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Facts
A search and seizure operation was conducted on the assessee, leading to the discovery of unaccounted cash and a shortage of physical stock. The Assessing Officer (AO) made additions based on estimated gross profit on bullion trading, estimated commission income, and the found cash. The assessee appealed to the CIT(A).
Held
The Tribunal upheld the CIT(A)'s decision to delete the additions related to estimated gross profit on bullion trading and estimated commission income. The Tribunal also concurred with the CIT(A) in allowing the telescoping of unaccounted cash with the sale of unaccounted stock, thereby deleting the addition of Rs. 1,00,10,000/-.
Key Issues
Whether the CIT(A) was justified in deleting the additions made by the AO on account of estimated gross profit on bullion trading, estimated commission income, and unexplained cash. Whether the principle of telescoping can be applied to the cash found and the shortage of stock.
Sections Cited
250, 143(3), 132, 143(2), 143(1), 153A, 69A, 115BBE, 271AAB
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SMT. BEENA PILLAI, JM & SHRI ARUN KHODPIA, AM
& C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited O R D E R Per Arun Khodpia, AM:
The captioned appeal of the revenue and cross objection filed by the assessee are directed against the order of Commissioner of Income Tax (Appeals), CIT(A) 51, Mumbai (in short ‘ld. CIT(A)’), passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act'), dated 06.01.2025, for the Assessment Year (in short ‘A.Y.’) 2020-21 which in turn arises from the assessment order u/s. 143(3) of the Act passed by Deputy Commissioner of Income Tax, Central Circle-3(4), Mumbai, dated 27.09.2021.
2. The grounds of appeal
raised by the revenue are extracted as under:
1. "On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 18,80,000/-on estimation of gross profit on unaccounted bullion trading based on reasonable FP estimate of 1% of unaccounted turnover.
2. "On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 11,60,000/-on estimated commission income from Angdia Services without considering that the commission on bullion varies between 100 to 200 per lakhs based on which the AO had calculated 150 per lakh of turnover.
3. "On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition Rs. 1,00,10,000/- of unaccounted cash found at the time of search when it was established in assessment order that explanation of the assessee was an afterthought without any evidences.".”
The assessee as Cross Objector in the aforesaid matter had assailed the following grounds of appeal:
1. The CIT(A) has erred in upholding the assessment order passed u/s 143(3) of the Act which is illegal and bad in law.
& C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited 2. The learned CIT(A) has erred in not holding that the assessment order passed is invalid and illegal on account of non-mention of DIN on the assessment order as per the CBDT circular No. 19 of 2019 dated 14.08.2019.
3. The learned CIT(A) has erred in not holding that the approval obtained by the Assessing Officer u/s. 153D of the Act is invalid and bad in law.”
Brief facts of the case are that a search and seizure action u/s. 132 of the Act was conducted upon the assessee on 24.09.2019. The matter thereafter was centralized with Central Circle-3(4) Mumbai. Notice u/s. 143(2) and 143(1) were issued and served upon the assessee. In response to notice, the assessee filed return of income declaring total income at Rs. 59,40,130/- and also furnished submissions before the ld. AO. During the assessment proceedings, certain queries were raised by the ld. AO, which were responded by the assessee. After deliberations, being dissatisfied with the submissions and explanations furnished by the assessee, ld. AO had made the following disallowances/additions to the assessable income of the assessee: i. Addition of Rs. 18,80,000/- on account of estimation of gross profit @ 1% on unaccounted turnover of the assessee.
ii. Addition of Rs. 11,60,000/- on account of difference in rate of Angadia services commission income by adopting rate at Rs. 150 per lakh instead of Rs. 50 per lakh as offered by the assessee. iii. Addition on account of interest on late payment of TDS Rs. 11,090/-.
& C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited iv. Addition on account of GP ratio at the rate of 1% on undisclosed business income on sale of unaccounted stock for Rs. 1,28,636/-. v. Addition u/s. 69A for Rs. 1,00,10,000/- on account of undisclosed money found and seized during search action.
