PRAKASH H. MUTHA,KALYAN vs. DCIT CENT. CIR. 1, THANE, THANE

Per: Smt. Beena Pillai, J.M.:

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha

The present appeal filed by the assessee arises out of consolidated orders passed by Ld.CIT(A)Central Circle-1, Thane for assessment years 2005-06 to 2007-08,vide order dated
05/07/2016 on following revised grounds of appeal :
“Α.Υ. 2005-06
The grounds mentioned hereunder are without prejudice to one another:
1) Thane erred in 1) The Learned Assessing Officer, DCIT, Central
Circle assuming juri iction on the basis of Centralization Order passed u/s.127 of the Income Tax Act, 1961 without giving reasonable opportunity of being heard.
2) The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition to the extent of Rs.32,35,216/- estimating the Gross Profit at 35% against the Gross Profit of 18.31% already offered by the appellant, without any basis.
3) The learned commissioner of income Tax (Appeals) erred in not even giving credit to the extent of amount already offered to tax
@18.31% in the return filed in response to 153A
4) The Learned Commissioner of Income Tax (Appeals) erred in enhancing the income to the extent of Rs.15,09,208/- in respect of initial investment in the stock without giving any opportunity/show cause notice during the appellate proceedings.
5) The Learned Commissioner of Income Tax (Appeals) erred in enhancing the addition of Rs.15,09,208/- incurred in regard to initial investment on the estimated basis without any evidences or basis and completely on the irrelevant considerations.
The Appellant craves the leave to add, amend, alter and/or delete any of the above grounds before or at the time of hearing.
Α.Υ. 2006-07
The grounds mentioned hereunder are without prejudice to one another:
1) The Learned Assessing Officer, DCIT, Central Circle 1, Thane erred in assuming juri iction on the basis of Centralization Order

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha passed u/s.127 of the Income Tax Act, 1961 without giving reasonable opportunity of being heard.
2) The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition to the extent of Rs.45,39,029/- estimating the Gross Profit at 35% against the Gross Profit of 18.31% already offered by the appellant, without any basis.
3) The learned commissioner of income Tax (Appeals) erred in not even giving credit to the extent of amount already offered to tax
@18.31% in the return filed in response to 153A
4) The Learned Commissioner of Income Tax (Appeals) erred in upholding the addition of Rs.6,86,625/- on account of Unexplained
Investments in Mutha House only on the basis of DVO Report without appreciating that there was no search material found during the course of Search in respect of investment in Mutha
House.
5) The Learned Commissioner of Income Tax (Appeals) erred in not providing the telescoping benefit in respect of addition of unexplained investments in Mutha house when already the appellant had offered the additional income in the Revised Return filed u/s.153A declaring Gross Profit at the rate of 18.31% on the sales.
The Appellant craves the leave to add, amend, alter and/or delete any of the above grounds before or at the time of hearing.
Α.Υ. 2007-08
The grounds mentioned hereunder are without prejudice to one another:
1) The Learned Assessing Officer, DCIT, Central Circle 1, Thane erred in assuming juri iction on the basis of Centralization Order passed u/s.127 of the Income Tax Act, 1961 without giving any reasonable opportunity of being heard.
2) The Learned Commissioner of Income Tax (Appeals) erred in rejecting the Audited books results U/s 145(3) without giving any opportunity/show cause notice during the appellate proceedings.
3) The Learned Commissioner of Income Tax (Appeals) erred in estimating Gross Profit at 35% on the entire turnover reported in Audited Books of Accounts without any basis and on irrelevant consideration.

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha
4) The learned commissioner of income Tax (Appeals) erred in not even giving credit to the extent of amount already offered to tax
@18.31% in the return filed in response to 153A
5) The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition to the extent of Rs.9,93,518/- treating the same as Unexplained Advances without appreciating that the same were received against the Sales and already appellant had offered Gross Profit @ 18.31% on entire sales.
6) The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.17,17,497/- on account of Unaccounted Stock without appreciating that only difference was in respect of Silver which amounted to Rs.9,14,760/- and therefore addition needs to be restricted to the same and further benefit of telescoping needs to be allowed.
7) The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.3,61,344/- in respect of loose papers found during the course of Search without appreciating that the said paper had no co-relation with the Assessee's business or the personal expenses and therefore the said addition was devoid of merits.
8) The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.1,29,066/- presuming it to be a Money Lending transaction without appreciating that the appellant was not engaged in Money Lending business and no such material was found. Further the said document was in respect of some
Roop Sangam which is a Saree Showroom, opposite the appellant's shop.
9) The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.3,59,989/- in respect of Gold
Received and Refunded back to M/s. Yash Gold.
10) The Learned Commissioner of Income Tax (Appeals) erred in not providing the telescoping benefit when already the appellant had offered the additional income in the Revised Return filed u/s.153A declaring Gross Profit at the rate of 18.31% on the sales.
The Appellant craves the leave to add, amend, alter and/or delete any of the above grounds before or at the time of hearing.”
Brief facts of the case are as under:

