of under group had adopted a systematic modus operandi of under jewellery or diamonds by accepting part or whole consideration in jewellery or diamonds by accepting part or whole consideration in jewellery or diamonds by accepting part or whole consideration in cash without recording such cash sales in the books of account. cash without recording such cash sales in the books of account. cash without recording such cash sales in the books of account. According to him, the corresponding According to him, the corresponding stock was removed from the stock was removed from the books and later adjusted as branch transfers. The Assessing Officer books and later adjusted as branch transfers. The Assessing Officer books and later adjusted as branch transfers. The Assessing Officer relied upon the digital evidence in the form of charts of cash relied upon the digital evidence in the form of charts of cash relied upon the digital evidence in the form of charts of cash transactions, maintained sales transactions, maintained sales-person-wise in parallel records of wise in parallel records of the group.

Priyanka Sandeep Runwal Priyanka Sandeep Runwal The Assessing Officer further relied upon the statement of Ms. Officer further relied upon the statement of Ms. Officer further relied upon the statement of Ms. Aparna Chudasama, sales executive of the Nirav Modi group, Aparna Chudasama, sales executive of the Nirav Modi group, Aparna Chudasama, sales executive of the Nirav Modi group, recorded on 16.01.2017 recorded on 16.01.2017 wherein she stated that they often sold wherein she stated that they often sold jewellery to customers in complete or part cash jewellery to customers in complete or part cash. . The Assessing Officer has reproduced Officer has reproduced the relevant part of her statement dated the relevant part of her statement dated 16.01.2017. In her statement, she stated that she was working as In her statement, she stated that she was working as In her statement, she stated that she was working as Vice President with M/s Firestar Diamond Pvt. Ltd. at the Nirav Vice President with M/s Firestar Diamond Pvt. Ltd. at the Nirav Vice President with M/s Firestar Diamond Pvt. Ltd. at the Nirav Modi boutique at ITTS House, Kala Ghoda, Fort, Mumbai, since Modi boutique at ITTS House, Kala Ghoda, Fort, Mumbai, since Modi boutique at ITTS House, Kala Ghoda, Fort, Mumbai, since 12.01.2015 and was looki 12.01.2015 and was looking after high jewellery sales. ng after high jewellery sales. She explained that overall management of the said premise is looked explained that overall management of the said premise is looked explained that overall management of the said premise is looked after by Mr. Danesh N. Mistry. She provided details of the other after by Mr. Danesh N. Mistry. She provided details of the other after by Mr. Danesh N. Mistry. She provided details of the other three sales executive namely Hemali Mehta, M.s Reshma Verma three sales executive namely Hemali Mehta, M.s Reshma Verma three sales executive namely Hemali Mehta, M.s Reshma Verma and Ms. Kitty Bhansali who used and Ms. Kitty Bhansali who used to report to her. She explained to report to her. She explained that she used to approach potential customers through social that she used to approach potential customers through social that she used to approach potential customers through social connections and references and then these customers visit the connections and references and then these customers visit the connections and references and then these customers visit the boutique for purchase of items. She explained the mode of the sales boutique for purchase of items. She explained the mode of the sales boutique for purchase of items. She explained the mode of the sales receipt as by way of RTGS/Cheque receipt as by way of RTGS/Cheque/credit card/cash with the /credit card/cash with the necessary details of PAN. Regarding the modus operandi of necessary details of PAN. Regarding the modus operandi of necessary details of PAN. Regarding the modus operandi of accepting the cash against the sale of item in the boutique she accepting the cash against the sale of item in the boutique she accepting the cash against the sale of item in the boutique she explained that some customers want to pay whole amount in cash explained that some customers want to pay whole amount in cash explained that some customers want to pay whole amount in cash or partly in cash and want the bills to be a or partly in cash and want the bills to be adjusted accordingly. The djusted accordingly. The customers want to pay part cash, want bills in the amount paid by customers want to pay part cash, want bills in the amount paid by customers want to pay part cash, want bills in the amount paid by them in cheque/RTGS/credit card and customers paying wholly in them in cheque/RTGS/credit card and customers paying wholly in them in cheque/RTGS/credit card and customers paying wholly in cash did not want the bills. She said that she did not have any any cash did not want the bills. She said that she did not have any any cash did not want the bills. She said that she did not have any any Priyanka Sandeep Runwal Priyanka Sandeep Runwal authority to finalize the cash com authority to finalize the cash components. She put the request of ponents. She put the request of the customers with the management to Mr. Saourabh Shah or the customers with the management to Mr. Saourabh Shah or the customers with the management to Mr. Saourabh Shah or directly for the cash component to be accepted from the customers. directly for the cash component to be accepted from the customers. directly for the cash component to be accepted from the customers. She also explained that her entire team members get 1% She also explained that her entire team members get 1% She also explained that her entire team members get 1% commission on the sale price (including cash commission on the sale price (including cash component). component).

4.15 The Assessing Officer also referred to the statement of Ms. The Assessing Officer also referred to the statement of Ms. The Assessing Officer also referred to the statement of Ms. Reshma Verma, Sales Executive, Firestar Diamonds, recorded on Reshma Verma, Sales Executive, Firestar Diamonds, recorded on Reshma Verma, Sales Executive, Firestar Diamonds, recorded on 16.01.2017 under section 131 of the Act, wherein she broadly 16.01.2017 under section 131 of the Act, wherein she broadly 16.01.2017 under section 131 of the Act, wherein she broadly endorsed endorsed endorsed the the the modus modus modus operandi operandi operandi described described described by by by Ms. Ms. Ms. Aparna Aparna Aparna Chudasama.

4.16 Further reliance was placed on the statement of Shri Saurabh Further reliance was placed on the statement of Shri Saurabh Further reliance was placed on the statement of Shri Saurabh Jitendra Shah, recorded on 15.01.2017 under section 131 of the Jitendra Shah, recorded on 15.01.2017 under section 131 of the Jitendra Shah, recorded on 15.01.2017 under section 131 of the Act at the Kala Ghoda showroom. He stated that he was responsible Act at the Kala Ghoda showroom. He stated that he was responsible Act at the Kala Ghoda showroom. He stated that he was responsible for maintaining the regular books of account and admitted receipt for maintaining the regular books of account and adm for maintaining the regular books of account and adm of cash against jewellery sales, though he stated that such cash of cash against jewellery sales, though he stated that such cash of cash against jewellery sales, though he stated that such cash transactions were accounted for as per the instructions of Shri transactions were accounted for as per the instructions of Shri transactions were accounted for as per the instructions of Shri Nirav Modi.

4.17 On the basis of the aforesaid statements and digital records, On the basis of the aforesaid statements and digital records, On the basis of the aforesaid statements and digital records, the Assessing Officer concluded th the Assessing Officer concluded that Firestar Diamonds had made at Firestar Diamonds had made cash sales without recording them in the books of account and cash sales without recording them in the books of account and cash sales without recording them in the books of account and rejected the assessee’s contention that she had not purchased any rejected the assessee’s contention that she had not purchased any rejected the assessee’s contention that she had not purchased any jewellery, primarily on the ground that her name appeared in the jewellery, primarily on the ground that her name appeared in the jewellery, primarily on the ground that her name appeared in the digital data relating to cash sal digital data relating to cash sales.