Aggrieved with the aforesaid additions/disallowances by the ld. AO, assessee preferred an appeal before the first appellate authority, who after considering the facts on record, submissions of assessee and jurisprudence relied upon by the assessee had partly allowed the appeal of assessee with following observations:
5.1 Regarding addition of Rs. 18,80,000/- on account of 1% of gross profit on unaccounted turnover of the assessee. “5.4 Decision 5.4.1 The findings of the AO and the submission of the appellant have been considered. The issue in the present case is w.r.t. estimation of GP on unaccounted bullion transaction which was evidenced by way of entries in the diaries found during the search action and the statement of the employees. On such trading activity, the appellant has offered GP at 0.60% and has disclosed an income amounting to Rs. 28,20,000/- in the return of income filed in response to notice u/s 153A of the Act. As per the AO, the GP margin in bullion trading ranges between 1 to 1.5% of the turnover and GP rate of 1% on unaccounted turnover amounting to Rs.47,00,000/- has been added as business income of the appellant. Since the appellant has already offered income of Rs. 28,20,000/-, the AO has proceeded to add the balance amount of Rs. 18,80,000/- to the total income. 5.4.2 On the other hand, the appellant has submitted that the estimation of GP rate at 1% by the AO is on presumption and surmises without any basis. The estimation of GP at 0.60% is reasonable considering the GP rates declared by the appellant in various years. More specifically, the appellant has submitted the GP rates on accounted transactions of bullion trading over the years. The appellant has declared GP rate at 0.64% for A.Y. 2017-18, 0.70% for A.Y. 2018-19, 0.16% for & C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited A.Y. 2019-20 and 0.71% for A.Y. 2020-21. It can be seen that the GP rate ranges from 0.16% to 0.71% and that the average GP rate comes to 0.42% for preceding and subsequent years. As against the same, the appellant has already declared a GP rate of 0.60% on unaccounted transactions which is higher than the average GP of various years. It is also seen that the GP of the appellant has never been more than 1% as has been taken by the AO. Further, the AO has merely given a general statement that the average GP rate is 1-1.5% and no basis or comparable case for the same has been cited. Further, there are no evidences found during the search to corroborate that the GP rate on unaccounted transactions in bullion trading was 1-1.5%. In such circumstances, the findings of the AO are clearly without any basis. The appellant has already offered GP rate at a higher rate as compared to average GP rates earned by them in same business which is accounted for. Hence, keeping all these facts under consideration, in my considered view there is no need for any further upward revision of the GP and the addition of Rs.18,80,000/- is deleted. This ground of appeal is allowed.” 5.2 Regarding addition of Rs. 11,60,000/- on account of interest on late payment of TDS Rs. 11,090/-. “6.4 Decision 6.4.1 I have gone through the assessment order as well as written and oral submissions filed by the appellant before me. The issue in the present case is w.r.t. estimation of commission income on angadia services. The AO has observed that during the post search proceedings, the appellant has disclosed and offered unaccounted commission income earned from angadia services of Rs. 5,80,000/- at the rate of Rs. 50/- per lakh. As per the AO, the commission rate for angadia services ranges from Rs. 100/- to Rs. 250/- per lakh. In such circumstances, commission rate was estimated at Rs. 150/- per lakh in the hands of the appellant. The addition comes to Rs. 17,40,000/- out of which appellant has already offered income of Rs. 5,80,000/- and hence balance Rs. 11,60,000/- is added in the hands of the appellant. 6.3.2 On the other hand, the appellant has submitted that the estimation of commission rate on angadia services at Rs. 150 per lakh is on presumption and surmises without any basis and that the estimation of commission rate at Rs. 50/- per lakh is reasonable. The appellant has submitted that the angadia service is just like courier service wherein the commission is dependent upon the distance between the locations and oral negotiations between the parties. Hence, the more the distance, higher will be commission charged for angadia services. In the present case, the appellant has stated that they used to provide angadia services only in nearby locality upto 10 kms only.