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha
2. The Ld.AR submitted that the above appeals were recalled vide order dated 01/07/2019 on the following directions:
“4. After hearing both the parties we feel that if the assessee had filed paper book and had requested the Bench at the time of hearing and once it was filed, then in the interest of justice matter should have been discussed on the basis of paper book filed. Without going into the various other aspects which have been raised in the Miscellaneous
Application on various grounds, we deem fit that the order should be recalled and be heard afresh on the basis of material brought on record in the paper book on merits. Accordingly, appeal of the assessee for A.Y.2005-06 is recalled and the Miscellaneous Application filed by the assessee is allowed.”
2.1 The Ld.AR submitted that, similar direction was given for assessment year 2006-07 and 2007-08.He thus submitted that all appeals are to be heard afresh based on the evidences filed by the assessee. The Ld.AR submitted that in all appeals the assessee has raised legal issue challenging assumption of juri iction by the Ld.AO the orders passed u/s.121 of the Act was passed without giving reasonable opportunity of being heard to the assessee.
2.2 He also submitted that, another common issue raised by the assessee in all the appeals is against the addition by estimating gross profit rate at 35% against the gross profit rate at 18.31%
offered by the assessee for assessment year 2007-08(wherein the return of income was filed by the assessee after the date of search that included all the seized materials.
2.3. The Ld.AR submitted that for each of the assessment years there are separate issues raised as under :
In A.Y. 2005-06
Ground No.4&5. That learned CIT(A) erred in enhancing the income to the extent of Rs. 15,09,208/- in respect of initial investment in stock

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha without giving any opportunity/show cause notice during the appellate proceedings. That the same has been done without any basis or evidence.
In A.Y. 2006-07
Ground No.4. That learned CIT(A) erred in upholding the addition of Rs.6,86,625/- on account of unexplained investments in Mutha House only. On the basis of DVO report without appreciating that there was no search material found during the course of search in respect of investment in Mutha House.
In A.Y. 2007-08
Ground No.5: That learned CIT(A) erred in confirming the addition to the extent of Rs. 9,93,518/- treating the same as unexplained advances without appreciating that the same were received against the sales and already assessee had offered gross profit @ 18.31% on entire slaes.
Ground No.6:That learned CIT(A) erred in confirming the addition of Rs.
17,17,497/ on account of Unaccounted Stock without appreciating that only difference was in respect of Silver which amounted to Rs.9,14,760/- and therefore addition needs to be restricted to the same and further benefit of telescoping needs to be allowed.
Ground No.7:That Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.3,61,344/-in respect of loose papers found during the course of Search without appreciating that the said paper had no co-relation with the Assessee's business or the personal expenses and therefore the said addition was devoid of merits.
Ground No.8:That Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 1,29,066/ presuming it to be Money
Lending transaction without appreciating that the appellant was not engaged in Money Lending business and no such material was found.
Further the said document was in respect of some Roop Sangam which is a Saree Showroom, opposite the appellant's shop. 15
Ground No.9: That Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.3,59,989/- in respect of Gold
Received and Refunded back to M/s. Yash Gold.
Ground No.10: That Learned Commissioner of Income Tax (Appeals) erred in not providing the telescoping benefit when already the appellant had offered the additional income in the Revised Return filed u/s.153A declaring Gross Profit at the rate of 18.31% on the sales.”

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha
Brief facts of the case are as under:
3. The assessee is an individual engaged into retail business of gold, silver and diamond jewellery. The retail business is carried on in the name of the proprietary concern M/s. Mutha Jewellers.
In addition to the income from business i.e. M/s. Mutha
Jewellers, the assessee is also having certain income from other sources.
3.1. A search was conducted u/s. 132 of the Income-tax Act, on 07/12/2006, at residential and business premises of the assessee. Documents seized from the assessee's premises were receipt and payment account containing details of sales/purchases made on a particular date mentioned therein. In the statement recorded on 29/1/2007 u/s 131 of the Act, during the search, the assessee admitted that the seized documents contained details of business transactions in the nature of sales/purchases of gold, jewellery etc., and loans given/returned etc.
3.2. Subsequently, notice under section 153A was issued to the assessee. In response to the notice u/s. 153A, the return of income was filed on 12/11/08, wherein the additional income based on the records seized during the search proceedings u/s.132, was included and accordingly, the additional tax payable was worked out for payment. The assessee claimed that the seized documents were not complete and the entire purchases were not recorded in these papers. While filing the return u/s. 153A, the assessee offered additional income for 8
ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha assessment years 2005-06 and 2006-07, based on seized records as under:
Assessment
Year
Income declared in original return
Total sales including additional sales (in Rs.)
2005-06
63,29,913/-
1,56,01,961/-
2006-07
68,63,940/-
1,98,32,596/-
3.3. In so far as 2007-08 was concerned as the search took place during the year, the assessee while filing the return of income considered the seized, and the accounts of the assessee were completed thereafter. It was submitted that seized materials were incorporated broadly in the regular books. The assessee thus in the original return of income declared total sales
Rs.1,15,98,423/-. The assessee offered to disclose additional income for assessment year 2007-08 at gross profit calculated @
18.3% of the sales recorded in the seized papers. Replies to the statutory notices were also filed along with necessary details required by the Ld.AO from time to time, as and when demanded.
3.4. The Ld.AO however treated the difference between the sales and purchases as recorded in the seized papers as additional income of the assessee.
Period
Asst year
Sales
Purchases
Difference added as income.
1.09.04-
31.03.05
2005-06
1,35,66,958
55,07,980
80,58,969
1.04.05
31.03.06
2006-07

