KAPOOR WATCH COMPANY PVT. LTD.,DELHI vs. DCIT, CENTRAL CIRCLE-17, DELHI

Since all the appeals filed by the assessee and the Revenue are having common issues, therefore, all these appeals are decided by a common order.

Against the said order, he assessee filed appeal before Ld. CIT(A) who vide impugned order dated 25.07.2025, partly allowed the appeal of the assessee wherein addition made towards alleged cash sales made to dummy parties of INR 83,37,000/- and further for estimation of profit of INR 12,13,53,672/- were deleted and the addition made u/s 69C of the Act for alleged commission paid at INR 2,50,110/- as unexplained expenditure, is sustained.

Aggrieved by the said order, both the parties are in appeal before the Tribunal by filing their respective appeals.

Before us, Ld.AR for the assessee submits that notice u/s 148 was issued on 29.07.2022 after the order passed u/s 148AD of the Act. Ld. AR drew our attention to page 1 & 2 which is the copy of the notice issued u/s 148 of the Act and stated that the said notice issued after obtaining prior approval of Ld. PCIT dated 28.07.2022. Ld. AR submits that as per the amended provisions u/s 148, the approval should be granted by Ld. PCCIT or Ld. CCIT however, the same is taken from Ld. PCIT therefore, the notice issued u/s 148 is invalid and consequent re-assessment order is deserves to be quashed. Page | 4

On the other hand, ld. CIT DR vehemently supported the order of lower authorities and submits that the notice u/s 148 was issued after following the due procedure as provided in section 151 of the Act and further the assessment is completed on the basis of the material found as a result of search thus the action of the AO in reopening the assessment deserves to be uphold. She prayed accordingly.

Heard both the parties at length and perused the material available on record. Claim of the assessee is that the fresh notice u/s 148 of the Act on 29.07.2022 after passing the order u/s 148A(d) on even date was issued after obtaining the approval from the Pr. Commissioner of Income Tax-4, Delhi. Similarly, the order u/s 148A(d) was passed after obtaining prior approval from the Pr. Commissioner of Income Tax-4, Delhi and approval was not taken from the authority prescribed u/s 151(ii) of the Act i.e. from the PCCIT or PDGIT, as the case is sought to be reopened after the expiry of the three year from the end of the relevant assessment year. Moreover, search and seizure operation u/s 132 of the Act was carried out on 31.10.2022 i.e. much after the reopening of the case u/s 147 of the Act thus, it cannot be said that it was reopened as a result of search. This is also evident from the order passed u/s 148A(d) of the Act where no reference was made for any material found/seized as a result of search.

Section 148 of the Act is substituted by the Finance Act, 2021 w.e.f. 01.04.2021 and notice u/s 148 of the Act under the old provisions applicable till 31.03.2021 could be issued only upto 31.03.2021. This issue stands settled by the Hon’ble Supreme Court in Union of India vs. Ashish Agarwal reported in 444 ITR 1 (SC). Under the amended provisions for reopening the assessment, the AO should issue notice u/s 148A(b) of the Act and after considering the submission of the assessee order u/s 148A(d) of the Act should be passed. Thereafter, the notice u/s 148 of the Act could be issued only after getting the approval from the authority prescribed u/s 151 of the Act. The provisions as contained in section 151 regarding approval (as was applicable at the relevant point of time) is reproduced as under:

It is thus clear that notice u/s 148 after the expiry of three years from the end of the relevant assessment year could be issued only after getting approval from the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General of Income Tax. In the instant case admittedly, it is a matter of fact discernible from the record that the notice u/s 148 of the Act, dated 29.07.2022, had been issued by the ACIT, Circle 13(1) New Delhi, Page | 6 after obtaining prior approval of Pr. Commissioner of Income-Tax, Delhi-4 dated 28.07.2022, the copy of the notice issued u/s 148 is placed at page 1 & 2 of PB. The approval so obtained is contrary to the provisions of section 151(ii) of the Act as amended/substituted by the Finance Act, 2021, as it was issued on 29.07.2022 i.e. after the expiry of three years from the end of relevant assessment year and therefore, statutory sanction/approval from Principal Chief Commissioner of Income-tax or Chief Commissioner of Income is mandatory. In this regard reliance is placed on the decision of the Hon’ble Supreme Court in Union of India vs. Rajeev Bansal, [2024] 469 ITR 46 (SC). Further the hon’ble jurisdictional high court in the case of Communist Party of India (Marxist) vs. CIT Exmpt. reported in [2025] 174 taxmann.com 925 (Delhi), the Hon'ble Delhi High court has held as under: “10. The impugned notice is also liable to be set aside on the ground that it was issued without the approval of the authority specified under Section 151 of the Act. Since the impugned notice was issued beyond the period of three years from the end of the relevant assessment year, thus, in terms of Section 151(ii) of the Act, the same was required to be approved by the Principal Chief Commissioner or Principal Director General or where there is no such authority, by Chief Commissioner or Director General. The determination of the specified authority for grant of approval under Section 151 of the Act depends on whether the notice under Section 148 of the Act has been issued after the expiry of three years from the end of the relevant assessment year or within the said period."