& C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited 6.3.3 In my view there is no method to determine the exact commission charged on the angadia business. The AO has not given any basis for estimating the same @ 150/- per lakh while the appellant has given some justification with respect to the distance serviced by it. Moreover, no evidences are found during the course of search with respect to the commission earned by the appellant in this line of business. As the appellant has accepted the earning of unaccounted commission income on angadia business and has offered an amount of Rs.5,80,000/- and has also provided some basis for it, I do not find any reason to interfere with it. Thus, the estimated addition of Rs. 11,60,000/- on account of angadia service is deleted. This ground of appeal is allowed.” 5.3 Regarding Addition of Rs. 1,28,636/- on account of GP ratio at the rate of 1% on undisclosed business income on unaccounted sale of stock. “7.4 Decision 7.4.1 I have gone through the assessment order as well as written and oral submissions filed by the appellant before me. The issue in the present case is w.r.t. estimation of GP on shortage of physical stock found at the time of search. The AO in the assessment order has observed that during the course of search, it was found that the physical stock with the assessee was lower than the stock recorded in the books of accounts. The value of such difference was coming to Rs. 1,28,63,678/-. The AO has presumed that the aforesaid stock has been sold out of books of accounts and hence made addition of gross profit on such sales at 1% of the difference resulting in addition of Rs. 1,28,636/-. The appellant has in principle accepted that the aforesaid difference was on account of sale of stock. However, as per the appellant, such sale of stock was left to be accounted for when the search took place. The said sales were later recorded in the books of account which was filed before the AO in the post search proceedings. I find that the books of account filed before AO is accepted by the AO. As regards estimation of gross profit, I find that the appellant has stated that the GP earned during the year is 0.70% of turnover from the books of account which interalia, includes GP on sale of aforesaid stock. However, the specific details of profit earned from sale of aforesaid stock of Rs. 1,28,63,678/- is not filed before me. Hence, it cannot be ascertained whether any GP is actually offered out of aforesaid sale of stock in the regular books of account and if yes, what quantum of GP is declared and offered to tax. In absence of details, the addition of Rs. 1,28,636/- made by the AO on account of profit attributable to unaccounted sale is confirmed. Accordingly, ground no. 3 is dismissed. 5.4 Regarding addition on account of interest on late payment of TDS Rs. 11,090/. “Ground No. 4 is with respect to the issue of disallowance of Rs. 11,090/- on account of interest on late payment of TDS. The said ground of appeal is not pressed by the appellant. Accordingly, ground no. 4 is dismissed.”
& C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited 5.5 Regarding Addition u/s. 69A for Rs. 1,00,10,000/- on account of undisclosed money found and seized during search action.
“9.4 Decision 9.4.1 The findings of the AO and the submission of the appellant have been considered. The relevant facts involved in the present case are that during the course of search action at the premises of the appellant, cash of Rs. 1,06,28,790/- was found. Out of such cash, an amount of Rs. 6,18,790/- was reflected in the books of account. The balance cash of Rs. 1,00,10,000/- was not explained at the time of search and was therefore seized by the search team. Further, during the course of search, certain discrepancies were observed between physical stock and stock in the books of account. It was observed that the physical stock of goods was less than the stock reflected in the books of account. Statement of director of the appellant and employees of the appellant company was recorded. As regards the unaccounted cash found, Mr. Abnish Gupta, director of the appellant in his statement recorded on 24.09.2019 stated that he was not able to explain the same as of now. He did not offer any comment on the same. Further, in respect of shortage of stock, the director stated that the same was on account of stock issued for job work. Further, statement of employee of the appellant, Mr. Devi Singh was recorded wherein he was asked to explain source of cash for which he stated that he is not aware of the source of such cash and that one, Monu bhai can give details of the same. Further, statement of another employee, Mr. Anil Hunka was recorded wherein w.r.t. the question of cash found, he stated that the said amount was given to him by Mr. Devi Singh as per directions of Mr. Abnish Gupta. 9.4.2 Thereafter, during post search proceedings, the statement of director of the appellant was again recorded on11.10.2019 wherein he explained that the cash found during the course of search was in respect of sale proceeds out of stock of gold and bullion sold by the appellant prior to 24.09.2019 which was pending to be recorded in the books of account as on the date of search. Hence, there was shortfall in physical stock as compared to books of account. It was therefore explained that the excess cash in hand was nothing but sale proceeds of bullion and gold jewellery made in cash amounting to Rs. 1,18,09,152/-. Further, a reconciliation of stock with unrecorded sale proceeds was provided to the officer. 