1,14,48,967

49,79,528

64,69,439
1.04.06
31.10.07
2007-08
1,19,22,590

36,57,002
82,65,588
Total
3,69,38,515
1,41,44,519
2,27,93,996

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha
Aggrieved by the order of the Ld.AO the assessee preferred appeals for all the years under consideration before the Ld.CIT(A).
4. Before the Ld.CIT(A) the assessee disputed sales computed by the Ld.AO by relying on the working provided by the assessee. A remand report was thus called by the Ld.CIT(A). In the remand report the Ld.AO again considered the difference between sales and purchase figure as unaccounted profit of the assessee.
4.1 The Ld.CIT(A) thus recorded that the assessing officer did not verify the working of the assessee. The Ld.CIT(A) held the approach of assessing officer to be faulty. The Ld.CIT(A) was of the opinion that the proper method to ascertain assessee’s profit would be to estimate the gross profit on reasonable basis the Ld.CIT(A) thus called for the gross profit that assessee had otherwise declared in its original return in the preceding 3
assessment year. The Ld.CIT(A) noted that the assessee had disclosed gross profit in preceding assessment years as under :
Asst year
Sales
GP
GP%
2004-05
64,21,453
20,93,681
32.60
2005-06
63,29,913
21,94,612
34.60
2006-07
68,63,940
25,20,107
36.71
Average
34.63
2007-08
2,36,55,192
42,84,802
18.3

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha
CIT(A) thus applied the same rate for assessment year 2005-06
and 2006-07 and computed the gross profit as under:

2005-06
2006-07

Sales as determined by appellant
15601961
19832596

Less: Sales already included in returns filed U/s. 139(1)
6329913
6863940

Undisclosed Sales
9272048

12968656

Gross Profit 35% as discussed above
32,35,216
45,39,029

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha of 33,14,545/. Similarly in asst year 2006-07, the addition of 64,69,439/- is reduced to 45,39,029/-. The appellant gets relief of 16,45.686/-. In-the asst year 2006-07 and subsequent asst years no addition is required to be made as initial investment in unaccounted purchases because the same would have been sourced out of the earlier year's profit and sales.
21. As far as asst year 2007-08 is concerned, the previous year closed after the date of the search and the sales/purchases as recorded in the seized papers have been included in the regular books of accounts. But the GP shown in the regular books is adjusted by manipulating the closing stock figures. The appellant does not maintain day to day stock register. The books at least till the date of the search were not maintained regularly. The books are therefore unreliable and deserve to be rejected. The abnormally low GP shown in asst year 2007-08 is without any proper justification. Therefore I think it will be proper to apply the average GP rate of 35% to the entire turnover of the appellant.
The GP thus calculated comes to 82,79,317/- as against the GP of 42,84,801/- disclosed in the books. The difference of 39,94,516/- is confirmed as addition on account of undisclosed profit. The appellant gets relief of 42,71,072/-.
22. Thus the first issue of profit from unaccounted turnover is decided partly in favor of the suppellant. The relevant grounds of appeal in all the three asst years are allowed partly.”
For assessment year 2005-06
4.6. The Ld. CIT(A) noted that addition of Rs.15,09,208/- has initially invested in stock. The Ld.CIT(A) while estimating the gross profit 35% on sales expected by the assessee did not make any further addition on account of unaccounted purchases. The Ld.CIT(A) thus reduced the incorrect purchases to the extent of Rs. 15,09,208/-.
For assessment year 2006-07
4.7. The Ld.CIT(A) observed that an addition of Rs.6,86,625/- was made by the Ld.AO as unexplained investment in construction of Mutha house which was accepted by the assessee during the assessment proceedings. The assessee before the 13
ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha
Ld.CIT(A) submitted that this addition is not based on the any seized material. The Ld.CIT(A) rejected the contention because it was an admitted addition during the assessment proceedings the Ld.CIT(A) further noted that for assessment year 2002-03
assessee admittedly offer additional income of Rs.72,793/- on account of increase in construction of route.
4.7.1. The Ld.CIT(A) noted that as same purposes were found containing in details unaccented in profit for any year falling within the block period, the Ld.AO is duty bound to extrapolate the same. The Ld.CIT(A) thus confirmed the addition so made by the Ld.AO.
For assessment year 2007-08
4.8. The Ld.CIT(A) noted that assessing officer has made addition of Rs.17,17,479/- on account of unaccounted investment in stock. It was noted that the said addition was due to the difference in valuation report of the stock appearing in the books of account as on the date of search. The assessee had furnished following details before the Ld. CIT(A) to support its contention.