Priyanka Sandeep Runwal Priyanka Sandeep Runwal The Assessing Officer observed that the decoded digital The Assessing Officer observed that the decoded digital The Assessing Officer observed that the decoded digital evidence evidence evidence showed amounts showed amounts showed amounts reflected reflected reflected in the “cash” in in the the “cash” “cash” column column column representing representing representing sales sales sales made made made outside outside outside the the the books, books, books, which which which were were were subsequently adjusted through branch transfers. The digital subsequently adjusted through branch transfers. The digital subsequently adjusted through branch transfers. The digital records allegedly cont records allegedly contained the assessee’s name in respect of ained the assessee’s name in respect of purchases aggregating to ₹56,00,000/- during the year under purchases aggregating to during the year under consideration.

4.19 The Assessing Officer rejected the assessee’s request for cross The Assessing Officer rejected the assessee’s request for cross The Assessing Officer rejected the assessee’s request for cross- examination of the concerned witnesses. examination of the concerned witnesses.

4.20 Placing reliance on section Placing reliance on section 132(4A) and section 292C of the 132(4A) and section 292C of the Act, the Assessing Officer held that the contents of the seized digital Act, the Assessing Officer held that the contents of the seized digital Act, the Assessing Officer held that the contents of the seized digital data were presumed to be correct unless rebutted. According to data were presumed to be correct unless rebutted. According to data were presumed to be correct unless rebutted. According to him, the burden lay upon the assessee to prove that the seized him, the burden lay upon the assessee to prove that the seized him, the burden lay upon the assessee to prove that the seized documents did not pertain documents did not pertain to her. He further held that the onus to her. He further held that the onus was on the assessee to rebut the statement of Ms. Aparna was on the assessee to rebut the statement of Ms. Aparna was on the assessee to rebut the statement of Ms. Aparna Chudasama recorded under section 131 on 16.01.2017. Chudasama recorded under section 131 on 16.01.2017. Chudasama recorded under section 131 on 16.01.2017.

4.21 In the above factual and legal background, the Assessing In the above factual and legal background, the Assessing In the above factual and legal background, the Assessing Officer treated the alleged cash purchase of j Officer treated the alleged cash purchase of jewellery amounting to ewellery amounting to ₹56,00,000/- as unexplained expenditure and made the impugned as unexplained expenditure and made the impugned as unexplained expenditure and made the impugned addition.

Priyanka Sandeep Runwal Priyanka Sandeep Runwal denial of the right to cros denial of the right to cross-examination. The Ld. CIT(A) upheld the examination. The Ld. CIT(A) upheld the action of the Assessing Officer by placing reliance on the statements action of the Assessing Officer by placing reliance on the statements action of the Assessing Officer by placing reliance on the statements of employees of the Nirav Modi / Firestar group and various judicial of employees of the Nirav Modi / Firestar group and various judicial of employees of the Nirav Modi / Firestar group and various judicial precedents. The substance of the findings recorded by the Ld. precedents. The substance of the findings recorded by the Ld. precedents. The substance of the findings recorded by the Ld. CIT(A) may be summarised as under: summarised as under:

5.1 The Ld. CIT(A) observed that the Assessing Officer had The Ld. CIT(A) observed that the Assessing Officer had The Ld. CIT(A) observed that the Assessing Officer had reproduced relevant portions of the statement of Ms. Aparna reproduced relevant portions of the statement of Ms. Aparna reproduced relevant portions of the statement of Ms. Aparna Chudasama, Sales Executive of the Nirav Modi group, recorded on Chudasama, Sales Executive of the Nirav Modi group, recorded on Chudasama, Sales Executive of the Nirav Modi group, recorded on 16.01.2017, wherein she confirmed the existence of a cash 16.01.2017, wherein she confirmed the existence of a 16.01.2017, wherein she confirmed the existence of a component in jewellery sales and explained the manner in which component in jewellery sales and explained the manner in which component in jewellery sales and explained the manner in which such transactions were effected. It was noted that she had stated such transactions were effected. It was noted that she had stated such transactions were effected. It was noted that she had stated that requests from customers for acceptance of cash were routed to that requests from customers for acceptance of cash were routed to that requests from customers for acceptance of cash were routed to the management, including Shri Saurabh Shah. Reliance was also the management, including Shri Saurabh Shah. Reliance the management, including Shri Saurabh Shah. Reliance placed on the statement of Shri Saurabh Shah, Executive of placed on the statement of Shri Saurabh Shah, Executive of placed on the statement of Shri Saurabh Shah, Executive of Firestar Diamond International Ltd., recorded on 15.01.2017, Firestar Diamond International Ltd., recorded on 15.01.2017, Firestar Diamond International Ltd., recorded on 15.01.2017, wherein he confirmed receipt of cash and stated that such cash wherein he confirmed receipt of cash and stated that such cash wherein he confirmed receipt of cash and stated that such cash transactions were accounted for as per the instructions of Shri transactions were accounted for as per the instructions of Shri transactions were accounted for as per the instructions of Shri Nirav Modi. The Ld. CIT(A) further noted that the statement of Ms. Nirav Modi. The Ld. CIT(A) further noted that the statement of Ms. Nirav Modi. The Ld. CIT(A) further noted that the statement of Ms. Reshma Verma, Senior Manager, recorded on 16.01.2017, also Reshma Verma, Senior Manager, recorded on 16.01.2017, also Reshma Verma, Senior Manager, recorded on 16.01.2017, also supported the said modus operandi. supported the said modus operandi.

5.2 The Ld. CIT(A) then referred to the decision of the Hon’ble The Ld. CIT(A) then referred to the decision of the Hon’ble The Ld. CIT(A) then referred to the decision of the Hon’ble Supreme Court in Vadivelu Theva r & Anr. v. State of Madras (AIR Vadivelu Thevar & Anr. v. State of Madras 1957 SC 614) to hold that even the testimony of a single credible 1957 SC 614) to hold that even the testimony of a single credible 1957 SC 614) to hold that even the testimony of a single credible

Priyanka Sandeep Runwal Priyanka Sandeep Runwal witness is sufficient and does not necessarily require corroboration. witness is sufficient and does not necessarily require corroboration. witness is sufficient and does not necessarily require corroboration. According to the Ld. CIT(A), the present case was supported not According to the Ld. CIT(A), the present case was supported not According to the Ld. CIT(A), the present case was supported not merely by one statement merely by one statement but by multiple statements and digital but by multiple statements and digital records containing specific dates, description of jewellery items, records containing specific dates, description of jewellery items, records containing specific dates, description of jewellery items, styles and amounts of cash transactions, which, in his view, styles and amounts of cash transactions, which, in his view, styles and amounts of cash transactions, which, in his view, constituted adequate material to sustain the addition. constituted adequate material to sustain the addition. constituted adequate material to sustain the addition.

