BEGANI JEWELS,MUMBAI vs. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-3(2), MUMBAI

AY 2021-22: “1. (a) The assessment order passed u/s. 147 of the IT Act by the Id. Assessing Officer is without jurisdiction, invalid and bad in law and is also not in accordance with the procedures laid down in the Act. (b) The reopening of assessment u/s. 148 of the Act by the Jurisdictional Assessing Officer is invalid as the notice ought to have been issued by the Faceless Assessing Officer in view of the amendment in section 151A of the Act and therefore, the entire reassessment proceedings is vitiated and consequently, the assessment order passed by the Jurisdictional Assessing Officer u/s. 147 of the Act is void-ab-initio, invalid and bad in law. 2. (a) The ld. CIT(A) erred in facts and law in upholding addition u/s. 28 of the Act to the tune of Rs. 97,22,854/- by applying 'average GP percentage on the cost of comparable companies' in respect of certain specified items identified by the Id. Assessing Officer. The addition has been upheld on mere surmises and conjectures without appreciating that no corroborative evidence is found during the course of search proceedings or assessment proceedings. (b) The Id. CIT(A) erred in law and facts in failing to appreciate that determination of the final sale price would always be the commercial prerogative of the businessman and influenced by various factors and that the pricing decision fall within the legitimate domain of business discretion and that the revenue cannot sit on the armchair of a businessman to decide about the sale price of the item.”

AY 2022-23: “1. (a) The assessment order passed u/s. 147 of the IT Act by the Id. Assessing Officer is without jurisdiction, invalid and bad in law and is also not in accordance with the procedures laid down in the Act. (b) The reopening of assessment u/s. 148 of the Act by the Jurisdictional Assessing Officer is invalid as the notice ought to have been issued by the Faceless Assessing Officer in view of the amendment in section 151A of the Act and therefore, the entire reassessment proceedings is vitiated and consequently, the assessment order passed by the Jurisdictional Assessing Officer u/s. 147 of the Act is void-ab-initio, invalid and bad in law. 2. (a) The Id. CIT(A) erred in facts and law in upholding addition u/s. 28 of the Act to the tune of Rs. 7,89,435/- by applying 'average GP percentage on the cost of comparable companies' in respect of certain specified items identified by the Id. Assessing Officer. The addition has been upheld on mere surmises and conjectures without appreciating that no corroborative evidence is found during the course of search proceedings or assessment proceedings. (b) The ld. CIT(A) erred in law and facts in failing to appreciate that determination of the final sale price would always be the commercial prerogative of the businessman and influenced by various factors and that the pricing decision fall within the legitimate domain of business discretion and that the revenue cannot sit on the armchair of a businessman to decide about the sale price of the item.”

AY 2023-24:

1. 1. The assessment order passed u/s. 143(3) of the IT Act by the Id. Assessing Officer is without jurisdiction, invalid and bad in law and is not in accordance with the procedures laid down in the Act.

2. (a) The ld. CIT(A) erred in facts and law in upholding addition u/s. 28 of the Act to the tune of Rs. 46,78,471/-by applying 'average GP percentage on the cost of comparable companies' in respect of certain specified items identified by the Id. Assessing Officer. The addition has been upheld on mere surmises and conjectures without appreciating that no corroborative evidence is found during the course of search proceedings or assessment proceedings. (b) The Id. CIT(A) erred in law and facts in failing to appreciate that determination of the final sale price would always be the commercial prerogative of the businessman and influenced by various factors and that the pricing decision fall within the legitimate domain of business discretion and that the revenue cannot sit on the armchair of a businessman to decide about the sale price of the item.”