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha
4.9.1. The Ld.CIT(A) thus after considering the above statements filed by the assessee observed and held as under:
“39. I have considered the appellant's submissions and have gone through the copies of the seized papers. As regards the addition of 3,61,344/- the relevant paper appears to be from the appellant's diary.
On the top is written details of cheque payment followed by cash payment details. The total payment is 3,61,344/-. On the bottom is written 325 pyjama and 85 caps. The paper was seized from appellant's premises. The handwriting on this paper and on other papers appears identical. Thus, it was for the appellant to explain the source of the payments recorded on this paper. The appellant has failed to do so. Therefore, the addition made by the AO is confirmed.”

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha
Aggrieved by the order of the Ld.CIT(A) the assessee is in appeal before this Tribunal.
Common issues raised by the assessee shall be dealt with as under :
5. Issue 1: Ground no 1 raised by the assessee for all the years under consideration is in respect of all the orders passed in 127
of the Act without giving opportunity of being heard to the assessee.
5.1. We have heard rival submission of both sides. It is noted that, this legal issue was never raised by the assessee before lower authorities and the assessee has assailed it for the first time before this Tribunal. The Ld.DR at the time of argument relied on the provisions of subsection 124(3)(c) wherein, the assessee could not challenge the question of juri iction of assessing officer after expiry of 1 month from the date of served of notice u/s.153(a)(1) or (2) of 153(c) or after completion of assessment whichever is earlier. It is noted that the assessee practicpated in assessment proceedings without objecting to the transfer order passed u/s.127 of the Act. The Ld.DR filed the decision of Hon'ble Delhi High court in case of Abhishek Jain vs
ITO reported in (2018) 94 taxmann.com 355,wherein,Hon'ble Court analysed provision of section 127 read with section 124(3), notwithstanding the fact that there was a delay in raising the objection. Therefore, the objection to the juri iction of the assessing officer cannot be equated with the lack of subject matter of the juri iction. Respectfully following the above view, we do not find force in this ground raised by the assessee for all years under consideration.

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha
Accordingly, Ground no 1 raised by the assessee in all years under consideration stands dismissed.
Assessment year 2005-06 and 2006-07
6. Issue 2: Grounds 2-3 raised by the assessee is in respect of estimating gross profit at 35 % as against the gross profit of 18.31% offered by the assessee.
6.1. The Ld.AR submitted that, admittedly there were sales outside the books of account and therefore assessee offered additional gross profit of 18.3%, over and above the gross profit offered in the original report of income. The Ld.AR submitted that additional sales were offered by the assessee for these 2
assessment years based on the seized material. The Ld.AR submitted that the assessing officer however worked out gross profit out unexplained purchase/sales, based on the difference between the purchases and the sales in previous assessment years.
6.2. For assessment year 2007-08 is concerned as the return was filed by the assessee post the date of search, the entire unexplained purchases/sales were unaccounted in the books.
He thus submitted that the additional sales offered by the assessee for all the 3 assessment years and the sales offered in the return of income filed by the assessee u/s. 139(1) are as under :
Particulars
A.Y. 2005-06
A.Y. 2006-07
A.Y. 2007-08
Additional
Sales offered
92,72,048
1,29,68,656
7,43,067
Sales offered u/s.
139(3)
63,29,913
68,63,940
2,26,57,056
Total sales as per assessee
1,56,01,961
1,98,32,596
2,34,00,123

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha
6.3. The Ld.AR submitted that based on the above the total sales offered and the gross profit as per the profit and loss account would be as under:
Particulars
A.Y. 2005-06
A.Y. 2006-07
A.Y. 2007-08
Gross profit as per audited profit and loss
21,93,634
25,20,108
42,84,801
Gross profit % on revised sales
14.06%
12.71%
18.31%
6.4. The Ld.AR submitted that in any event it is net profit that needs to be considered as against the gross profit and the net profit declared by the assessee for the years under consideration was:
Particulars
A.Y. 2005-06
A.Y. 2006-07
A.Y. 2007-08
Total sales as per assessee
1,56,01,961
1,98,32,596
2,34,00,123
Total Net profit
19,50,444
28,28,790
11,23,898
Net Profit
12.50%
14.26%
4.80%
6.5. The Ld.AR thus submitted that, the Ld.CIT(A) estimated gross profit at 35% ignoring the gross profit already declared by the assessee and the additional profit declared during the assessment proceedings. He submitted that the impact of the addition by the Ld.CIT(A) would be as under:
Impact of CIT (A) addition