9.4.3 During the course of assessment proceedings, the AO made various observations to hold that the cash found was not linked with sale of stock and hence made addition of such cash found as unexplained money in the hands of the appellant. The AO observed that there were certain inconsistencies in the statement of Mr. Abnish Gupta recorded at the time of search and his statement recorded during post search proceedings. Further, it was observed that in the statement recorded of Mr. Abnish Gupta, he has stated that there are no cash sales made by appellant company. The source of cash of Rs. 1,00,10,000/- was not explained at the time of search. As regards shortage of stock, Mr. Abnish Gupta & C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited stated that the same is on account of issuance of stock to various parties for job work but in the post search proceedings, he has stated that the stock was actually sold by the appellant company and the proceeds in form of cash were not accounted in the books of account when the search took place. The AO also observed that all the sales are made below Rs. 2,00,000/- and PAN of the parties is not available. The said cash sales are made in the month of September’2019 and that the books of account was otherwise updated till 23.09.2019 with respect to other transactions. Further, the rate of gold which is mentioned in the sale bills and the making charges is less than the market rates prevailing at that time. The AO therefore observed that the shortage of stock is not out of sale proceeds but out of some other unaccounted transaction. Hence, he taxed the cash of Rs. 1,00,10,000/- as unexplained money u/s 69A of the Act. A separate addition of 1% of GP on sale of unaccounted stock was also made which is already discussed above. 9.4.4 On the other hand, the appellant has submitted that the shortage of physical stock foundwas because the same was sold in cash and was pending to be accounted in the books of account at the time of search. The sale proceeds in cash were lying with the appellant which was found at the time of search. Pursuant to search, the appellant has recorded all the cash sale entries in the books of account and submitted various evidences like sale register, stock register, sale invoice etc., to department proving that sales were made prior to the date of search. The various observations of the AO are rebutted by the appellant in their submissions. Based on the same, the appellant has pleaded that the shortage of stock and the excess cash found are inter-related and that having added GP on shortage of stock, the cash found could not have been separately added in the hands of the appellant. 9.4.5 I find that the issue at hand is whether the cash found at the time of search can be treated as generated out of cash sales made by the appellant out of stock available with the appellant.It is an undisputed fact that the cash found at the premises belong to the appellant. The AO has relied upon the statement given by the Director and employee of the appellant wherein they could not explain the source of cash at the time of search. The AO has also relied upon the statement of the Director wherein he has stated that there are no cash sales and hence the AO has opined that the telescoping being asked for by the appellant is only an afterthought. In this connection it may be stated here that the appellant has given details of cash sales made in the earlier years also and hence total reliance cannot be placed on the statement of the Director that there is no cash sale by the appellant. While the AO has based his findings on the basis of statements recorded during the course of search, the appellant has submitted retail sales register to the AO wherein the total sale amount in cash is Rs.1,21,63,427/- and has submitted that the cash found at the premise is the same cash sale proceed. In support of its contention the appellant has also cited the shortage of stock found at the premise during the course of search. As regard the finding of the AO that the sales register is an afterthought in view of the fact that all the cash sales are less than Rs.2,00,000/- primarily to subvert the requirement of obtaining PAN from the buyers, the appellant has submitted that cash sale less than Rs.2,00,000/- has been & C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited made in order to comply with the law and for all cash sales above Rs.2,00,000/-, PAN is insisted from the buyers. As regards telescoping in general, it is judicially accepted methodologyas laid down in the case of Anantharam Veerasinghaiah & Co. v. CIT (1980) 123 ITR 457 (SC) and several other decisions, though the onus of proving that the generation of income and its application is one and the same lies solely on the appellant. It is also seen that this plea was first taken by the Director of the appellant before the Investigation Wing itself that was within 15 days of the date of search. The appellant has also discharged its initial onus by furnishing party wise and item wise detail of cash sales made during the period 01.09.2019 to 24.09.2019. The books of accounts of the appellant have been accepted by the AO and no defects have been found and hence I do not have any reason to reject the cash sale register furnished by the appellant. Further, no findings of any other business or source of income were found in the hands of the appellant after the conclusion of search & seizure action and hence the natural inference would be that the cash has been generated from the business of the appellant. 9.4.6 It may also be noted that the AO has already estimated the profit on sale outside the books of accounts attributable to the shortage of stock that has been confirmed by me in the previous ground. Thus, no further addition can be done on transactions pertaining to the stock deficit found during the course of search. Once it has been accepted that the stock has been sold outside the books of accounts, there is no reason to deny that the cash found is on account of this sale and particularly when the details of the stock deficit and its sale has been reconciled by the appellant with the quantum of cash found. 9.4.7 For reasons as detailed above, it is held that the benefit of telescoping is allowable to the appellant since the appellant has been able to reconcile the quantum of cash with the cash sales and hence the addition of Rs.1,00,10,000/- done by the AO on account of cash found at the premise is deleted. This ground of appeal is allowed.”
6. Since the substantial relief has been granted by the ld. CIT(A) vide impugned order, now the revenue is in appeal before us challenging such decisions of the ld. CIT(A), whereas the assessee has filed the cross objection against the appeal of revenue, challenging the impugned order on legal aspects, such as DIN Number not mentioned on the assessment order, validity of approval u/s. 153D of the Act and upholding of the assessment u/s. 143(3) of the Act by the ld. CIT(A) which is bad in law.