5.3 The Ld. CIT(A) further relied The Ld. CIT(A) further relied upon the judgment of the Hon’ble upon the judgment of the Hon’ble Supreme Court in Chairman, Mining Board v. Ramjee Chairman, Mining Board v. Ramjee (AIR 1977 SC Chairman, Mining Board v. Ramjee 965) to emphasise that the principles of natural justice are flexible 965) to emphasise that the principles of natural justice are flexible 965) to emphasise that the principles of natural justice are flexible and context-dependent, and that procedural fairness must be dependent, and that procedural fairness must be dependent, and that procedural fairness must be judged on the totality of cir judged on the totality of circumstances. It was observed that an cumstances. It was observed that an assessee cannot rely on technical objections while failing to assessee cannot rely on technical objections while failing to assessee cannot rely on technical objections while failing to discharge the onus cast upon him under the Act. discharge the onus cast upon him under the Act.

5.4 Reliance was also placed on the decision of the Hon’ble ITAT in Reliance was also placed on the decision of the Hon’ble ITAT in Reliance was also placed on the decision of the Hon’ble ITAT in Hersh W. Chadha v. DDIT (43 SOT 544), wherein it was held that in ein it was held that in Hersh W. Chadha v. DDIT income-tax proceedings, the assessee is required to furnish tax proceedings, the assessee is required to furnish tax proceedings, the assessee is required to furnish reasonable and plausible explanations to discharge the burden of reasonable and plausible explanations to discharge the burden of reasonable and plausible explanations to discharge the burden of proof, and that where explanations are incomplete or contradictory, proof, and that where explanations are incomplete or contradictory, proof, and that where explanations are incomplete or contradictory, the Assessing Officer is justified in d the Assessing Officer is justified in drawing reasonable inferences. rawing reasonable inferences. The Ld. CIT(A) further noted that income The Ld. CIT(A) further noted that income-tax proceedings are not tax proceedings are not governed by the strict rules of evidence under the Indian Evidence governed by the strict rules of evidence under the Indian Evidence governed by the strict rules of evidence under the Indian Evidence Act and that the Assessing Officer is entitled to act on material Act and that the Assessing Officer is entitled to act on material Act and that the Assessing Officer is entitled to act on material which may not be admissible which may not be admissible in a court of law.

Priyanka Sandeep Runwal Priyanka Sandeep Runwal The Ld. CIT(A) also referred to the decisions of the Hon’ble The Ld. CIT(A) also referred to the decisions of the Hon’ble The Ld. CIT(A) also referred to the decisions of the Hon’ble Delhi High Court in Addl. CIT v. Jay Engg. Works Ltd. Addl. CIT v. Jay Engg. Works Ltd. (113 ITR 389) Addl. CIT v. Jay Engg. Works Ltd. and the Hon’ble Punjab & Haryana High Court in CIT v. Metal and the Hon’ble Punjab & Haryana High Court in and the Hon’ble Punjab & Haryana High Court in Products of India (150 ITR 714) to hold that the Assessing Officer (150 ITR 714) to hold that the Assessing Officer (150 ITR 714) to hold that the Assessing Officer may collect information in any manner and utilise the same for may collect information in any manner and utilise the same for may collect information in any manner and utilise the same for framing the assessment, provided there exists material on record to framing the assessment, provided there exists material on record to framing the assessment, provided there exists material on record to support the addition. Reference was further made to the decision of support the addition. Reference was further made to the decision of support the addition. Reference was further made to the decision of the Hon’ble Bombay High Court in ’ble Bombay High Court in ITC Classic Finance Ltd. v. DCIT ITC Classic Finance Ltd. v. DCIT (264 ITR 154) to hold that where a transaction does not appear to (264 ITR 154) to hold that where a transaction does not appear to (264 ITR 154) to hold that where a transaction does not appear to be genuine or above board, the addition deserves to be sustained. be genuine or above board, the addition deserves to be sustained. be genuine or above board, the addition deserves to be sustained.

5.7 With regard to the plea of denial of cross With regard to the plea of denial of cross-examination, the L examination, the Ld. CIT(A) held that the right to cross CIT(A) held that the right to cross-examination is not absolute. examination is not absolute. Reliance was placed on several judicial pronouncements, including Reliance was placed on several judicial pronouncements, including Reliance was placed on several judicial pronouncements, including State of J&K v. Bakshi Gulam Mohd. State of J&K v. Bakshi Gulam Mohd., Nath International Sales v. Nath International Sales v. Union of India, Kanungo & Co. v. Collector of Customs Kanungo & Co. v. Collector of Customs, Surjeet Singh Kanungo & Co. v. Collector of Customs Chhabra v. Union of India Chhabra v. Union of India and Telestar Travels Pvt. Ltd. v. Special Telestar Travels Pvt. Ltd. v. Special Director of Enforcement Director of Enforcement, to conclude that the requirement of cross , to conclude that the requirement of cross- examination depends upon the facts of each case and that denial examination depends upon the facts of each case and that denial examination depends upon the facts of each case and that denial thereof does not ipso facto amount to violatio thereof does not ipso facto amount to violation of the principles of n of the principles of natural justice, unless prejudice is demonstrated. natural justice, unless prejudice is demonstrated.

5.8 On the basis of the above reasoning, the Ld. CIT(A) concluded On the basis of the above reasoning, the Ld. CIT(A) concluded On the basis of the above reasoning, the Ld. CIT(A) concluded that sufficient material existed to sustain the findings of the that sufficient material existed to sustain the findings of the that sufficient material existed to sustain the findings of the Assessing Officer and that no violation of the principles of natural Assessing Officer and that no violation of the princ Assessing Officer and that no violation of the princ

Priyanka Sandeep Runwal Priyanka Sandeep Runwal justice had occurred. Accordingly, the addition of ₹56,00,000/- justice had occurred. Accordingly, the addition of justice had occurred. Accordingly, the addition of made for Assessment Year 2014 made for Assessment Year 2014-15 was confirmed and Ground 15 was confirmed and Ground Nos. 2, 3, 4 and 5 raised by the assessee were dismissed. Nos. 2, 3, 4 and 5 raised by the assessee were dismissed. Nos. 2, 3, 4 and 5 raised by the assessee were dismissed.

6.1 The Ld. counsel submitted that the statement of Ms. Aparna The Ld. counsel submitted that the statement of Ms. Aparna The Ld. counsel submitted that the statement of Ms. Aparna Chudasama, heavily relied upon by the Assessing Officer, does not Chudasama, heavily relied upon by the Assessing Officer, does not Chudasama, heavily relied upon by the Assessing Officer, does not name the assessee nor does it attribute any specific cash name the assessee nor does it attribute any specific cash name the assessee nor does it attribute any specific cash transaction to her. At b transaction to her. At best, the statement refers to a general est, the statement refers to a general business practice allegedly followed by the Nirav Modi group of business practice allegedly followed by the Nirav Modi group of business practice allegedly followed by the Nirav Modi group of accepting cash, partly or wholly, against jewellery sales. It was accepting cash, partly or wholly, against jewellery sales. It was accepting cash, partly or wholly, against jewellery sales. It was emphasised that no credible or independent corroborative evidence emphasised that no credible or independent corroborative evidence emphasised that no credible or independent corroborative evidence has been brought on r has been brought on record to establish that the assessee, in fact, ecord to establish that the assessee, in fact, purchased any jewellery or made any cash payment. The assessee purchased any jewellery or made any cash payment. The assessee purchased any jewellery or made any cash payment. The assessee has consistently denied the alleged transaction. has consistently denied the alleged transaction.