As observed above, notice u/s 148 of the Act was issued on 29.07.2022 after obtaining the approval of Pr.CIT-4, Delhi and not from the authority prescribed u/s 151(ii) of the Act i.e. Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General of Income Tax, thus the notice u/s 148 on 29.07.2022 is bad in law and consequent reassessment order passed on the basis of the proceedings initiated vide such in valid notice is hereby quashed. Accordingly, grounds of appeal No. 1 & 2 raised by the assessee are allowed.

Since we have already allowed Ground of appeal Nos. 1 & 2 raised by the assessee and quash the re-assessment order passed on the invalid approval given by Ld. PCIT therefore, the other Grounds of appeal taken by the assessee on the merits of the addition became academic.

In the result, appeal of the assessee in 5640/Del/2025 for Ay 2017-18 is allowed.

Now we take appeal of the Revenue in ITA No. 6825/Del/2025 [Assessment Year 2017-18].

In the result, appeal of the Revenue in ITA No. 6825/Del/2025 is dismissed.

Now we take assessee’s appeal in ITA NO. 5642/Del/2025 and revenue’s appeal in ITA No. 6827/Del/2025 for Assessment Year 2019-20.

Against such order, assessee preferred appeal before Ld. CIT(A) who vide impugned order dated 25.07.2025 allowed substantial relief to the assessee and deleted the additions towards sales made though dummy parties made u/s 69A of the Act and further deleted the trading additions made on the allegation of suppressed sales. However, addition of Rs. 1,47,300/- made u/s 69C of the Act towards unexplained expenditure of commission was confirmed by ld. CIT(A) out of the total addition of INR 1,28,96,424/- made by the AO.

Aggrieved by the said order, both the Assessee and the Revenue are in appeal before the Tribunal.

Ground of appeal No.1 taken by the Revenue is with respect to the deletion of the additions of INR 4,29,88,081/- made towards the cash profit earned from the cash sales routed through dummy buyers, INR 11,60,70,929/- on account of suppressed undisclosed cash profits and INR 1,27,49,124/- on account of unaccounted cash paid as commission.

In Ground of appeal Nos. 2 to 9, the Revenue has challenged the deletion of these additions on various counts since all the 03 issues have been taken by the Revenue in Ground of appeal No.1 and subsequently, the other Grounds of appeal are in support of the ground appeal No.1, therefore, all the grounds of revenue’s appeal are taken together.

Heard the contentions of both the parties at length and perused the material available on record. AS observed above, the AO in its order has made three types of additions which are : 1. The AO alleged that the assessee has made cash sales to customers and with the help of key staff arranged other dummy buyer who made the payment through RTGS/NEFT/other banking channel for such purchases and thus in the guise of sales assessee has retained cash profit and issue the sales bill at a lower price. Therefore, AO mad ethe addition of 10% cash profit on such cash sales as undisclosed income.

Now we discuss each category of addition separately. First type of addition is with regard to undisclosed cash Profit retained on cash sales to customers routed in the books via RTGS/NEFT through dummy buyers. The Ld. CIT(A) has dealt with this issue in para 5 to 5.101 of the order.

Ld. CIT(A) in para 5.5 to 5.36 has dealt with the issue of sales of INR 49.10 Lakhs alleged as non-genuine transactions facilitated by entry operators and observed that there is no evidence or statement found as a result of search from which it could be alleged that assessee has received 10% extra profit in cash on such sales. The relevant observations of Ld. CIT(A) are as under:-

Before us, Revenue has failed to controvert the findings of Ld. CIT(A) and further failed to bring on record any contrary material or evidence found as a result of search or collected during the course of post-search proceedings to support the allegation that assessee has made cash sales to the person other than whose name the sales bills were made and payment was received from banking channel and had received 10% in extra profit in cash on such sales over and above the sales recorded in the books of accounts. Therefore, no addition could be made dehorse the incriminating material found/seized as a result of search on mere assumptions and presumptions.