& C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited 7 We have heard the rival submissions perused the materials available on record and case laws relied upon by parties. Our ground wise adjudication to the issues reads as under:
8 Ground no. 1: regarding addition of Rs. 18,80,000/- on estimation of gross profit on account of bullion trading based on reasonable estimation of 1% on unaccounted turnover.
8.1 At the outset, ld. CIT(A) DR representing the revenue submitted that a fair estimation of profit was adopted by the ld. AO on the unaccounted sale, which is justified on the fact itself that such transactions are carried out without payment of GST, which itself is 1%, therefore, the profit @ 1% was a fair basis on the unaccounted sale. It is also argued that there was no dispute regarding the amount of unaccounted sale between the assessee and the revenue.
8.2 On the other hand, ld. Counsel representing on behalf of the assessee vehemently relied on the order of ld. CIT(A).
8.3 Having considered the facts of the case, we found force in the submission of the ld. AR as the issue has been judiciously decided by the ld. CIT(A) and have observed that the past history of GP rate declared by the assessee for assessment years 2017-18, 2018-19, 2019-20 was 0.64%, 0.70%, 0.16% respectively as & C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited against the GP of 0.71% for relevant AY 2020-21. Since the GP rate offered by the assessee for the year under consideration is 0.71%, which is the highest amongst the GP rate of four years. Therefore, even if the average GP rate is considered to be applied in the present case, the assessee had already offered a GP rate higher than the average GP rate of previous three AY’s.
8.4 Under such circumstances, further addition on account of GP rate would be unjustifiable and therefore the addition has rightly been deleted. Considering the aforesaid facts, we do not find any merit in the contentions raised by the revenue in ground no. 1 of the present appeal. Accordingly, ground no. 1 of the appeal of revenue stands dismissed.
9 Ground No. 2: Regarding addition of Rs. 11,60,000 on estimated commission income of the assessee from Angadia Services.
9.1 On this issue Ld. CIT DR relied on the findings of AO, whereas the assessee supported the decision of Ld. CIT(A) (supra).
9.2 We have considered the rival submissions, perused the orders of revenue authorities and found that the assessee relied on the decision of the Rajkot Tribunal in the case of Anirudh J. Solanki v. Asst. CIT (ITA No. 454/ Rjk/ 2018) dated 19.10.2022, wherein the Tribunal has directed to tax the commission & C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited income at Rs. 25 per lakh while providing the Angadia service. The ld. CIT(A) have considered the submissions of the assessee and have observed that there is no method of determination of exact commission charged in the Angadia business, the estimation of Rs. 150 per lakh adopted by the ld. AO has no justification, moreover, no evidence was found during the course of search with respect to commission earned by the assessee. Therefore, the amount offered by the assessee at Rs. 5,80,000/- was considered as reasonable amount. Accordingly, the estimated addition of Rs. 11,60,000/- on account of Angadia service was deleted. We find substance in the decisions of ld. CIT(A), arrived after appreciating properly the facts of the case, therefore we do not see any reason to interfere with the same. We therefore approve the findings of the ld. CIT(A). Consequently, the ground no. 2 of the revenue being bereft of merits treated as dismissed.