Priyanka Sandeep Runwal Priyanka Sandeep Runwal It was further submitted that despite a specific and formal It was further submitted that despite a specific and formal It was further submitted that despite a specific and formal request made during the reassessm request made during the reassessment proceedings vide letter dated ent proceedings vide letter dated 06.12.2019, the assessee was not afforded any opportunity to 06.12.2019, the assessee was not afforded any opportunity to 06.12.2019, the assessee was not afforded any opportunity to cross-examine the employees of the Nirav Modi group whose examine the employees of the Nirav Modi group whose examine the employees of the Nirav Modi group whose statements were relied upon. Reliance was placed on the judgment statements were relied upon. Reliance was placed on the judgment statements were relied upon. Reliance was placed on the judgment of the Hon’ble Supreme Court in of the Hon’ble Supreme Court in Andaman Timber Industries v. n Timber Industries v. CCE (supra)to contend that statements of third parties cannot be (supra)to contend that statements of third parties cannot be (supra)to contend that statements of third parties cannot be used against an assessee without affording an opportunity of cross- used against an assessee without affording an opportunity of cross used against an assessee without affording an opportunity of cross examination.

6.3 The Ld. counsel further drew attention to a material The Ld. counsel further drew attention to a material The Ld. counsel further drew attention to a material inconsistency in the evidence r inconsistency in the evidence relied upon by the Assessing Officer. elied upon by the Assessing Officer. In her statement recorded on 16.01.2017, Ms. Aparna Chudasama In her statement recorded on 16.01.2017, Ms. Aparna Chudasama In her statement recorded on 16.01.2017, Ms. Aparna Chudasama categorically stated that she had joined the Nirav Modi group on categorically stated that she had joined the Nirav Modi group on categorically stated that she had joined the Nirav Modi group on 12.01.2015. However, in the tabulation reproduced in paragraph 12.01.2015. However, in the tabulation reproduced in paragraph 12.01.2015. However, in the tabulation reproduced in paragraph 5.1 of the assessment order, 5.1 of the assessment order, her name appears as the sales person her name appears as the sales person for transactions purportedly undertaken in the year 2013. It was for transactions purportedly undertaken in the year 2013. It was for transactions purportedly undertaken in the year 2013. It was submitted that this glaring inconsistency strikes at the very root of submitted that this glaring inconsistency strikes at the very root of submitted that this glaring inconsistency strikes at the very root of the credibility and reliability of the digital records relied upon by the the credibility and reliability of the digital records relied upon by the the credibility and reliability of the digital records relied upon by the Assessing Officer.

6.4 In response to the contention of the Ld. Departmental In response to the contention of the Ld. Departmental In response to the contention of the Ld. Departmental Representative that the relevant material had been duly provided, Representative that the relevant material had been duly provided, Representative that the relevant material had been duly provided, the assessee filed a clarification note pointing out that the only the assessee filed a clarification note pointing out that the only the assessee filed a clarification note pointing out that the only documents supplied comprised: (i) an information letter received by documents supplied comprised: (i) an information letter documents supplied comprised: (i) an information letter

Priyanka Sandeep Runwal Priyanka Sandeep Runwal the Assessing Officer from the Investigation Wing; and (ii) a the Assessing Officer from the Investigation Wing; and (ii) a the Assessing Officer from the Investigation Wing; and (ii) a statement of Ms. Aparna Chudasama recorded under section 131 of statement of Ms. Aparna Chudasama recorded under section 131 of statement of Ms. Aparna Chudasama recorded under section 131 of the Act on 19.04.2018 along with an annexure. It was submitted the Act on 19.04.2018 along with an annexure. It was submitted the Act on 19.04.2018 along with an annexure. It was submitted that even this information did not contain any documentary that even this information did not contain any document that even this information did not contain any document evidence linking the alleged cash amounts to the assessee, nor did evidence linking the alleged cash amounts to the assessee, nor did evidence linking the alleged cash amounts to the assessee, nor did it provide any details or description of the jewellery allegedly it provide any details or description of the jewellery allegedly it provide any details or description of the jewellery allegedly purchased.

6.5 With regard to the statement of Ms. Aparna Chudasama With regard to the statement of Ms. Aparna Chudasama With regard to the statement of Ms. Aparna Chudasama recorded on 19.04.2018, it was pointed out that the assessee was recorded on 19.04.2018, it was pointed out that the recorded on 19.04.2018, it was pointed out that the never furnished with the earlier statement recorded on 16.01.2017, never furnished with the earlier statement recorded on 16.01.2017, never furnished with the earlier statement recorded on 16.01.2017, which formed the primary basis of the addition. A perusal of the which formed the primary basis of the addition. A perusal of the which formed the primary basis of the addition. A perusal of the later statement clearly shows that Ms. Chudasama was merely later statement clearly shows that Ms. Chudasama was merely later statement clearly shows that Ms. Chudasama was merely shown a list of names and asked to identify whether they were shown a list of names and asked to identify whether shown a list of names and asked to identify whether clients or potential clients of the Nirav Modi group. She categorically clients or potential clients of the Nirav Modi group. She categorically clients or potential clients of the Nirav Modi group. She categorically stated that she did not remember the mode of payment in respect of stated that she did not remember the mode of payment in respect of stated that she did not remember the mode of payment in respect of the transactions mentioned and did not confirm any cash payment the transactions mentioned and did not confirm any cash payment the transactions mentioned and did not confirm any cash payment by the assessee. The annexure accompanying by the assessee. The annexure accompanying the statement merely the statement merely mentions the name of the assessee, without any description of mentions the name of the assessee, without any description of mentions the name of the assessee, without any description of jewellery or confirmation of cash payment. jewellery or confirmation of cash payment.

6.6 It was thus contended that at no point did Ms. Aparna It was thus contended that at no point did Ms. Aparna It was thus contended that at no point did Ms. Aparna Chudasama admit that the assessee had purchased jewellery in Chudasama admit that the assessee had purchased jewellery in Chudasama admit that the assessee had purchased jewellery in cash from the Nirav Modi group. The reliance placed on such the Nirav Modi group. The reliance placed on such the Nirav Modi group. The reliance placed on such statements, without corroboration and without affording an statements, without corroboration and without affording an statements, without corroboration and without affording an Priyanka Sandeep Runwal Priyanka Sandeep Runwal opportunity of cross opportunity of cross-examination, was submitted to be legally examination, was submitted to be legally untenable.