Now coming to Second category where sales made by availing RTGS entries in the garb of advance payment from various individual/entities of INR 1,88,28,475/-. The AO while making the addition on this account has relied upon certain statements of alleged entry providers. Ld. CIT(A) has discussed the sales made to each individual party in its order in para 5.40 to 5.52 of the order and in para 5.51, Ld. CIT(A) observed that no evidence or statement has been brought on record which could satisfy the receipt of cash @ 10% on such sales. The relevant observations with respect to each individual parity as contained in para 5.40 to 5.60 are reproduced as under:-

From the perusal of the above, it is observed that the assessee has explained each individual entry of advance got settled in subsequent years by way of sales or refund. Before us, the revenue has failed to controvert such findings of ld. CIT(A) by referring to any material or otherwise.

The Third category where the sales of INR 6,91,24,988/- made to the entities in whose case CBI enquiry is pending is alleged as made in cash and received cash profit of 10% over and above the profit as per books of accounts.

Ld. CIT(A) has discussed these transactions in para 5.53 to 5.63 of its order wherein in para 5.62, Ld. CIT(A) has concluded that no material/evidence was brought on record which could satisfy that assessee has received 10% cash profits on such sales. The relevant observations of Ld.CIT(A) as contained in para 5.53 to 5.63 are as under:-

Now coming the Fourth category where the AO alleged the sale of INR 33,70,17,351/- have been made to the entities with NIL/low return of income/non-filers. Ld. CIT(A) has discussed this category of transactions in para 5.64 to 5.91 of its order and observed that no evidence/statement was brought on record in support of the allegation that the assessee has received 10% cash on such sales.

Thereafter, Ld. CIT(A) in para 5.92 to 5.100 has observed that AO has failed to consider the fact that the assessee has filed all the documentary evidences in the form of ledger, PAN, GST certificate/tax invoices alongwith stock inventory and payment proofs. Ld. CIT(A) further observed that assessee has submitted KYC of the buyers and the sales made have been done in the normal course of business. The relevant observations of ld. CIT(A) as contained in para 5.64 to 5.100 are reproduced herein below for sake of convenience:

From the aforesaid discussion and after perusing the order of ld. CIT(A) on all the four categories of transactions doubted by the AO, it is observed that the assessee in the normal course of business has sold the goods to the customers who physically visited the showrooms and purchased the goods and made payment. Once sales have been made and payment is received; the assessee is not under any obligation to examine whether the person who is making the payment is the same person who has purchased the goods or someone else. As a prudent businessman, assessee is concerned with the sales and payment thereof received through banking channel. The AO has not alleged that payments has been received in cash. In some cases where the buyer has not desired to disclose his identity, in the larger interest of the business since the assessee has got the payment through banking channel, their mobile no. or email ID was stated however when the goods were delivered and payment was received through banking channel they cannot be held as dummy or as non-existent.

The assessee has discharged the burden casted upon it to prove the purchases by filing all the relevant details such as purchase and sales bill, all the ledgers, bank statements, quantitative details, GST returns and other relevant information to establish that the purchases and sales as recorded in the books are genuine. It is further observed that the assessee has made specific reply of each and every allegation of the AO with respect to each individual party alleged as the entry operator or the dummy buyers which is available at pages 8 to 79 of the order of ld. CIT(A) where the pointwise rebuttal made by the assessee of each and every allegation made by the AO is Page | 43 replied. It is further observed that revenue has failed to rebut any of the reply filed by the assessee.

In the last one more fact which needs to be considered that the AO has made the addition u/s 69A of the Act. Provisions of section 69A are attracted where the assessee is found the owner of any money, bullion, jewellery or any valuable article or thing which is not recorded in the books of accounts and the assessee has failed to explain the source of the same to the satisfaction of the AO. In the instant case, as observed above, the sole allegation of the AO is that assessee has made cash sales to a person and the sales has been shown in the name of other person from whom the payment is received through RTGS/NEFT etc. and in this entire transaction assessee has received extra profit in cash @ 10% from the original buyer. However, the entire transaction is out of the purview of section 69! Of the Act which is not applicable in this case. Ld. CIT(A) has categorically held that no evidence was found as a result of search that assessee has received cash from sales and therefore we are in agreement with the ld. CIT(A) that the provisions of section 69A of the Act cannot be applied to the facts of the present case.

Under these circumstances, we find no error in the order of Ld.CIT(A) who has rightly deleted the additions made towards undisclosed cash profit @ 10% alleged as received in cash in excess of the sales price recorded in the books of accounts. Accordingly, the order of ld. CIT(A) on this issue is upheld and Revenue’s appeal on this issue is dismissed.

Now coming to addition of unexplained expenditure in the shape of commission of INR 1,28,96,424/- made u/s 69C of the Act out of which a sum of INR 1,47,300/- was confirmed by Ld. CIT(A) for which assessee is in appeal in Ground of appeal No. 4 and remaining addition is deleted for which Revenue is in appeal before us.