10 Ground no. 3: Regarding addition of Rs. 1,00,10,000/- on account of unaccounted cash found at the time of search.
10.1 On this issue ld. CIT DR submitted that during the proceedings of search unaccounted cash of Rs. 1,00,10,000/- was found from the premises of the assessee, there is no dispute between the parties on this fact, for which no specific clarification could be submitted during the search. The assessee thereafter, had tried to justify that the said amount pertains to cash sale of assessee during last & C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited 23 days falling within the month from 2nd September, 2019 to 24th September, 2019, further had submitted certain details which does not inspire any confidence of the AO, as the issue was discussed observed that the clarification given by the assessee was nothing but only an afterthought to support its case. The ld. CIT DR reiterated the findings of ld. AO while making the aforesaid additions, the same is extracted here under for the sake of completeness of facts:
“10. Taxability of undisclosed cash of Rs 1,00,10,000/- found and seized during the search action u/s 69A of IT Act, 1961 10.1. Undisclosed and unsubstantiated money found during search/survey action is to be taxed u/s. 69A. Else, practice of generating undisclosed money will become a rampant practice. Taxpayer shall keep generating undisclosed money with belief that if caught by Income Tax Department during 133A/132 proceedings, the money shall be shown as part of business income and tax will be paid at normal rates. This way assessee will avoid paying taxes on time as assessee will be liable to pay only when caught. There will not be any added tax burden on the dishonest taxpayer. In the instant case also, assessee has failed to substantiate the undisclosed money found with relevant transactions. Department does not know during which AYs undisclosed cash was generated by assessee. 10.2 Purpose of section 68, 69A etc. is to create deterrence among taxpayers. Tax burden (considering set off provision, basic exemption limit benefit provision, tax rate etc.) under these sections has been made large purposefully to deter dishonest taxpayers from resorting generation of undisclosed money. 10.3 Section 69A is the weapon in the armoury of the revenue department to detect the tax evasion in respect of undisclosed money which is not recorded in the books of accounts, if any maintained by him. Parliament has been serious about generation of undisclosed income and evasion of tax. Accordingly, appropriate provisions have been brought in IT Act, 1961 from time to time which will be clear from below paragraphs: The "White Paper on Black Money" presented in the Parliament on 16h May 2012 was. inter-alia, concerned with the laundering of unaccounted money by taking advantage of basic exemption limit. Hence in order to curb this escape, section 115BBE was introduced. The Finance Minister in his budget speech, while introducing the Finance Bill, 2012 on 16 March 2012, said as under: "I propose a series of measures to deter the generation and use of unaccounted money. To this end, I propose Taxation of unexplained money, & C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited credits, investments. expenditures, etc., at the highest rate of 30 per cent irrespective of the slab of income." Subsequent to demonetization announced on 8 November 2016, there were views expressed that the undisclosed income held in the form of demonetized currency can be deposited in the bank and the said amount can be offered for taxation under specified sections. Consequently, tax on the said income may be paid under section 115BBE@ 30% plus applicable surcharge and cess and in which case, the person may not be subject to penalty. To prevent such practice and to overcome the views expressed, the amendments has been made to section 115BBE of the Act wherein tax rate has been enhanced. The Statement of Objects & Reasons appended to the Taxation Laws (Second Amendment) Act, 2016. inter-alia states the object and purpose of introducing PMGKY as under- "1. Evasion of taxes deprives the nation of critical resources which could enable the Government to undertake anti-poverty and development programmes. It also puts a disproportionate burden on the honest taxpayers who have to bear the brunt of higher taxes to make up for the revenue leakage. As a step forward to curb black money, bank notes of existing series of denomination of the value of five hundred rupees and one thousand rupeе (hereinafter referred to as specified bank notes) issued by the Reserve Bank of India have been ceased to be legal tender with effect from 9th November, 2016.
Concerns have been raised that some of the existing provisions of the Income tax Act, 1961 could possibly be used for concealing black money. It is, therefore, important that the Government amends the Act to plug these loopholes as early as possible so as to prevent misuse of the provisions. The Taxation Laws (Second Amendment) Bill. 2016. proposes to make some changes in the Act to ensure-that defaulting assessees are subjected to tax at a higher rate and stringent penalty provision." 10.4 If any person is not recording particular transaction/receipt in books of accounts, he would not have done so even subsequently, had no search or survey or enquiry was carried by department. Hence, any subsequent recording in accounts after having been detected, would not be in the nature of regular accounting in normal course but only as an attempt to cure the default. 10.5 In a genuine and bonafide situation, there would always be availability of basic documents as evidence to support such unrecorded transactions in the form of bills/vouchers/challans/payment receipts/bank statement etc. If that be so, the updating the accounts subsequent to search/survey to arrive at the correct position would still be permissible because the source of such entries is already backed by necessary evidences found during the search/survey/enquiries itself. This situation would be entirely different from the situation where there was no supporting evidence found in respect of investments/assets and which were also unrecorded in accounts as on date of search/survey. If the subsequent recording of transactions/investment/receipts from & C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited unexplained sources without corroborating evidence were to be considered as permissible and meeting the requirement of condition of section 69/69A, then there would be no case where 69/69A could be applied. 