6.7 Reliance was further placed on the decision of the coordinate Reliance was further placed on the decision of the coordinate Reliance was further placed on the decision of the coordinate bench of the Hon’ble Mumbai ITAT in the Hon’ble Mumbai ITAT in Shri Avinash Nivrutti Bhosale Shri Avinash Nivrutti Bhosale v. DCIT, Central Circle v. DCIT, Central Circle–2(3) (ITA Nos. 529 & 530/Mum/2021, order (ITA Nos. 529 & 530/Mum/2021, order dated 2023), wherein, on similar facts involving alleged cash dated 2023), wherein, on similar facts involving alleged cash dated 2023), wherein, on similar facts involving alleged cash purchases from the Nirav Modi group, the Tribunal held that purchases from the Nirav Modi group, the Tribunal held that purchases from the Nirav Modi group, the Tribunal held that additions based solely on third ased solely on third-party statements and material, party statements and material, without furnishing the same to the assessee and without granting without furnishing the same to the assessee and without granting without furnishing the same to the assessee and without granting an opportunity of cross an opportunity of cross-examination, are unsustainable in law. It examination, are unsustainable in law. It was submitted that the ratio of the said decision squarely applies to was submitted that the ratio of the said decision squarely applies to was submitted that the ratio of the said decision squarely applies to the facts of the present case and warrants deletion of the impugned facts of the present case and warrants deletion of the impugned facts of the present case and warrants deletion of the impugned addition.

Priyanka Sandeep Runwal Priyanka Sandeep Runwal branch transfers and the cash component was not reflected in the branch transfers and the cash component was not reflected in the branch transfers and the cash component was not reflected in the regular books of account. regular books of account.

7.1 The Assessing Off The Assessing Officer has primarily rested the impugned icer has primarily rested the impugned addition on two pieces of material, namely: (i) digital data allegedly addition on two pieces of material, namely: (i) digital data allegedly addition on two pieces of material, namely: (i) digital data allegedly reflecting cash sales, recovered during search operations in the case reflecting cash sales, recovered during search operations in the case reflecting cash sales, recovered during search operations in the case of the Nirav Modi / Firestar group; and (ii) statements recorded of the Nirav Modi / Firestar group; and (ii) statements recorded of the Nirav Modi / Firestar group; and (ii) statements recorded under section 131 of employees and sales personnel of the said on 131 of employees and sales personnel of the said on 131 of employees and sales personnel of the said group, particularly the statement of Ms. Aparna Chudasama. A group, particularly the statement of Ms. Aparna Chudasama. A group, particularly the statement of Ms. Aparna Chudasama. A tabulation of transactions aggregating to tabulation of transactions aggregating to ₹56,00,000/ 56,00,000/- was reproduced in the assessment order. However, it is evident that the reproduced in the assessment order. However, it is evident that the reproduced in the assessment order. However, it is evident that the complete digital data and the full statements relied upon were data and the full statements relied upon were data and the full statements relied upon were neither furnished to the assessee nor formally confronted to her, neither furnished to the assessee nor formally confronted to her, neither furnished to the assessee nor formally confronted to her, despite specific requests. The assessee’s request for cross- despite specific requests. The assessee’s request for cross despite specific requests. The assessee’s request for cross examination of the concerned third examination of the concerned third-party witnesses also remained party witnesses also remained unaddressed.

7.2 Even during the course of hearing before us, only partial Even during the course of hearing before us, only partial Even during the course of hearing before us, only partial sheets pertaining to three financial years were shown, wherein the sheets pertaining to three financial years were shown, wherein the sheets pertaining to three financial years were shown, wherein the names of customers ( except assessee) were largely masked and no names of customers ( except assessee) were largely masked and no names of customers ( except assessee) were largely masked and no details of the jewellery allegedly sold to the assessee were details of the jewellery allegedly sold to the assessee were details of the jewellery allegedly sold to the assessee were forthcoming. The digital material, by itself, does not establish the coming. The digital material, by itself, does not establish the coming. The digital material, by itself, does not establish the alleged transaction and derives its entire evidentiary value from the alleged transaction and derives its entire evidentiary value from the alleged transaction and derives its entire evidentiary value from the statements of third statements of third-party employees. Likewise, the complete party employees. Likewise, the complete statements of the concerned employees were never made available statements of the concerned employees were never made availabl statements of the concerned employees were never made availabl

Priyanka Sandeep Runwal Priyanka Sandeep Runwal to the assessee beyond selective extracts reproduced in the to the assessee beyond selective extracts reproduced in the to the assessee beyond selective extracts reproduced in the assessment order. The assessee was thus deprived of a fair and assessment order. The assessee was thus deprived of a fair and assessment order. The assessee was thus deprived of a fair and effective opportunity to rebut the material relied upon by the effective opportunity to rebut the material relied upon by the effective opportunity to rebut the material relied upon by the Assessing Officer.

7.3 It is well settled that where an addition is It is well settled that where an addition is It is well settled that where an addition is founded substantially or exclusively on third substantially or exclusively on third-party statements and untested party statements and untested material, denial of an opportunity to cross material, denial of an opportunity to cross-examine such witnesses examine such witnesses results in a serious procedural infirmity. In such circumstances, results in a serious procedural infirmity. In such circumstances, results in a serious procedural infirmity. In such circumstances, reliance on third-party statements, without aff party statements, without affording the assessee a ording the assessee a reasonable opportunity to test their veracity, cannot be accepted as reasonable opportunity to test their veracity, cannot be accepted as reasonable opportunity to test their veracity, cannot be accepted as conclusive proof of the alleged transaction. Any addition made on conclusive proof of the alleged transaction. Any addition made on conclusive proof of the alleged transaction. Any addition made on such a foundation is liable to be struck down as being violative of such a foundation is liable to be struck down as being violative of such a foundation is liable to be struck down as being violative of the principles of natural justi the principles of natural justice.