As observed above, while deciding the issue of undisclosed cash profit from the sale alleged as made through dummy buyer, we have observed that the Revenue has failed to bring on record any contrary material found as a result of search from which it could be established that assessee has obtained any such accommodation entry or received any such cash profit thus the question of payment of commission in cash @ 3% does not arise. It is also relevant to state that once we have hold that assessee has never received any amount in cash as has been alleged by the AO that it has received 10% cash over and above the sales recorded from the books of accounts from dummy buyers, it could not be alleged that the assessee has paid commission for such alleged accommodation entries of sales. It is also a matter of fact that the goods sold by the assessee are part of the goods imported from outside India and availability of the stock with the assessee is never in dispute. The sales have been made and the payments have been received through banking channels therefore. We find no infirmity in the order of Ld. CIT(A) who has deleted the addition. Regarding the assessee’s appeal confirming the addition of INR 1,47,300/- as commission for accommodation entries of sales of INR 49,10,000/- out of the total addition of INR Page | 45 1,28,96,424/- made by AO, for the reason that certain persons have admitted to provide accommodation entries to the assessee. It is observed that assessee has not provided any opportunity of cross examine those persons nor the cash profit on the sales made to the extent of such alleged accommodation entries was uphold by ld. CIT(A). Once it is accepted that the sales made is genuine, the question of receiving any accommodation entry does not arise more particularly when no incriminating material was found/seized as a result of search indicating payment of such commission in cash out of the undisclosed sources by the assessee.

In view of all these facts, the additions so confirmed by Ld. CIT(A) is hereby, deleted. Accordingly, Ground of appeal No.4 raised by the assessee is allowed and the appeal of the revenue on this issue is dismissed.

Now coming to the deletion of addition of INR 11,60,70,929/- made by AO by alleging the same as suppressed profit by making sales of same model at a lower GP.

On careful consideration of the facts and argument of both the parties, it is observed that the AO has based his findings on the allegation that the same model of a watch was sold to two different customers where the GP ratio is abnormally differed. The AO thus, bifurcated the sales into two part, first where GP rate of more than 10% is earned and second, where GP rate of less than 10% is earned. The AO than applied the average rate of GP of more than 10% to the Page | 46 purchases of goods having GP less than 10% and differential amount is alleged as suppressed profit.

Before alleging so, the AO has invoked the provisions of section 145(3) of the Act and rejected the trading results. In first appeal, ld. CIT(A) vide para 4 to 4.10 of the order, has held that the books of accounts cannot be rejected by making following observations:-

The AO in para 12.7 of the order observed that the assessee has suppressed its results both quantity-wise and value-wise and retained undisclosed cash profits. Thus, the assessee has prepared its books of accounts based on bogus sales bills affected the correctness and completeness of the accounts. Accordingly, AO concluded that the accounts of the assessee cannot be considered to be correct and the income reduced therefore is not reliable The AO further placed reliance on the judgment of Hon’ble Delhi High Court in the case of CIT versus Rajeev Gupta in ITA No. 828/2005 dated 31.07.2019. Thereafter the AO proceeded to estimate the income of the assessee by alleging that assessee has suppressed the profits by selling the same product at different margins.

It is observed that before the AO as well as before ld. CIT(A), assessee has explained the reasons for low gross profit on the sale of same model and with respect to the instances pointed out by AO of sale of similar models at different rates, it was explained that products sold are not comparable. The assessee’s further stated that AO cannot walk into the show of businessman to determine the prices at which the goods is sold in the normal course of business and it is the prerogative of the businessmen to run the business as per his terms and conditions. The sale price depends upon various factors such as the aging of the product, interest of buyers, availability of products etc. and circumstantial existed at the point of sale which cannot be measured by the sitting in the office and comparing the sales from one bill to another bill. Ld. CIT(A) has appreciated this fact while deleting the addition by making following observations in para 7.1 to 7.45 of its order wherein Ld. CIT(A) has also relied upon various judgments of Hon’ble Supreme Court. The said observations are as under:-

Before us, Ld. CIT DR has failed to controvert the findings given by Ld. CIT(A). It is further observed that additions have been made purely on assumption and presumption basis. The ld. CIT(A) has held that the books of accounts of the assessee are properly maintained and no material was brought on record to hold the same as defective. As observed above, allegations made by the AO with respect to the sales as made at different rates to different customers cannot be a reason to reject the books and estimated the sale when the assessee has been able to demonstrate by filing every possible detail of the Page | 64 customers such as their KYC documents, sales invoices, corresponding availability if the stock and the receipt of sales consideration through banking channel.