10.6 Mere recording it in books of accounts subsequently without any corroborating evidences to support such entries and offering the same to tax as income in the ROI for the search/survey AY, would also not meet the conditions of recording in accounts and offering the satisfactory explanation with regards to nature & source thereof. The provisions of 69/69A therefore shall still get triggered because the primary requirement of explaining the source of income from any particular business/profession cannot be said to be satisfied. Section 69/69A etc. only create a fiction to deem certain unrecorded assets/investments as income of the assessee for the financial year. Hence, even if the assessee offers the same sup moto as income in the ROI, it does not take away such income out of category of deemed incomes u/s 69/69A for the financial year in which they are found. Rather, offering such income suo-moto in ROI for the financial year in which they are found, without any supporting evidences to support the year of income and the nature of income and also not having recorded such income in books of accounts for the business/profession maintained if any, itself tantamount to having applied and accepted the provisions of deeming such assets as income of the financial year in which it was found u/s 69/69A. If it were not to be interpreted so, then it was impossible for the assessee also to ascertain as to for which financial year the unrecorded assets pertain and for which FY the income therein pertained. In absence of any evidence to the contrary, the assessee gets jurisdiction to offer the income pertaining to unexplained assets in ROI relevant for the FY in which such unexplained assets are found, only if he also admits to the application of section 69/69A which create a deeming fiction not only to charge the asset as income but also deems such income to be of the FY in which they are found. Hence, offering the income in ROI suo- moto for any FY without any evidence of year of earning such income would also not foreclose the applicability of 69/69А. 10.7 Subsequent recording in books of accounts for his business, does not take away such income representing undisclosed assets such as stock/cash/money/bullion etc. out of sweep of 69/69A/69B etc. and they do not ipso facto be treated as part of business income. Recording of such entries to make them as part of business income can be permissible only when the entries subsequently recorded as part of business transactions are based on other collateral evidences already found during search/survey such as bills/challans/debit/credit notes/vouchers for expenses/ receipts, funds being received/transferred through banking channels etc. even though not recorded in books till that date. Therefore, unless the subsequent recording done in books of accounts maintained for any particular business/profession and the same is supported by bills/challans/debit/credit notes/vouchers for expenses/ receipts, funds being received/transferred through banking channels etc. available during search/survey, the linkage of such transactions/entries to the regular business income does not get established so as to take such transactions/assets to be part of the same business income for which accounts were being maintained. 10.8 Thus the moment any income representing any excess stock/investment/ cash/ bullion etc. found during survey/search and not recorded at that point of time in books of accounts, being in the nature of deemed incomes as mentioned u/s 69/69A/69B etc., the provisions of 115BBE are attracted irrespective of the fact that the same was subsequently recorded in & C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited books maintained for any business being carried on and declared suo moto by assessee as income in the ROl as part of business income. 10.9 In view of facts and discussion mentioned above, undisclosed money of Rs 1,00,10,000/- found and seized during search action is added to total income of assessee u/s 69A. Penalty proceedings are initiated separately u/s 271AAB.”
10.2 Based on the aforesaid observations of the ld. AO, the ld. CIT DR submitted that the entire story along with documents are prepared as an afterthought by the assessee to avoid paying taxes at higher rates u/s. 115BBE of the Act, if the addition is made on the provisions of Section 69A of the Act. The ld. CIT(A) also highlighted the observations of the ld. AO that the entire cash sale has taken place only during 23 days of September i.e., from 2nd September, 2019 to 24th September, 2019 and the rate of pure gold coin/gold fine was taken at Rs. 3,704/- per gram, whereas as per the rates available on internet, the rate of pure gold (24K) during the period was around Rs. 3,900/- per gram. The ld. AO also doubted the making charges of the jewellery which was taken at Rs. 50 per gram i.e., 1.45% of gold content price, which is considered to be very abnormal and low compared to the market prices. Ld. CIT-DR stated that, such observations clearly explains that the entire explanation and records furnished by the assessee while considering the amount of cash found during the search as collected from cash sales of the assessee is totally a cooked-up story to save the additional taxes leviable on the assessee while making the addition u/s. 69A by invoking the provision of Section 115BBE of the Act.
& C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited 10.3 With the aforesaid submissions, it was the prayer by ld. CIT DR that the ld. AO has rightly made the addition u/s. 69A, the same therefore deserves to be sustained and the unjust and improper deletion of the said addition by ld. CIT(A) without appreciating the facts of the case is liable to be set aside.
10.4 In rebuttal to the aforesaid contentions raised by the revenue, the ld. Authorized Representative of the assessee (in short Ld. AR) submitted that the findings of the ld. AO are incomprehensible, who as per para 9.9 of the assessment order has raised two contradictory questions that: i) Why not the undisclosed cash of Rs. 1,00,10,000/- found and seized during the search action be added to the total income of the assessee u/s. 69A of the Act at the same time? ii) The second question raised about the undisclosed business income on unaccounted sale of stock considering the GP ratio at 1% of the turnover as physical stock was found in shortage during the search proceedings?