AY 2020-21: “1. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in restricting the addition for suppressed sales from Rs. 4,27,01,971/- to Rs. 63,41,679/- by replacing the AO's item-wise Cascade vs Tally comparison with a uniform 15.65% GP on-cost benchmark derived solely from assessee- furnished comparable." 2. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in holding that the action of the Assessing Officer in applying a 50% adjustment to Cascade tag prices was arbitrary and resulted in absurd gross profit figures, without appreciating that the said adjustment was a conservative and rational method to identify suppressed sales based on the assessee's own records." 3. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred failed to appreciate that stock valuation made by the Departmental Valuer and sales realization serve different purposes, and therefore comparison of implied sales with stock valuation is misconceived and irrelevant for determining suppression of income." 4. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the assessee failed to furnish detailed item-wise reconciliation for 103 jewellery items where recorded sale price was significantly lower than the corresponding Cascade tag price, despite being afforded repeated opportunities." 5. ".Whether on the facts and circumstance of the case and in law, the Ld. CIT(A)) failed to appreciate that no documentary evidence such as customer communications, negotiation approvals, or contemporaneous records were furnished by the assessee to substantiate steep reductions in sale prices, which rendered the AO's reliance on Cascade and Tally records as the only available basis for income determination." 6. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in the deletion of Rs. 3,63,60,292/- undermines the statutory mandate under Section 28 to make reasonable estimates of unaccounted income using operational records. The Ld. CIT(A)'s approach substitutes the actual evidence with generalized assumptions submitted by the assessee, disregarding the Departmental Valuer's corroborative report which leads to substantial under- assessment and loss to the exchequer. 7. " Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in law and on facts in treating the AO's methodology as arbitrary, whereas the same constituted a reasonable and accepted procedure under Section 28 of the Act for estimating suppressed business income in the absence of satisfactory explanation by the assessee.”

AY 2021-22: “1. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in restricting the addition for suppressed sales from Rs.4,00,81,163/- to Rs.97,22,854/- by replacing the AO's item wise Cascade vs Tally comparison with a uniform 14.83% GP-on cost benchmark derived solely from assessee- furnished comparable." 2. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in holding that the action of the Assessing Officer in applying a 50% adjustment to Cascade tag prices was arbitrary and resulted in absurd gross profit figures, without appreciating that the said adjustment was a conservative and rational method to identify suppressed sales based on the assessee's own records." 3. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred failed to appreciate that stock valuation made by the Departmental Valuer and sales realization serve different purposes, and therefore comparison of implied sales with stock valuation is misconceived and irrelevant for determining suppression of income." 4. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the assessee failed to furnish detailed item-wise reconciliation for 57 jewellery items where recorded sale price was significantly lower than the corresponding Cascade tag price, despite being afforded repeated opportunities." 5. ".Whether on the facts and circumstance of the case and in law, the Ld. CIT(A)) failed to appreciate that no documentary evidence such as customer communications, negotiation approvals, or contemporaneous records were furnished by the assessee to substantiate steep reductions in sale prices, which rendered the AO's reliance on Cascade and Tally records as the only available basis for income determination." 6. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in the deletion of Rs. 3,03,58,309/- undermines the statutory mandate under Section 28 to make reasonable estimates of unaccounted income using operational records. The Ld. CIT(A)'s approach substitutes the actual evidence with generalized assumptions submitted by the assessee, disregarding the Departmental Valuer's corroborative report which leads to substantial under- assessment and loss to the exchequer." 7. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in law and on facts in treating the AO's methodology as arbitrary, whereas the same constituted a reasonable and accepted procedure under Section 28 of the Act for estimating suppressed business income in the absence of satisfactory explanation by the assessee."

AY 2022-23: 1. "Whether on the facts and circumstance of the case and in law. the Ld. CIT(A) erred in restricting the addition for suppressed sales from Rs.2,57,15,639/- to Rs.7,89,435/- by replacing the AO's item wise Cascade vs Tally comparison with a uniform 12.38% GP-on cost benchmark derived solely from assessee- furnished comparable." 2. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in holding that the action of the Assessing Officer in applying a 50% adjustment to Cascade tag prices was arbitrary and resulted in absurd gross profit figures, without appreciating that the said adjustment was a conservative and rational method to identify suppressed sales based on the assessee's own records." 3. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred failed to appreciate that stock valuation made by the Departmental Valuer and sales realization serve different purposes, and therefore comparison of implied sales with stock valuation is misconceived and irrelevant for determining suppression of income." 4. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the assessee failed to furnish detailed item-wise reconciliation for 143 jewellery items, where, recorded sale price was significantly lower than the corresponding Cascade tag price, despite being afforded repeated opportunities." 5. ".Whether on the facts and circumstance of the case and in law, the Ld. CIT(A)) failed to appreciate that no documentary evidence such as customer communications, negotiation approvals, or contemporaneous records were furnished by the assessee to substantiate steep reductions in sale prices, which rendered the AO's reliance on Cascade and Tally records as the only available basis for income determination." 6. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in the deletion of Rs.2,49,26,204/- undermines the statutory mandate under Section 28 to make reasonable estimates of unaccounted income using operational records. The Ld. CIT(A)'s approach substitutes the actual evidence with generalized assumptions submitted by the assessee, disregarding the Departmental Valuer's corroborative report which leads to substantial under- assessment and loss to the exchequer." 7. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in law and on facts in treating the AO's methodology as arbitrary, whereas the same constituted a reasonable and accepted procedure under Section 28 of the Act for estimating suppressed business income in the absence of satisfactory explanation by the assessee."