7.4 We also find force in the contention of the assessee that the We also find force in the contention of the assessee that the We also find force in the contention of the assessee that the statements relied upon merely describe a general modus operandi statements relied upon merely describe a general modus operandi statements relied upon merely describe a general modus operandi allegedly followed by the Nirav Modi group. None of the statements allegedly followed by the Nirav Modi group. None of the statements allegedly followed by the Nirav Modi group. None of the statements specifically attribute any cash payment to the assessee. On the specifically attribute any cash payment to the assessee specifically attribute any cash payment to the assessee contrary, there are apparent inconsistencies in the material relied contrary, there are apparent inconsistencies in the material relied contrary, there are apparent inconsistencies in the material relied upon, including the fact that Ms. Aparna Chudasama, who stated upon, including the fact that Ms. Aparna Chudasama, who stated upon, including the fact that Ms. Aparna Chudasama, who stated that she joined the group only in January 2015, is shown as the that she joined the group only in January 2015, is shown as the that she joined the group only in January 2015, is shown as the sales person for transactions allegedly undertaken i sales person for transactions allegedly undertaken in the year 2013. n the year 2013. Ms Chudsama is saying that cash transa Ms Chudsama is saying that cash transaction were not recorded ction were not recorded whereas. We note that there is a contradiction in the statement of We note that there is a contradiction in the statement of We note that there is a contradiction in the statement of Priyanka Sandeep Runwal Priyanka Sandeep Runwal the employees Ms. Aparna Chudasma and statement of Shri the employees Ms. Aparna Chudasma and statement of Shri the employees Ms. Aparna Chudasma and statement of Shri Sourabh Jitendra Shah. Ms. Aparna Chudasma said that cash Sourabh Jitendra Shah. Ms. Aparna Chudasma said that Sourabh Jitendra Shah. Ms. Aparna Chudasma said that sales were not recorded in books whereas, Shri Sourabh Jitendra sales were not recorded in books whereas, Shri Sourabh Jitendra sales were not recorded in books whereas, Shri Sourabh Jitendra Shah is saying all such cash transactions were duly accounted in Shah is saying all such cash transactions were duly accounted in Shah is saying all such cash transactions were duly accounted in the books of accounts. the books of accounts. Such discrepancies materially undermine Such discrepancies materially undermine the credibility of the evidence relied upon by the Assessing Officer. the credibility of the evidence relied upon by the Assessin the credibility of the evidence relied upon by the Assessin 7.5 The Assessing Officer has also not brought on record any he Assessing Officer has also not brought on record any he Assessing Officer has also not brought on record any independent corroborative material to establish that the assessee, independent corroborative material to establish that the assessee, independent corroborative material to establish that the assessee, in fact, purchased jewellery in cash. There is no evidence of delivery in fact, purchased jewellery in cash. There is no evidence of delivery in fact, purchased jewellery in cash. There is no evidence of delivery of jewellery, no trail of funds, no recovery from the assessee. The of jewellery, no trail of funds, no recovery from the assessee of jewellery, no trail of funds, no recovery from the assessee Assessing Officer has nowhere referred to any finding from the Assessing Officer has nowhere referred to any finding from the Assessing Officer has nowhere referred to any finding from the assessments in the case of Nirav Modi that all such cash sales were assessments in the case of Nirav Modi that all such cash sales were assessments in the case of Nirav Modi that all such cash sales were not entered into the books of accounts of their group and stock was not entered into the books of accounts of their group and stock was not entered into the books of accounts of their group and stock was reduced by way of branch transfer, to support his contentions. The reduced by way of branch transfer, to support his c reduced by way of branch transfer, to support his c Assessing Officer has only relied on the statement of the employees Assessing Officer has only relied on the statement of the employees Assessing Officer has only relied on the statement of the employees of Nirav Modi group. of Nirav Modi group. The addition thus rests solely on The addition thus rests solely on uncorroborated third uncorroborated third-party statements.

7.6 It is trite law that while income It is trite law that while income-tax proceedings are not tax proceedings are not governed by the strict rules of the Indian Evidence Act, the basic e strict rules of the Indian Evidence Act, the basic e strict rules of the Indian Evidence Act, the basic requirements of fairness and natural justice cannot be dispensed requirements of fairness and natural justice cannot be dispensed requirements of fairness and natural justice cannot be dispensed with. Furnishing of material relied upon and affording an with. Furnishing of material relied upon and affording an with. Furnishing of material relied upon and affording an opportunity to effectively rebut and test such material, including by opportunity to effectively rebut and test such material, including by opportunity to effectively rebut and test such material, including by way of cross-examination where facts are disputed, are not empty examination where facts are disputed, are not empty examination where facts are disputed, are not empty

Priyanka Sandeep Runwal Priyanka Sandeep Runwal formalities but constitute fundamental facets of fair procedure and but constitute fundamental facets of fair procedure and but constitute fundamental facets of fair procedure and are integral to the principles of Natural Justice embedded in the are integral to the principles of Natural Justice embedded in the are integral to the principles of Natural Justice embedded in the scheme of the Act.

7.9 In the absence of any corroborative material In the absence of any corroborative material In the absence of any corroborative material directly connecting the assessee with the alleged cash payment, and in the connecting the assessee with the alleged cash payment, and in the connecting the assessee with the alleged cash payment, and in the absence of cross-examination of the person whose statement is examination of the person whose statement is examination of the person whose statement is relied upon, the addition rests on suspicion and presumption rather relied upon, the addition rests on suspicion and presumption rather relied upon, the addition rests on suspicion and presumption rather than proof.

7.10 Even mere furnishing of copies of mere furnishing of copies of statements or documents statements or documents does not, by itself, satisfy the requirement of natural justice, where does not, by itself, satisfy the requirement of natural justice does not, by itself, satisfy the requirement of natural justice such material is sought to be used adversely against an assessee such material is sought to be used adversely against an assessee such material is sought to be used adversely against an assessee and the assessee specifically disputes its correctness. This and the assessee specifically disputes its correctness. This and the assessee specifically disputes its correctness. This approach conflates disclosure of m disclosure of material with testing of material testing of material, which are legally distinct concepts. The alleged financial year wise which are legally distinct concepts. The alleged financial year wise which are legally distinct concepts. The alleged financial year wise list of customers along with amount and the linkage of the assessee list of customers along with amount and the linkage of the assessee list of customers along with amount and the linkage of the assessee to such entries emanate entirely from statement of Ms Chudsama. to such entries emanate entirely from statement of Ms Chudsama. to such entries emanate entirely from statement of Ms Chudsama. The digital material The digital material does not speak for itself. Consequently, the does not speak for itself. Consequently, the statement is not collateral or incidental evidence but the very statement is not collateral or incidental evidence but the statement is not collateral or incidental evidence but the foundation of the addition. Much emphasis has been placed by the of the addition. Much emphasis has been placed by the of the addition. Much emphasis has been placed by the lower authorities on the proposition that income lower authorities on the proposition that income-tax proceedings tax proceedings are not governed by the strict provisions of the Indian Evidence Act. are not governed by the strict provisions of the Indian Evidence Act. are not governed by the strict provisions of the Indian Evidence Act. There can be no quarrel with this settled proposition. However, it is There can be no quarrel with this settled proposition. However, it There can be no quarrel with this settled proposition. However, it equally settled that equally settled that relaxation of evidentiary rules does not imply relaxation of evidentiary rules does not imply

Priyanka Sandeep Runwal Priyanka Sandeep Runwal abrogation of natural justice abrogation of natural justice. Even material which is otherwise . Even material which is otherwise admissible must still satisfy the minimum requirement of fairness admissible must still satisfy the minimum requirement of fairness admissible must still satisfy the minimum requirement of fairness when used against an assessee. The Hon’ble Supreme Court in when used against an assessee. The Hon’ble Supreme Cou when used against an assessee. The Hon’ble Supreme Cou Kishinchand Chellaram v. CIT Kishinchand Chellaram v. CIT (125 ITR 713) has unequivocally held (125 ITR 713) has unequivocally held that any material collected behind the back of the assessee, if any material collected behind the back of the assessee, if any material collected behind the back of the assessee, if proposed to be used against him, must be subjected to an proposed to be used against him, must be subjected to an proposed to be used against him, must be subjected to an opportunity of rebuttal in a meaningful manner opportunity of rebuttal in a meaningful manner, which necessari , which necessarily includes cross-examination where facts are disputed. examination where facts are disputed. examination where facts are disputed.