For sake of repetition, it is once again reiterated that it is not in dispute that goods have been sold nor there is any allegation that such goods were sold without stock in hand and neither it was alleged that the payments were received in cash. It is also a matter of fact that no evidence whatsoever was found as a result of search with the assessee which could support the allegation of the AO of receipt in cash over and above the sales recorded in the books of accounts. The assessee as a prudent businessman has always tried to get every possible detail that could be taken from the customer and cannot forced them to verify whether the details provided are correct or more particularly, when the customers has purchased the luxury watches having substantial value and payments were made through banking channels. The assessee filed a chart before the ld. CIT(A), containing the sales of different models having GP rate of less than 10% which is reproduced at pages 80-211 of the order and total of such sales was of Rs. 55,16,96,330/-. It is observed that overall GP on sales for the year under consideration was approx. 19%. It is matter of common knowledge that in regular course of business, sales of slow moving items at a lower rate or discounts offered at the time of festivals, sales, corporate discounts bulk order discount or even on account of stock clearance sales or sales or account of references from friends and family cannot be ruled out. Many cases where the goods were defective and in order to clear the goods, they were sold below the cost price so that the amount blocked in dead stock could Page | 65 be released . Even the AO has not brought on record any comparable case to allege that assess he has declared lower profits. It is also a fact that the pricing and margin on sale of luxury watches are influenced by various external factors which are beyond the control of the businessman, such as brand and lineage of the watch and the model, its international pricing strategy, limited edition status, prevailing demand and supply in the market, priority or exclusively of the model, condition of the watch and specific preferences or customization required by the client, retail margins in the sector etc. therefore there is differential GP with respect to sale of each article and these are ignored by the AO while estimating the profits.

As observed above, before us, the revenue has failed to rebut the arguments of the assessee made before the ld. CIT(A) who has deleted the additions after duly considered the same. Accordingly, we find no error in the order of ld. CIT(A) in deleting the additions made by the AO thus, the same is hereby upheld. All the grounds of appeal of the revenue are dismissed and Ground of appeal No.4 of the assessee is allowed.

Since we have already allowed the Ground of appeal No 4 taken by the assessee and deleted the addition uphold by ld. CIT(A), the other ground of appeal taken by the assessee challenging the legality of the assessment order become academic and thus not adjudicated.

In the result, appeal of the assessee is partly allowed and of the revenue is dismissed.

Now we take appeals of the assessee in ITA Nos. 5641, 5643 and 5644/Del/2025 and appeals of the Revenue in ITA Nos. 6826, 6828, 6829/Del/2025 [Assessment Years 2017-18, 2020-21 and 2021-22].

As admitted by both the parties during the course of hearing, all the issues in all the three appeals of the assessee and of the revenue are same as the additions made by the AO are identical to the additions made in AY 2019-20. The Ld. CIT(A) has also made the similar observations while deleting the additions made by the AO, as has been observed in AY 2019-20. Since, there is no change in the facts and circumstances of the case thus, by following the observations made and conclusion drawn by us in AY 2019-20 while deciding the assessee’s appeal in ITA No.5642/Del/2025 and dismissing the appeal of the Revenue in ITA No. 6827/Del/2025 which are Mutatis Mutandis applicable to the facts of the present case. Accordingly, all the three appeals of the assessee are partly allowed and of the revenue are dismissed.

In the result, appeals of the assessee in ITA Nos. 5641, 5643 and 5644/Del/2025 for AY 2017-18, 2020-21 and 2021-22 respectively, are partly allowed and cross appeals of the Revenue in ITA Nos. 6826, 6828, 6829/Del/2025 for AY 2017-18, 2020-21 and 2021-22 respectively, are dismissed.

Now we take appeal of the assessee in ITA No.5645/Del/2025 and appeal of the Revenue in ITA No. 6920/Del/2025 [Assessment Year 2022-23].

However, there are two new issues in the appeal of the Revenue wherein Revenue has challenged the deletion of addition of INR 1,16,90,723/- on account of cash payment for construction of property and challenged the deletion of addition of INR 51,80,000/- made u/s 56(2)(viib) of the Act towards the valuation of shares of M/s. Luxerati Retail Pvt. Ltd.

With regard to deletion of addition of INR 1,16,90,723/- made on unaccounted cash payment for construction of property, the AO in para 17.1 of the order observed that the search was also carried out simultaneously at the business premises of ENN V ENN Designs Pvt. Ltd. at 2798/2798A, Sushant Lok Road, Block-C, Phase-I, Sector-43, Gurgaon, wherein certain soft data was found with respect to the construction, architectural and other design related work of various properties which includes the digital evidences of the construction of immovable properties belonged to the assessee company. AO based on such documents, alleged that there were cash payments with respect to the construction of property situated at C-2604, Sushant Lok 1, Gurgaon which were not recorded in the books of accounts of the assessee and therefore, addition of INR 1,16,90,723/- was made being the difference of amount stated in Excel sheet and amount recorded in the books of accounts of the assessee company u/s 69A/115BBE of the Act which was deleted by ld. CIT(A).