AY 2023-24: 1. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in restricting the addition for suppressed sales from Rs.2,95,64,653/- to Rs.47,78,471/- by replacing the AO's item wise Cascade vs Tally comparison with a uniform 14.27% GP-on cost benchmark derived solely from assessee- furnished comparable." 2. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in holding that the action of the Assessing Officer in applying a 50% adjustment to Cascade tag prices was arbitrary and resulted in absurd gross profit figures, without appreciating that the said adjustment was a conservative and rational method to identify suppressed sales based on the assessee's own records." 3. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred failed to appreciate that stock valuation made by the Departmental Valuer and sales realization serve different purposes, and therefore comparison of implied sales with stock valuation is misconceived and irrelevant for determining suppression of income." 4. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the assessee failed to furnish detailed item-wise reconciliation for 86 jewellery items, where, recorded sale price was significantly lower than the corresponding Cascade tag price, despite being afforded repeated opportunities. 5. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A)) failed to appreciate that no documentary evidence such as customer communications, negotiation approvals, or contemporaneous records were furnished by the assessee to substantiate steep reductions in sale prices, which rendered the AO's reliance on Cascade and Tally records as the only available basis for income determination." 5. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in the deletion of Rs.2,48,86,182/- undermines the statutory mandate under Section 28 to make reasonable estimates of unaccounted income using operational records. The Ld. CIT(A)'s approach substitutes the actual evidence with generalized assumptions submitted by the assessee, disregarding the Departmental Valuer's corroborative report which leads to substantial under- assessment and loss to the exchequer." 7. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in law and on facts in treating the AO's methodology as arbitrary, whereas the same constituted а reasonable and accepted procedure under Section 28 of the Act for estimating suppressed business income in the absence of satisfactory explanation by the assessee."

4.1. Fact of the matter is that assessee is engaged in the business of jewellery wherein the business is of trading of cut and polished diamonds and color stones and manufacturing and selling of diamonds and color stone jewellery. A search and seizure action was undertaken in the case of Balkrishan Industries Limited Group on 11.03.2024, which included the assessee and its partners also.

“Jewellery is made on job work basis. All the raw materials (diamonds, colour stones and gold) issued to job workers are entered in Cascade software and job issue slip' is generated. This enables the assessee to keep a track of items issued to job workers. Once the item is manufactured by the job worker, the item code is created in Cascade. This enables the assessee to keep a track of finished items manufactured by the job workers. The item code is an alphanumeric number in series. For instance, Bangles will have reference number starting with 'BNG", necklace with 'NEC', bracelet with 'BRC, ear-ring with 'EAR', ring with 'RNG", etc. For maintaining physical stock of finished jewellery items, a photograph is clicked and a tag is printed for each item from the Cascade software. This enables the assessee to maintain physical stock of finished items at its store. A Tag Price (Reference price) is given to the finished item so that at any given point the Tag Price of the item can be quoted to the customer. When the customer likes any item and express his/her strong intention to buy the item during initial conversation with such customer, the item is given to the customer for selection / approval and when it is almost certain the sale would eventually happen based on verbal confirmation, the sale entry is recorded in the Cascade software for reference purpose although the formal sale may happen in due course once the final written signed invoice is issued to the Voutsard movem customer after finalization of sales terms.

7.1. According to the assessee, real price at which the jewellery is sold to a customer is usually much lower than the tag price for which several factors like size, shape, quality and design of the jewellery have a bearing on the final sale price. Additionally, market trends, supply and demand conditions, preferences of individual buyers and the perceived value of a customer also has a vital role in determining the final sale price. Once the final price is agreed by issuing a final written signed invoice to the customer, the same is entered in the Tally software at the agreed final sale price with the customer. In the Cascade software, this sale transaction is recorded with its tag price so as to track its outward movement from the inventory. Thus, the difference between the tag price in Cascade software and the final sale price recoded in the Tally software is not an unaccounted or unrecorded sale value as alleged by the ld. AO. Assessee submitted detailed reconciliation to explain the difference between the tag price/reference price in the Cascade software vis-à-vis the final and actual sale price in the Tally software. For the purpose of explaining the difference, it used the word “discount” as a nomenclature. This difference is not the real discount which the assessee offeres to its customers while concluding the deal for sale made by it. While submitting the reconciliation of sales reflected in Cascade with the actual sale as per Tally software, it was explained that value displayed in Cascade software is an artificially inflated price which is much higher than the actual realizable value of the item. There is nothing brought on record, neither by the ld. AO nor by the ld. DR to controvert this modus-operandi of the conduct of business as per the industry practices. Further, ld. AO has not established with anything found and seized during the course of search that actual sale took place at the tag/reference price which remained unrecorded.