Net profit Addition considering
GP of 35% on total sales (after reducing Book GP)

(A)

32,35,216

45,39,029

39,94,516

Final NP offered by considering other business

Income additionally disclosed in the (B)
20,50,639 31,13,390 34,29,546

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha return under section 153A
Thus total net profit arrived post
CIT(A) order

(A+B)

52,85,855

76,52,819

74,24,062

Net profit % Post CIT(A) order

[(A+B)/(
Total
Sales)]

Net income under business Post
CIT(A) order

[(A+B)+
Profit and gains from Busine ss] =C
74,11,694

1,08,86,61
9

1,08,53,608

Net income under business % to sales post cit (a) order

[C/(Tot al sales)]

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha above which is the calculation by Ld.CIT(A) in para 10 of the impugned order. Accordingly, the alternate plea of telescoping raised by the Ld.AR for the Assessment Years 2005-06 and 2006-
07 does not survive for consideration. We therefore uphold the GP @ 35% for assessment year 2005-06 & 2006-07 as computed by the Ld.CIT(A).
Accordingly Ground No.2-3 for assessment years 2005-06 &
2006-07 and Ground No.5 for assessment year 2006-07
stands dismissed
7.2. For the Assessment Year 2007-08, it is observed that the Ld.
CIT(A), in paragraph 17 of his order, has referred to the percentage of stock vis-à-vis total sales while attributing a gross profit rate of 35%. The Ld.CIT(A) appears to have proceeded on the presumption that the gross profit had been reduced by adjusting the closing stock. However, it is noted that the assessee had, in fact, disclosed higher sales during the relevant year. In view thereof, we are unable to fully subscribe to the reasoning adopted by the Ld. CIT(A). In our considered opinion, gross profit bears a direct nexus with sales, and sales, in turn, are influenced by the movement of stock. A reduction in stock would naturally correspond to an increase in sales. Further, no material was found during the course of search to suggest any suppression or discrepancy beyond what was already recorded in the regular books of account. Accordingly, the presumption drawn by the Ld.CIT(A) does not appear to be justified in the facts and circumstances of the case. Further for assessment year 2007-08
the assessee filed the return of income post search, by considering the accounted as well as unaccounted sales and 26
ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha purchases. Accordingly, in our view, there is no reason to make any addition towards GP. The revenue’s perception to make the addition for assessment year 2007-08 as per para 21 of the impugned order is not tenable. We therefore direct the Ld.AO adopt 18.31% as GP for assessment year 2007-08. Accordingly Ground No.2-4 for assessment years 2007-08
stands allowed and Ground no.10 does not arise.
8. Issue 3: The assessee has alleged against addition of unaccounted investment in stock to the extent of Rs.15,09,208/- for assessment year 2005-06. 8.1. It is noted from paragraph 20 of the impugned order that the Ld.CIT(A) on estimation made addition of Rs.15,09,208/- as initial investment in respect of the unaccounted sales. The Ld.CIT(A) arrived at the said figure by computing 25% of the unaccounted sales, on the presumption that the assessee must have utilized unaccounted capital towards unaccounted purchases at the initial stage. However, there is no material found during the course of search to substantiate such a presumption.
8.2. On a perusal of the profit and loss account, it is further noted that the assessee has disclosed income from other business activities as well, indicating the availability of regular business funds. In the absence of any evidence suggesting deployment of unaccounted capital for the purpose of unaccounted sales, the estimation made by the Ld. CIT(A) on a presumptive basis cannot be sustained. The addition therefore made on account of alleged initial investment is directed to be deleted.

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ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha
Accordingly Ground No. 4-5 for assessment years 2005-06
stands allowed.
9. Issue 4: Ground no.4 for assessment year 2006-07 is on addition of Rs.6,68,625/- on account of unexplained investment in Mutha House based on DVO report.
Admittedly, there are no seized materials on this issue. The assessment for A.Y. 2006-07 also had not abated as on the date of search. Thus in our opinion, the Ld.AO could not have made any addition in respect of this issue.
Accordingly Ground No. 4 for assessment years 2006-07
stands allowed.
Assessment year 2007-08:
10.Ground no.5 The assessee alleges that that Ld.CIT(A) erred in confirming the addition to the extent of Rs.9,93,518/- treating the same as unexplained advances without appreciating that the same were received against the sales and already assessee had offered gross profit @ 18.31% on entire sales.
10.1. The Ld.AR submitted that since the sales have already been brought to tax by applying the gross profit margin method, any further addition in respect thereof would tantamount to double taxation.
10.2. The Ld.DR on the contrary relied on the order passed by authorities below.
We have perused the submissions advanced by both sides in light of recorded placed before us.