Against this, Revenue is in appeal before the Tribunal. During the course of hearing Ld. CIT DR vehemently supported the order of the AO and submits that there were evidences were found as a result of search at the business premises of the company to whom entire civil construction/architectural/interior work was awarded by the assessee company for the property situated at t C-2604, Sushant Lok 1, Gurgaon. Ld. CIT DR further submits that the AO has relied upon the Excel Sheet found from the possession of Directors of the Contractor company wherein entries of payment in cash were found recorded. It is submitted by Ld. CIT DR that Ld. CIT(A) has deleted Page | 69 the addition by accepting the contention of the assessee that no payment whatsoever, was made during the year under appeal and the Excel Sheet do not contain any dates etc. Ld. CIT DR submits that the additions are based on the admission of one of the employee of Contractor as well as statement of the accountant of the assessee and therefore, requested for the restoration of the AO’s order.

On the other hand, Ld.AR for the assessee vehemently supported the order of Ld. CIT(A) and submits that Excel Sheet does not contain any date/mode of payment/particulars of the parties or the material for which alleged payments were made. It is further submitted by Ld.AR that the total work was awarded in INR 2 crores in terms of agreement dated 27.11.2018 and no payment whatsoever, was made during the year under appeal. He further submits that none of the paper contained any date and all the figure are in round figures which further suggests that they were mere estimations for which discussions were continued between the management of the assessee company and the contractor. Ld.AR submits that no additions on the basis of assumptions or presumption without any corroborative evidences could be made. He therefore, submits that Ld. CIT(A) has rightly deleted the additions which order deserves to be uphold. He prayed accordingly.

Heard the contentions of both the parties at length and perused the material available on record. It is observed that there was certain Excel Sheets found in digital data from the possession of the company Enn V ENN Designs Pvt. Ltd. who were awarded work for civil construction, architectural and interior design of the property owned by assessee situated at C-2604, Sushant Lok 1, Gurgaon. It is observed that the extract of Excel Sheet found from various digital data as reproduced in the assessment order at pages 196 to 208, all the figures noted therein are in round figures and at various stages. It is further observed that nowhere in the said documents, it is observed that any cash payments were made by the assessee to the contractor in addition to the amount which were recorded in the books of accounts. Ld. CIT DR appreciated these facts and deleted the additions made by AO by making following observing in para 8.1 to 8.9 of the order:-

From the perusal of the observations of Ld. CIT(A) and the conclusion drawn, it is observed that AO has made the additions solely on the basis of so-called Excel Sheets wherein amounts stated to have been recorded on estimated basis without bringing on record any corroborative material to hold that these amounts are actually incurred by the Contractor as well as paid in cash by the assessee. Further, no inquiry was made from the Contractor with respect to the receipt of such cash from the assessee. Further, if the AO has any doubts about the cost of construction declared by the assessee of the subject property, he could have referred the matter for valuation before the District Valuation Officer which has not been done in the instant case. In view of these facts, we are of the view that without having any corroborative evidences in support of the so-called estimation, solely for the figures found noted in the Excel Sheet, no addition could be made and therefore, we uphold the observations of Ld. CIT(A). Accordingly, Revenue appeal fails on this issue.

The other issue is with respect to the addition of INR 51,80,000/- made u/s 50C of the Act on the sales of 5,00,000 equity shares and 7,50,000 preference shares of M/s. Luxerati Retail Pvt. Ltd. by the assessee at a price of INR 10/- per share during the year under appeal.

The AO had made the addition by referring to the statement of Shri Snajay Kataria wherein he stated that the assessee company has sold the shares of M/s. Luxerati Retail Pvt. Ltd. to M/s. La Arc Plan Pvt. Ltd. for INR 4/- per share. The assessee has filed the valuation report obtained from the authorized valuer as per Rule 11UA of Income Tax Rules (the Rules) wherein as per DCF method, fair market value of the shares was determined at INR 4/- per share. However, the AO has rejected the valuation report filed by the assessee and by taking NAV method, worked out the fair market value of per share at INR 8.44 per share and made the addition on differential amount of INR 51,80,000/-.

Against such addition, the assessee filed an appeal wherein Ld. CIT(A) has deleted the additions made by AO by placing reliance on the judgement of Hon’ble Jurisdictional Delhi High Court in the case of PCIT vs Cinestan Entertainment reported in 433 ITR 52 and further observed that AO has no power to substitute the method from DCF to NAV method.