7.2. The difference in the tag price as recorded in Cascade software and the final sale price as recorded in Tally software is not real as substantiated by the valuation report issued by the Department appointed Registered Valuer who valued the jewelry items lying in stock on the date of search for which the valuation was done as per rule 11UA of the Income-Tax Rules, 1962 [ the Rules] based on market valuation i.e. the value such jewellery would fetch, if sold in the open market on the date of valuation. Based on this valuation report, it arrived at an approximate value of Rs. 141 Cr. whereas the total value of the tag price of the same items entered in Cascade software was approximately Rs. 400 Cr. This significant difference being 2.80 times higher than the valuation arrived at by the appointed registered valuer of the Department in itself substantiates the explanation furnished by the assessee, claims the ld. Counsel of the assessee.

Sr. Particulars Rs. No. 1 Total Sale price of items in respect of which 8,89,19,391 addition is made 2 Total cost of items in respect of which addition is 7,81,02,406 made 3 Total profit declared on items in respect of which 1,08,16,985 addition is made (1-2) 4 Difference above 50% added by AO 4,27,01,971 5 Updated sale price considered by AO (At 50% 13,16,21,362 discount) (1+4) 6 Updated profit as per AO (3+4) 5,35,18,956 7 Resultant GP% on sales after addition by AO (6/5 40.66% X 100) 8 Resultant GP% on cost after addition by AO (6/2 68.52% X 100) 10. From the above table, it was pointed out before us that the resultant gross profit on sales stands at 40.66% and at 68.52% on cost which is highly unrealistic and absurd in the line of business in which assessee deals in. To support its contention, assessee had furnished the details of GP margins, both on sales and cost basis, of comparable companies engaged in similar line of business. Based on the working of the comparable company’s average GP margin on sales came to 13.47% and on cost basis at 15.65%. Thus, assessee demonstrated evidently with verifiable data that the approach adopted by ld. AO of considering difference between the recorded sales and 50% of the tag price as additional income lead to absurdity. Details of comparable furnished by the assessee is tabulated below:

Sr. Companies Amount Sales Cost GP GP% on GP% on No. in sales cost 1 Waman Hari Lakhs 61,169 54,157 7,012 11.46% 12.95% Pethe sons Pvt. Ltd. 2 Thangamayil Lakhs 1,69,196 1,48,691 20,505 12.12% 13.79% Jewellery Ltd. 3 Khanna Lakhs 43,105 37,923 5,182 12.02% 13.66% Jewellers Pvt. Ltd. 4 TBZ Lakhs 1,80,987 1,55,633 25,353 14.01% 16.29% 5 Kalyan Million 78,458 64,549 13,909 17.73% 21.55% Jewellers Average 13.47% 15.65%

“5.8.1 The assessee has contended that in case Updated Tag price as per Cascade software is considered as sale price, then it would give rise to absurd results as it would lead to Sate price multiple of cost of more than 3 times which is impossible rate In the assessee's line of business) This submission of the assessee along with its fr other contentions merits consideration. The jewellery business, particularly in the luxury segment, does not typically operate at such high multiples, as the cost-to-sale price ratio is generally much lower. In view of this, while excessive discounts are questionable, however, existence of normal discounts cannot be ruled out especially in such high end jewellery business. It is a fact that the assesse has limited customers and in order to maintain the same along with the need to maintain profits to keep running the business, these tactics of keeping prices higher is no new thing. It is the psychology of the customers to get impressed by discounts which was used by assessee. As most of the raw material used by the assesse is diamonds, which is highly subjective product with high margin, it is possible for the assessee to provide high discounts. The assessee has clarified that the tag prices displayed in the Cascade software are not reflective of the actual sale prices but are instead artificially inflated reference prices. This marketing strategy. commonly practiced in the jewellery industry, is aimed at creating a perception of higher value and exclusivity. The assessee has convincingly demonstrated that these inflated prices are not intended for actual transactions but serve merely as starting points for customer negotiations. Hence, in order to meet the ends of justice, it would be fair and appropriate to consider discounts upto 50% within the acceptable range so as to avoid absurd results. 5.8.2 Based on the item wise reconciliation as given in the para 5.7.1 above, it is observed that discounts have indeed been offered by the assesse. With respect to the acceptability of the Updated Tag Price, the contention of the assesse is justified as the same was found from the seized material and therefore verifiable. 5.8.3 The assessee has limited clientele and has stated that the items made on customization, if rejected, cannot be sold to other customers and therefore was sent for dismantling. The contention is acceptable from the fact there are certain items which were present in the Cascade software but not recorded in Tally software. The assesse claimed that they are the items sent for dismantling and hence are not sold. This primarily proves that the assesse caters to the high end customers. This also shows that assesse makes customized jewellery based on the specifications of the customers.”