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Shri Prakash H. Mutha
10.3. We find merit in the contention of the Ld. AR that the sales in question have already been accounted for in the books of account and the income component thereof has been duly subjected to tax by applying the gross profit margin method.
10.4. Admittedly, the entries appearing in the seized bundle pertaining to the year under consideration were duly recorded in the regular books of account. The assessee had accounted for all the credit purchases, sales, payments received against sales, payments made towards purchases, salary expenses, and advances received, etc. It is also an admitted position that the assessee conceded that the seized materials did not reflect the correct quantum of sales and, accordingly, offered an additional income of Rs.7,43,067/- over and above what was recorded in the books as on the date of search.
10.5. Once such income has already been brought to tax, any further addition under section 69A of the Act on account of the same sales would be unsustainable in law, as it would result in taxing the same income twice. We, therefore, direct that the addition made on this account be deleted.
Accordingly Ground No.5 for assessment years 2007-08
stands allowed.
11. Ground No.6: The assessee alleges that that Ld.CIT(A)erred in confirming the addition of Rs.17,17,497/ on account of Unaccounted Stock without appreciating that only difference was in respect of Silver which amounted to Rs.9,14,760/- and therefore addition needs to be restricted to the same and further benefit of telescoping needs to be allowed.

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Shri Prakash H. Mutha
11.1. The Ld.AR submitted that, admittedly, the assessee is not maintaining a day-to-day stock register, and therefore, it was not possible to ascertain the value of stock on a particular date at the current market rate. Accordingly, in order to determine the value of stock at the end of the financial year, the assessee undertakes a physical verification of the stock, which is thereafter valued at cost (net of MVAT) in accordance with the consistent accounting policy regularly followed by the assessee. It was submitted that the Ld.AO made an addition on account of the difference between the valuation report and the value of stock as per the books of account on the date of search.
11.2. The Ld.AR further submitted that, on the date of search, the total quantity of gold ornaments found was 12,622.310
grams, which were valued at Rs.8,556 per 10 grams, aggregating to Rs.1,07,99,648/-. In addition, gold jewellery studded with diamonds weighing 68.19 grams (net) and containing 9.63 carats of diamonds was valued at Rs.2,41,014/-. Silver articles weighing
588 kilograms were valued at Rs.18,000 per kilogram, aggregating to Rs.10,44,000/-. Thus, the total value of stock was determined at Rs.1,20,84,662/-. The assessee also furnished the quantity of closing stock as on 31.03.2006 and 31.03.2007, as under:
Particular
As on 32/03/2006 gms.
As on 31/03/2007 gms.
Gold Bar
1273.990
39.86
Gold
18883.31
21069.22
Gold Scrap
Nil
264.05
Silver
318.730
14054.75

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Shri Prakash H. Mutha
11.3. The Ld.AR submitted that the total stock found on the date of search and valued by M/s. Rajwant, Registered Valuer, was duly covered by the average stock maintained by the assessee. It is also an admitted fact that no excess stock was found during the course of search, and therefore, the question of valuing the same for the purpose of determining any unaccounted investment does not arise. The Ld.AR further submitted that the net addition of Rs.6,73,597/- made by the Ld.AO on account of difference in the value of gold stock was arrived at by adopting the prevailing market rates as on the date of search. However, the stock held by the assessee could not be presumed to have been purchased on that date, as it represented accumulated purchases made over a period of time. Accordingly, the market rate as on the date of search under section 132 of the Act could not be validly adopted for valuation purposes.
11.4. The Ld.AR contended that there was no difference in the quantity of gold jewellery found during the course of search. The only variation pertained to silver articles, to the extent of 50.82
kilograms, as on the date of search. He submitted that if such difference is valued at the market rate prevailing on the date of search, i.e., Rs.18,000 per kg, the total value would come to Rs.9,14,760/-, which stands fully covered by the additional cash flow statement furnished before the Ld.AO along with the assessee’s letters dated 01/12/2008 and 03/12/2008. 11.5. The Ld.AR also contended that in none of the earlier assessment years the Ld.AO disputed or rejected the valuation rates adopted by the assessee, which have consistently been 31
ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha subjected to statutory audit. Therefore, adopting the market rate as on the date of search to make an addition would be wholly inappropriate. In light of the fact that there was no difference in the quantity of stock found during the search vis-à-vis the average stock maintained in the regular books, the question of making any addition on account of valuation difference does not arise. The Ld.AR thus submitted that, since no excess quantity of gold was found on the date of search, no addition could be sustained on this account.
11.6. On the contrary, the Ld.DR relied on the orders passed by the authorities below.
We have perused the submissions advanced by both sides in light of records placed before us.
11.7. It is evident that the total quantity of stock found during the course of search was fully reconcilable with the stock recorded in the regular books of account. No discrepancy in the quantity of stock was brought on record by the Ld.AO. The difference, if any, arose merely on account of valuation, which was computed by adopting the market rate prevailing on the date of search. We find merit in the contention of the Ld.AR that such valuation does not represent the cost at which the stock was actually acquired, since the same was purchased and accumulated over a period of time. The consistent accounting policy followed by the assessee to value stock at cost (net of MVAT) has not been shown to be defective or incorrect.