Heard the contentions of both the parties at length and perused the material available on record. In the instant case, during the year under appeal, the assessee has sold 5,00,000 Equity shares and 7,50,000preference share at INR 4/- per share of M/s. Luxerati Retail Pvt. Ltd. to M/s. La Arc Plan Pvt. Ltd. and filed the report of registered valuer as provided in section 50C of the Act as per which the valuer has values the shares of the said company by following the DCF method. However, AO has rejected the valuation report of the assessee and substitute the valuation done by him on the basis of NAV method. Ld. CIT(A) while deleting the addition, has made following observations:-

For the purpose of determination of the fair market value, the assessee has followed the DCF method and obtained the report of an accountant as provided in rule 11UA(2) of the Income Tax Rules, 1962 who had valued the shares as at 31.3.2016. As per Rule 11UA(2) as existed in that year, the determination of the fair market Page | 83 value of unquoted equity shares could be made by following any of the two method i.e. NAV Method or DCF method. As it is at the option of the assessee to get the valuation done of unquoted shares for the purpose of section 56(2)(viib) of the Act by using any of the method as specified in clause (a) or clause (b) of Rule 11UA(2) of Income Tax Rules, the AO has no power to change the method once adopted by the assessee. In other words, once the assessee has opted one of the prescribed methods for valuation of unquoted equity shares, AO has no right to change the same. In this regard, the Hon’ble Jurisdictional High Court in the case of Cinestaan Entertainment Pvt. Ltd. (supra) has held as under:

In the instant case while rejecting the valuation report submitted by the assessee, the AO has not brought on record any alternate report of fair market value of shares from the person authorized under rule 11UA(2) and simply proceeded to determine the fair market value as per NAV method which is not permissible as has been held by the Hon’ble Jurisdictional High Court in the case of PCIT Vs. Cinestaan Entertainment Pvt. Ltd. in ITA No. 1007/2019 reported in 433 ITR 82.

The Hon’ble Himachal Pradesh High court in the case of I.A. Hydro-energy Pvt. Ltd. reported in 163 taxmann.com 408 has held as under: “Section 56 of the Income-tax Act, 1961, read with rule 11UA of Income Tax Rules, 1962 – Income from other sources – Chargeable as (share premium, valuation of shares) – Assessment Year 2018-19 – Whether Assessing Page | 85 Officer has no jurisdiction to substitute NAV method of assessing valuation of shares, once assessee has exercised option of a DCF valuation method as per rule 11UA(2) – Held, yes [para 19] [in favour of assessee].” 70. Similar view is expressed by the Hon’ble Madras High Court in the case VVA Hotels Pvt. Ltd. reported in 122 taxmann.com 106 (Madras) and by Co-ordinate bench of ITAT, Delhi in the case of DCIT Vs. Hometrail Buildtech Pvt. Ltd. reported in 155 taxmann.com 178 and in the case of Intelligrape Software Pvt. Ltd. Vs. ITO in ITA No. 3925/Del./2018.

Before us, revenue has failed to controvert the above findings of ld. CIT(A) by bringing on record any contrary material. Under these circumstances, keeping in mind the report of the valuer submitted by the assessee wherein the valuation was done as per DCF method prescribed under the Income Tax Rules and also considering the fact that as per rule 11UA(2) option for selection of method for valuation is of the assessee who had exercised the same by selecting one of the prescribed methods, therefore, we find that AO cannot change the method of valuation. Thus, ld. CIT(A) has rightly deleted the addition made by AO by discarding the method adopted by assessee and applied NAV method to determine the value of per equity share.

In view of these facts, we uphold the order of ld. CIT(A) wherein the ld. CIT(A) has followed the judgement of jurisdictional high court in the case of Cinestaan Entertainment Pvt. Ltd. (supra) and the orders of the coordinate Delhi benches of Tribunal on the issue in hand. Accordingly, appeal of the revenue fails on this issue also.

In the result, appeal of the assessee is partly allowed and appeal of the Revenue is dismissed.

Now we take appeal of the assessee in ITA No.5646/Del/2025 and appeal of the Revenue in ITA No. 6921/Del/2025 [Assessment Year 2023-24].

As admitted by both the parties during the course of hearing, the issues raised by the assessee in ground of appeal No.3 and all the issues raised by in revenue’s appeal are identical to the issues in AY 2019-20. Further the Ld. CIT(A) has also made similar observations while deleting the additions made on such issues and there is no change in the facts and circumstances of the case. Thus, by following the observations made and conclusion drawn in ITA Nos. 5642/Del/2025 (assessee’s appeal) and in ITA No. 6827/Del/2025 for AY 2019-20 which are Mutatis Mutandis applicable to the facts of the present case of AY 2021-22, Ground of appeal No.3 of the assessee is allowed and all the grounds of appeal of the revenue are dismissed.