Category No. Tag Price as Sale Amount Cost as per Gross Profit Average of per Cascade as per Tally Tally GP% on ite cost ms Items where 86 23,31,31,395 8,04,58,855 6,88,48,476 1,16,10,379 16.86% assessee has reported profit Items where 2. 1,12,146 26,788 26,788 0 0.00% no profit/ loss is reported Items sold at 15 2,99,99,183 84,33,748 92,27,143 -7,93,395 -8.60% loss Total 103 26,32,42,724 8,89,19,391 7,81,02,407 1,08,16,984 13.85% 13.1. Accordingly, from the above factual details tabulated above, the methodology adopted by ld. AO fails to address the very absurdity it sought to correct by applying a 50% discount on Cascade Tag Prices and treating the balance amount as unaccounted sales which is devoid of any statistical data or reasoning, yielding patently unrealistic results. Such an approach of ld. AO is based on estimation, without any element of corroborative data, moreover, ignoring the most clinching fact on record in terms of Departmental Valuation Report which in itself demonstrates that the current market value arrived at in the valuation exercise is significantly lower than the tag price recorded in the Cascade software.

1. The primary reason for discrepancy is that in the Department working Original Cascade Tag price' of items sold is considered whereas 'Updated Cascade Tag price ought to have been considered. It is pertinent to note that the Updated Cascade Tag price' is already forming part of the seized material Accordingly. the reconciliation submitted above now duly considers this.

2. Few sale items considered in the Department working are those items which are actually returned by the customers and then sold to other customers Hence, such items ought to have not been considered. The explanation of such items has already been given in our 'Reconciliation of amounts entered into Cascade software and Sales as per Tally submitted earlier.

3. Few sale items considered in the Department working are those items which belonged to the customers which were given to us for remaking for which only labour charges are charged by us from the customer. The amount appearing in Cascade is for the whole value of such jewellery items (which is calculated by the Cascade software automatically based on the specifications inputted) whereas the amount appearing in Tally represents labour charges of remaking of jewellery. This difference does not represent any discount given and therefore, the same ought to have been ignored. The explanation of such items has already been given in our 'Reconciliation of amounts entered into Cascade software and Sales as per Tally' submitted earlier.”

a. Tag prices in Cascade are reference prices, which are considerably higher than the final sale prices. b. Assesse claimed that this pricing method is common in the high-end jewellery industry, where the initial price is set higher for marketing purpose to create an impression of greater value and exclusivity in the minds of the customer and also for negotiation purpose. c. The final sale price is typically much lower, and various factors such as quality. design, market demand, and customer perception play a role in determining the final price and the final sale price is accurately reflected in the assessee's Tally accounting software. Assessee has submitted that the discrepancy is attributed to such high difference between the display price and the real sale price. d. Assessee also emphasized that “Discount” word was used in post search and assessment proceedings for nomenclature purpose to explain the reconciliation and the difference amount between the Cascade tag price and the actual sale price cannot be said to be real discount usually given in other industries. e. Assessee also relied on the valuation report prepared by the Department's appointed registered valuer at the time of search action to show that the tag prices entered into Cascade are substantially higher than the realisable value of the items. f. Assessee has disputed the difference figure of Rs. 26,10,97,840/- stated in the show cause notice and has provided a revised difference with detailed reconciliation, considering updated tag prices, returns, remade items, etc. Assessee contends that if the Cascade tag price were to be considered as the sale price, it would lead to unrealistic results, with the sale price being more than three times the cost, which is not feasible in its business. g. Assessee also highlighted that no substantial undisclosed assets or incriminating material were found during the search or assessment proceedings and that there is no evidence to support the claim that sales were made at the inflated Cascade tag prices, and if that was the case, search party would have discovered much larger undisclosed assets, which was not the case.

Order pronounced in the open court on 11.12.2025.