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Shri Prakash H. Mutha
11.8. It is further noted that in the preceding assessment years, the valuation method adopted by the assessee has been duly accepted by the revenue authorities, and no adverse finding has been recorded in this regard. Therefore, to substitute the cost- based valuation with the market rate as on the date of search, in the absence of any evidence of excess stock or suppression, would be unjustified. In view of these facts, and considering the admitted position that no excess quantity of stock was found, we hold that the addition made by the Ld.AO on account of alleged difference in the value of gold stock is unsustainable.
Accordingly, the addition of Rs.6,73,597/- is directed to be deleted.
11.9. As regards the difference in the valuation of silver articles, we observe that the variation was limited to 50.82 kilograms as on the date of search. Even if such difference is valued at the prevailing market rate of Rs.18,000 per kilogram, the total comes to Rs.9,14,760/-, which stands duly covered by the additional cash flow statement furnished before the Ld.AO which has not been countered by the revenue. The Ld.AO thus failed to duly consider the same and, therefore, made an unwarranted observation that no cash flow statement had been filed by the assessee a finding contrary to the material on record.
11.10. In view of the above facts and circumstances, it is evident that the difference in the value of stock, as alleged by the Ld.AO, is minimal and fully explained through the additional cash generated and disclosed in the return of income filed under section 153A of the Act.
Accordingly, the addition of 33
ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha
Rs.17,17,497/- made by the Ld.AO is unsustainable and is directed to be deleted.
Accordingly Ground No.6 for assessment years 2007-08
stands allowed.
12. Ground No.7:The assessee has alleged that the Ld. CIT(A) erred in confirming the addition of Rs.3,61,344/- in respect of certain loose papers found during the course of search, without appreciating that the said papers had no correlation with the assessee’s business or any personal expenditure, and therefore, the addition is devoid of merit.
12.1. The Ld.AR submitted that the Ld.AO erred in treating the notings on the said papers as undisclosed expenditure in the hands of the assessee, without appreciating that the same had no nexus whatsoever with the assessee’s business activities. It was submitted that the assessee is engaged in the retail trade of gold jewellery, and it would be wholly unreasonable to presume any connection between the notings and the business operations of the assessee.
12.2. The Ld.AR further contended that in the absence of any corroborative material, it cannot be inferred that the said notings represented personal expenses of the assessee, as it would be absurd to suggest that the assessee had incurred expenditure towards the purchase of 325 pyjamas and 85 caps for personal use. The Ld.AR submitted that mere notings on loose sheets, found interspersed among other business papers, cannot be held to represent any unaccounted or unexplained expenditure of the 34
ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha assessee unless the revenue brings on record cogent evidence to establish such a link. Accordingly, the Ld.AR prayed that the addition of Rs.3,61,344/- be deleted in its entirety.
12.3. On the contrary, the Ld.DR relied on the orders passed by the authorities below.
We have perused the submissions advanced by both sides in light of records placed before us.
12.4. It is evident that the impugned addition has been made solely on the basis of certain noting on loose papers found during the course of search, without there being any corroborative evidence to establish that such noting represented actual expenditure incurred by the assessee. It is a settled principle of law that loose papers or documents, by themselves, do not constitute conclusive evidence of undisclosed income unless supported by independent material linking them to the assessee’s business or personal affairs. In the present case, no such nexus has been demonstrated by the Revenue.
12.5. We also note that the nature of entries such as alleged purchase of 325 pyjamas and 85 caps, is wholly inconsistent with the line of business carried on by the assessee, who is engaged in the retail trade of gold jewellery. In the absence of any evidence to show that the said expenditure was actually incurred or that it was financed out of undisclosed sources, the inference drawn by the Ld. AO is purely conjectural. The addition made, therefore, cannot be sustained either in law on facts.

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Accordingly Ground No.7 for assessment years 2007-08
stands allowed.
13. Ground No.8:The assessee alleges that that Ld.CIT(A) erred in confirming the addition of Rs.1,29,066/ presuming it to be money lending transaction without appreciating that the appellant was not engaged in money lending business and no such material was found. Further the said document was in respect of some Roop Sangam which is a Saree Showroom, opposite the appellant's shop.
13.1. The Ld.AR further submitted that the loose paper in question contained the name “Roop Sangam.” It was explained that Roop Sangam is a business establishment located opposite the assessee’s shop, and it is quite possible that the impugned noting pertained to a customer or a third party, and may have inadvertently come into the assessee’s possession along with other loose papers kept at the business premises. The Ld.AR submitted that the seized bundle from which the said paper was found contained several unrelated loose sheets, and therefore, an isolated paper bearing some entries cannot be attributed to the assessee without any corroboration. It was further submitted that Roop Sangam is neither a supplier nor a customer of the assessee, and does not appear in any of the regular books of account or other seized materials. Hence, by no stretch of imagination can the said paper be considered as representing unexplained expenditure in the hands of the assessee.
13.2. On the contrary, the Ld.DR relied on the orders passed by the authorities below.