Now, there remained two new issues in the appeal of the assessee wherein in Grounds of appeal No. 2 and 4, assessee challenged the confirmation of addition of INR 36,73,978/- made on account of cash found during the course of search at the business premises of the assessee alleged as unexplained money u/s 69A of the Act. Similarly, In Ground of appeal No. 4, assessee has challenged the confirmation of addition of INR 20 Lakhs made towards cash from the residence of Shri Sanjay Kataria alleged as belonged to the assessee and addition was made u/s 69A of the Act.

Since both the issues are with respect to cash found during the course of search therefore, they are adjudicated together for sake of convenience.

Before us, Ld.AR for the assessee submits that during the course of assessment proceedings as well as appellate proceedings, assessee has filed re-conciliation statement of the cash found during the course of search and the cash as per books of accounts as per the assessee. It was claimed that there were certain bills of cash sales which remained be incorporated in the books of accounts as on the date of search and similarly certain advances were received from the parties which were nor recorded in the books of accounts as on the date of search. This has resulted into the difference between the cash physical found and as recorded in the books of accounts as on the date of search. Ld.AR submits that assessee has all the evidences in support of the claim and therefore, requested for deletion of the addition made. Alternatively, it is submitted that the sales were included in the total sales and thus if the same is not accepted, profit embedded therein could only be added.

With regard to the cash of INR 20 Lakhs found from the possession from Shri Sanjay Kataria, it was the claim of the assessee that except the statement of Shri Sanjay Kataria, there was no evidence found from which it could be established that the assessee company has given cash to Shri Sanjay Kataria. The assessee was not provided opportunity to cross-examine Shri Sanjay Kataria who is an independent person and Director of M/s. La Arc Plan Pvt. Ltd. and the source of the said cash should have been explained by him. The presumption u/s 132(4) cannot be drawn against the assessee for the cash found from the possession of third party. It is therefore, requested that no addition should be made on this account. He prayed accordingly.

On the other hand, Ld. CIT DR for the Revenue vehemently supported the orders of the lower authorities and submits that the claim of the assessee of cash sales as well as advances received in cash from customers, cannot be accepted since the same was not recorded in the books of accounts as on the date of search and is an afterthought and should not be entertained. Regarding cash of INR 20 Lakhs, Ld. CIT DR submits that during the course of search in the statements recorded u/s 132(4), Shri Sanjay Kataria has categorically admitted that the cash was given by the assessee company and therefore, the assessee company cannot claim that Shri Sanjay Kataria is the owner of the said cash. Ld. CIT DR prayed that the AO has rightly made the addition with respect to cash found in excess during the course of search with the assessee company as well as cash of INR 20 Lakhs with Shri Sanjay Kataria and requested for the confirmation of the orders of the lower authorities. Page | 89

Heard the contentions of both the parties at length and perused the material available on record. With respect to the cash of INR 36,73,978/- found in excess at business premises of the assessee, the assessee claimed that to non-incorporation of certain sales bills and advances received in cash from customers in the books of accounts, therefore, when the Department has compared the cash as per books of accounts with the cash physically found, cash was found excess. It is settled position of law that assessee should be provided an opportunity to complete the books of accounts upto the date of search. Before us, the assessee has stated that it had all the evidences with respect to the cash sales and advances received in cash so claimed which has not been appreciated by the lower authorities.

Looking to the entirety of the case and overall discussion made herein above, we set aside this issue to the file of AO with the direction to reconcile the cash as per completed books of accounts as on the date of search vis-a-vis cash found and if the claim of the assessee of cash sales is found correct no addition be made. The assessee is also directed to file all the necessary evidences alongwith the reconciliation statement, if any, in support of the claim made. The ground of appeal No. 2 is allowed for statistical purposes.

Regarding cash of INR 20 Lakhs, it is observed that the assessee first claimed that it was not the cash of assessee company as stated by Shri Sanjay Kataria however, later it is claimed that same represents the sales of the assessee company and at the most, profit could be added. It is observed that assessee has not been able to explain the source of cash of Rs. 20.00lacs found with Shri Sanjay Kataria however, the claim of the assessee that it is accumulated out of cash sales cannot be denied. However entire sales cannot be added and the profit embedded therein could only be added as the income of the assessee. Accordingly, AO is directed to apply GP rate of 20% on such cash sales being not recorded in the books of accounts. With these directions, Ground of appeal Nos. 2 & 4 raised by the assessee are allowed for statistical purposes.

In the result, appeal of the assessee is partly allowed and of the revenue is dismissed.

In the final result, all appeals of the assessee in ITA Nos. 5640 to 5646/Del/2025 for Assessment Years 2017-18 to 2023-24 are partly allowed and all appeals of the Revenue in ITA Nos. 6825 to 6829/Del/2025 and 6920 & 6921/Del/2025 for Assessment Years 2017-18 to 2023-24 are dismissed.