7.11 It is trite law that It is trite law that an admission by one party cannot be used an admission by one party cannot be used as conclusive evidence against another, unless the latter is afforded as conclusive evidence against another, unless the latter is afforded as conclusive evidence against another, unless the latter is afforded an opportunity to test and rebut such admission an opportunity to test and rebut such admission. The assessee . The assessee is not estopped from disputing the correctness or applicability of such not estopped from disputing the correctness or applicability of such not estopped from disputing the correctness or applicability of such admission to his case, particularly when the alleged payment is admission to his case, particularly when the alleged payment is admission to his case, particularly when the alleged payment is denied and no independent corroboration exists. denied and no independent corroboration exists.

7.12 We are also unable to concur with the approach adopted by We are also unable to concur with the approach adopted by We are also unable to concur with the approach adopted by the Ld. CIT(A). The Ld. CIT(A) proceeded on the premise that IT(A). The Ld. CIT(A) proceeded on the premise that IT(A). The Ld. CIT(A) proceeded on the premise that reproduction of selective portions of the statements of Ms. Aparna reproduction of selective portions of the statements of Ms. Aparna reproduction of selective portions of the statements of Ms. Aparna Chudasama, Shri Saurabh Shah and Ms. Reshma Verma in the Chudasama, Shri Saurabh Shah and Ms. Reshma Verma in the Chudasama, Shri Saurabh Shah and Ms. Reshma Verma in the assessment order was sufficient compliance with the requirements assessment order was sufficient compliance with the requirements assessment order was sufficient compliance with the requirements of natural justice. In our considered view, mere reproduction of ice. In our considered view, mere reproduction of ice. In our considered view, mere reproduction of selective portions of third selective portions of third-party statements in the assessment order party statements in the assessment order does not amount to furnishing the material to the assessee. The does not amount to furnishing the material to the assessee. The does not amount to furnishing the material to the assessee. The assessee was entitled to complete and authenticated copies of the assessee was entitled to complete and authenticated copies of the assessee was entitled to complete and authenticated copies of the Priyanka Sandeep Runwal Priyanka Sandeep Runwal statements relied upon, so as to effectively understand, rebut and nts relied upon, so as to effectively understand, rebut and nts relied upon, so as to effectively understand, rebut and test the material forming the basis of the addition. Admittedly, such test the material forming the basis of the addition. Admittedly, such test the material forming the basis of the addition. Admittedly, such statements were never supplied in full to the assessee. statements were never supplied in full to the assessee. statements were never supplied in full to the assessee.

7.13 The reliance placed by the Ld. CIT(A) on the statements of the The reliance placed by the Ld. CIT(A) on the statements of the The reliance placed by the Ld. CIT(A) on the statements of the aforesaid employees to uphold the addition is also misplaced. A aforesaid employees to uphold the addition is also misplaced. A aforesaid employees to uphold the addition is also misplaced. A careful reading of the statements reveals that they merely describe careful reading of the statements reveals that they merely describe careful reading of the statements reveals that they merely describe a general modus operandi allegedly followed by the Nirav Modi a general modus operandi allegedly followed by the Nirav Modi a general modus operandi allegedly followed by the Nirav Modi group in accepting cash against jewellery sales. None of the group in accepting cash against jewellery sales. None of the group in accepting cash against jewellery sales. None of the statements specifically name the assessee or unequivocally assert tatements specifically name the assessee or unequivocally assert tatements specifically name the assessee or unequivocally assert that the assessee made any cash payment towards purchase of that the assessee made any cash payment towards purchase of that the assessee made any cash payment towards purchase of jewellery. Generalised statements regarding business practices of a jewellery. Generalised statements regarding business practices of a jewellery. Generalised statements regarding business practices of a third party, without direct attribution to the assessee, cannot third party, without direct attribution to the assessee, cannot third party, without direct attribution to the assessee, cannot constitute substantive evidence to fasten tax liability upon her. constitute substantive evidence to fasten tax liability upon her. constitute substantive evidence to fasten tax liability upon her.

7.14 The Ld. CIT(A) further erred in invoking the ratio of the The Ld. CIT(A) further erred in invoking the ratio of the The Ld. CIT(A) further erred in invoking the ratio of the judgment of the Hon’ble Supreme Court in judgment of the Hon’ble Supreme Court in Vadivelu Thevar & Anr. Vadivelu Thevar & Anr. v. State of Madras (supra) (supra). The said decision arose in the con The said decision arose in the context of criminal jurisprudence and deals with the sufficiency of evidence for criminal jurisprudence and deals with the sufficiency of evidence for criminal jurisprudence and deals with the sufficiency of evidence for sustaining a conviction. The issue in the present case is not the sustaining a conviction. The issue in the present case is not the sustaining a conviction. The issue in the present case is not the numerical sufficiency of witnesses, but the denial of an opportunity numerical sufficiency of witnesses, but the denial of an opportunity numerical sufficiency of witnesses, but the denial of an opportunity to test the veracity of third to test the veracity of third-party statements relied upon by the nts relied upon by the Revenue. The principle laid down in Revenue. The principle laid down in Vadivelu Thevar Vadivelu Thevar is, therefore, inapplicable to the facts of the present case. inapplicable to the facts of the present case.

Priyanka Sandeep Runwal Priyanka Sandeep Runwal Similarly, reliance on the decision in Similarly, reliance on the decision in Chairman, Mining Board Chairman, Mining Board v. Ramjee (supra) is misconceived. While it is true is misconceived. While it is true is misconceived. While it is true that the principles of natural justice are flexible, such flexibility cannot be principles of natural justice are flexible, such flexibility cannot be principles of natural justice are flexible, such flexibility cannot be stretched to legitimise denial of a fundamental procedural stretched to legitimise denial of a fundamental procedural stretched to legitimise denial of a fundamental procedural safeguard where the addition is founded substantially on third- safeguard where the addition is founded substantially on third safeguard where the addition is founded substantially on third party material. The right to confront and cross party material. The right to confront and cross-examin examine adverse witnesses, where their statements form the sole or primary basis of witnesses, where their statements form the sole or primary basis of witnesses, where their statements form the sole or primary basis of an addition, is not a mere technicality but an integral component of an addition, is not a mere technicality but an integral component of an addition, is not a mere technicality but an integral component of fair procedure.

7.16 The observations of the Ld. CIT(A) based on the decision in The observations of the Ld. CIT(A) based on the decision in The observations of the Ld. CIT(A) based on the decision in Hersh W. Chadha v. DDIT(sup Hersh W. Chadha v. DDIT(supra) regarding the burden of proof and regarding the burden of proof and preponderance of probabilities also do not advance the case of the preponderance of probabilities also do not advance the case of the preponderance of probabilities also do not advance the case of the Revenue. In the present case, the assessee has consistently denied Revenue. In the present case, the assessee has consistently denied Revenue. In the present case, the assessee has consistently denied the alleged transaction and has specifically sought the material the alleged transaction and has specifically sought the material the alleged transaction and has specifically sought the material relied upon as well relied upon as well as an opportunity to cross as an opportunity to cross-examine the witnesses. In the absence of any independent corroborative witnesses. In the absence of any independent corroborative witnesses. In the absence of any independent corroborative evidence such as cash receipt signed by assessee cash receipt signed by assessee, delivery of cash receipt signed by assessee jewellery, flow of funds or recovery from the assessee, the burden jewellery, flow of funds or recovery from the assessee, the burden jewellery, flow of funds or recovery from the assessee, the burden could not be said to have sh could not be said to have shifted merely on the basis of untested ifted merely on the basis of untested third-party statements. party statements.