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Shri Prakash H. Mutha
We have perused the submissions advanced by both sides in light of records placed before us.
13.3. It is observed that the impugned addition has been made merely on the basis of certain loose papers containing the name
“Roop Sangam,” without any corroborative evidence to establish that the same pertained to the assessee or represented any expenditure incurred by him. The explanation offered by the assessee that Roop Sangam is a business establishment situated opposite his shop and that the said noting could have been left behind by a customer or third party is both reasonable and unrebutted. It is further evident that Roop Sangam is neither a supplier nor a customer of the assessee, and no corresponding entry is traceable in the regular books of account or in any other seized material.
13.4. In these circumstances, the mere presence of a stray loose paper bearing the name of a third party, found amongst several unrelated documents, cannot by itself constitute evidence of undisclosed expenditure. The settled position of law is that loose sheets, in the absence of any independent corroboration or nexus with the assessee’s business or personal affairs, do not possess evidentiary value sufficient to justify an addition. The Assessing
Officer has not brought on record any material to demonstrate that the entries on the said paper had any connection with the assessee’s financial transactions. We therefore hold that the impugned loose paper is extraneous to the assessee’s business and cannot form the basis of an addition under section 69C or 37
ITA No. 5982, 5983, 5984/Mum/2016; A.Y. 2006-07
Shri Prakash H. Mutha otherwise. The addition of Rs. 3,61,344/- is therefore held to be devoid of any evidentiary foundation and is directed to be deleted.
Accordingly Ground No.8 for assessment years 2007-08
stands allowed.
14. Ground No.9: The assessee alleges that that Ld.CIT(A) erred in confirming the addition of Rs.3,59,989/- in respect of Gold
Received and Refunded back to M/s. Yash Gold.
14.1. The Ld.AR submitted that the seized document pertaining to M/s. Yash Gold represents a quantity account and not a monetary transaction. It was explained that the entries reflect the receipt of jewellery and the issue of fine gold against such receipt, which are part of the regular manufacturing process of gold ornaments undertaken by the assessee. The Ld.AR submitted that the assessee received jewellery from the said party for conversion or re-manufacturing, and in lieu thereof, an equivalent quantity of fine gold was issued. Both the receipt of jewellery and the issue of fine gold stand duly covered by and reconciled with the average stock balances maintained in the regular books of account.
14.2. It was further submitted that the figures of Rs.3,59,989/–
appearing on both sides of the seized document merely denote the corresponding quantities of gold received and issued, and therefore, no monetary transaction, either receivable or payable, arises there from. The said entries do not represent any cash receipts or payments; they merely reflect adjustment of gold in equivalent measure. The transactions are settled entirely in terms

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Shri Prakash H. Mutha of fine gold and not in money, and hence, no addition on account of unexplained cash or investment is warranted.
14.3. On the contrary, the Ld.DR relied on the orders passed by the authorities below.
We have perused the submissions advanced by both sides in light of records placed before us.
14.4. On perusal, it is evident that the impugned document relating to M/s. Yash Gold represents only a quantitative statement recording the receipt of jewellery and issue of fine gold, forming part of the regular manufacturing and conversion activity carried out by the assessee. The figures noted therein merely indicate equivalent quantities of gold received and returned, and do not reflect any flow of money. The Ld.AO has not brought on record any evidence to suggest that the said entries represented cash transactions or that any monetary consideration passed between the parties.
14.5. It is further noted that the assessee has maintained quantitative records of gold movement, and the transactions reflected in the seized paper stand reconciled with the average stock balances appearing in the regular books of account. The entries on both sides being of matching quantity and value, there remains no outstanding balance receivable or payable, either in money or in kind. In these circumstances, treating such quantitative reconciliation as unexplained investment or expenditure is unsustainable.

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Shri Prakash H. Mutha
14.6. Accordingly, we find merit in the explanation of the assessee that the impugned entries pertain only to manufacturing activity involving the exchange of equivalent quantities of gold and not to any unaccounted financial transaction. The addition of Rs.3,59,989/– made by the Ld. AO and sustained by the Ld. CIT(A) is, therefore, devoid of factual or legal basis and is directed to be deleted.
Accordingly Ground No.9 for assessment year 2007-08
stands allowed.
In the result the appeals filed by the assessee for all the years stands partly allowed.
Order pronounced in the open court on 31/10/2025 (RENU JAUHRI)
Judicial Member
Mumbai:
Dated: 31/10/2025
Dragon, Poonam Mirashi,
Stenographer
Copy of the order forwarded to:
(1)The Appellant
(2) The Respondent
(3) The CIT
(4) The CIT (Appeals)
(5) The DR, I.T.A.T.By order

(Asstt.