7.17 The proposition that income The proposition that income-tax authorities are not bound by tax authorities are not bound by the strict rules of the Indian Evidence Act, as relied upon by the Ld. the strict rules of the Indian Evidence Act, as relied upon by the Ld. the strict rules of the Indian Evidence Act, as relied upon by the Ld. CIT(A) with reference to CIT(A) with reference to Jay Engg. Works Ltd. and Metal P Metal Products of Priyanka Sandeep Runwal Priyanka Sandeep Runwal India (supra), is well settled. However, this principle does not , is well settled. However, this principle does not , is well settled. However, this principle does not dispense with the obligation to follow the principles of natural dispense with the obligation to follow the principles of natural dispense with the obligation to follow the principles of natural justice. Material collected behind the back of the assessee may be justice. Material collected behind the back of the assessee may be justice. Material collected behind the back of the assessee may be used only after affording the assessee a fair and effective used only after affording the assessee a fair an used only after affording the assessee a fair an opportunity to rebut the same. That essential requirement has not opportunity to rebut the same. That essential requirement has not opportunity to rebut the same. That essential requirement has not been satisfied in the present case. been satisfied in the present case.

7.18 The reliance placed on The reliance placed on ITC Classic Finance Ltd. v. DCIT(supra) ITC Classic Finance Ltd. v. DCIT(supra) to sustain the addition on the ground that the transaction did not to sustain the addition on the ground that the transaction did not to sustain the addition on the ground that the transaction did not appear to be genuine is also misplaced. Suspicion, howsoever to be genuine is also misplaced. Suspicion, howsoever to be genuine is also misplaced. Suspicion, howsoever strong, cannot take the place of proof. In the absence of any cogent strong, cannot take the place of proof. In the absence of any cogent strong, cannot take the place of proof. In the absence of any cogent material directly linking the assessee with the alleged cash material directly linking the assessee with the alleged cash material directly linking the assessee with the alleged cash purchase of jewellery, the addition cannot be sustained merely on purchase of jewellery, the addition cannot be sustained merely on purchase of jewellery, the addition cannot be sustained merely on conjectures drawn from the conduct of a third party. tures drawn from the conduct of a third party. tures drawn from the conduct of a third party.

7.19 With respect to the finding that the right of cross With respect to the finding that the right of cross With respect to the finding that the right of cross-examination is not absolute, there can be no quarrel with the proposition in is not absolute, there can be no quarrel with the proposition in is not absolute, there can be no quarrel with the proposition in abstract. However, the judicial authorities relied upon by the Ld. abstract. However, the judicial authorities relied upon by the Ld. abstract. However, the judicial authorities relied upon by the Ld. CIT(A), including including Co.(supra), , Kanungo & Surjeet Singh Chhabra(supra) and and Telestar Travels Pvt. Ltd.(supra) Telestar Travels Pvt. Ltd.(supra), arose in materially different statutory contexts. The Hon’ble Supreme Court materially different statutory contexts. The Hon’ble Supreme Court materially different statutory contexts. The Hon’ble Supreme Court in Andaman Timber Industries v. CCE Andaman Timber Industries v. CCE (supra)has clearly held that (supra)has clearly held that where statements of third parties are relied upon and such s of third parties are relied upon and such s of third parties are relied upon and such statements are not subjected to cross statements are not subjected to cross-examination despite a specific examination despite a specific request, the resulting order stands vitiated. In the present case, request, the resulting order stands vitiated. In the present case, request, the resulting order stands vitiated. In the present case,

Priyanka Sandeep Runwal Priyanka Sandeep Runwal prejudice to the assessee is writ large, as the impugned addition prejudice to the assessee is writ large, as the impugned addition prejudice to the assessee is writ large, as the impugned addition rests almost entirely on such untested statements. st entirely on such untested statements.

7.20 The Ld. CIT(A) also failed to address the legal infirmity in The Ld. CIT(A) also failed to address the legal infirmity in The Ld. CIT(A) also failed to address the legal infirmity in applying the presumption under sections 132(4A) and 292C of the applying the presumption under sections 132(4A) and 292C of the applying the presumption under sections 132(4A) and 292C of the Act against the assessee. The presumption under the said Act against the assessee. The presumption under the said Act against the assessee. The presumption under the said provisions operates primaril provisions operates primarily against the person from whose y against the person from whose possession the material is seized and cannot be automatically possession the material is seized and cannot be automatically possession the material is seized and cannot be automatically extended to a third party without independent corroboration. extended to a third party without independent corroboration. extended to a third party without independent corroboration.

7.21 In view of the above, we hold that the Ld. CIT(A) erred in In view of the above, we hold that the Ld. CIT(A) erred in In view of the above, we hold that the Ld. CIT(A) erred in upholding the addition by overlooking upholding the addition by overlooking the fundamental defects in the fundamental defects in the assessment proceedings. The addition is based on third-party the assessment proceedings. The addition is based on third the assessment proceedings. The addition is based on third statements and digital material which were neither furnished to the statements and digital material which were neither furnished to the statements and digital material which were neither furnished to the assessee nor tested by way of cross assessee nor tested by way of cross-examination, and are examination, and are unsupported by independent corroborati unsupported by independent corroborative evidence. The impugned ve evidence. The impugned order, therefore, cannot be sustained in law. order, therefore, cannot be sustained in law.

7.22 In view of the foregoing discussion, we hold that the addition In view of the foregoing discussion, we hold that the addition In view of the foregoing discussion, we hold that the addition of ₹56,00,000/- sustained by the Ld. CIT(A) is vitiated by a clear sustained by the Ld. CIT(A) is vitiated by a clear sustained by the Ld. CIT(A) is vitiated by a clear breach of the principles of natural justice and breach of the principles of natural justice and is unsupported by is unsupported by reliable and corroborative evidence. The impugned addition, reliable and corroborative evidence. The impugned addition, reliable and corroborative evidence. The impugned addition, therefore, cannot be sustained in law. therefore, cannot be sustained in law.

Priyanka Sandeep Runwal Priyanka Sandeep Runwal Accordingly, the addition made by the Assessing Officer and Accordingly, the addition made by the Assessing Officer and Accordingly, the addition made by the Assessing Officer and confirmed by the Ld. CIT(A) is deleted. The grounds raised by the confirmed by the Ld. CIT(A) is deleted. The grounds raised by the confirmed by the Ld. CIT(A) is deleted. The grounds raised by the assessee on merits are allowed on merits are allowed.