10.5 To argue further on the issue, the ld. AR drew our attention to the para 9.5 at page 5 of the assessment order comprising therein, a statement about the quantity of shortage in stock and trade, wherein the stock of gold coin (bullion) as on 24.09.2019 was shown at 207.00 grams, stock of gold fine 3108.022 grams, thus, & C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited the aggregate stock of gold coin and gold fine as per the books of the assessee was 3315.022 grams, whereas the physical stock as per valuation report dated 24.09.2019 was 2013.660 grams. Accordingly, there was a short fall of 1301.362 grams, it is submitted that there was no dispute between the parties regarding the quantity of stock, the issue involved herein is only regarding the rate of stock. It is further submitted by the ld. AR that the rate adopted by the assessee was Rs. 3740/- per gram for gold coin and gold fine, whereas Rs. 3492/- per gram for stock of jewellery in hand. The ld. AO adopted a rate of Rs. 3950/- per gram for both gold coin/gold fine and the shortfall in the stock of jewellery (1987.979 Gms). Accordingly, the total value of shortage of stock was computed at Rs. 1,28,63,687.32/- on which 1% gross profit has been worked out by the ld. AO. On the other hand, assessee’s submission about the cash sales of such shortfall was not considered tenable by the ld. AO. The ld. AR further took us to the decision of the ld. CIT(A), who had discussed the issue at length, appreciated the facts from the assessment order as well as the submissions of the assessee before him and concluded that there was a shortage of physical stock during the search as well as the excess cash found during the search, so he find these two transactions to be telescoped, since the addition is made on account of shortage of stock and the cash found was on account of retail sale of such short stock for which retail sale register was furnished by the assessee before the ld. AO.
& C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited 10.6 In this regard, the ld. CIT(A) discussed about the telescoping, stating that it is judicially accepted methodologies laid down in the case of Anantharam Veerasinghaiah & Co. v. CIT (1980) 123 ITR 457 (SC) and several other decisions, though the onus of proving that the generation of income and its application is one and the same lies solely on the assessee. It is also seen that this plea was first taken by the Director of the assessee before the Investigation Wing itself that was within 15 days of the date of search. It is also observed by the ld. CIT(A) that the appellant has discharged its initial onus by furnishing party wise and item wise detail of cash sales made during the period 01.09.2019 to 24.09.2019. The books of accounts of the assessee have been accepted by the AO and no defects have been found, hence I do not have any reason to reject the cash sale register furnished by the assessee. It is also observed by the ld. CIT(A) that the ld. AO does not record any finding qua any other business income or source of income neither any conclusion on this aspect has been made by the search and seizure action. Hence, the natural inference would be that the cash has been generated from the business of assessee which the assessee has shown as its income while filing the return of income for the relevant assessment year.
10.7 The ld. CIT(A) also observed that once the shortage of stock has been confirmed by the ld. AO and addition has been made on account of stock deficit during the course of the assessment and once it is accepted that the stock has been & C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited sold outside the books of account, the collection of cash from such sale outside the books cannot be denied. It was the submission by the ld. AR that since the entire excess cash found during the search has been accounted for in the books of assessee and offered while filing the ITR to tax, the same cannot be added to the income of the assessee by treating the same as income from other sources just to levy the taxes at higher rate u/s. 115BBE of the Act. The ld. AR further clarified that that there was no finding by the ld. AO that the excess cash pertains to any other activity of the assessee, on the other hand, shortage of stock itself substantiated the fact that the same was sold and cash has been collected. In order to substantiate the aforesaid contentions, the ld. AR furnished before us an affidavit duly signed by the director of the company dated 30.04.2025 stating that the assessee company has duly accounted for the sale of Rs. 1,00,10,000/- in the books of account for the A.Y. 2020-21 giving effect to the quantity recorded in the books and finally reconciled the same with excess cash found in search. It is also declared in the affidavit that the assessee company confirms and undertakes that no tax benefit with respect to excess stock which has been surfaced during the search proceedings has been availed by the assessee in the following years.
10.8 In light of aforesaid submissions, it was a prayer by the ld. AR that the ld. CIT(A) had rightly deleted the addition under his just and proper observations, therefore, the same merits confirmation.
& C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited 10.9 We have considered the rival submissions perused the material available on record and judicial pronouncements relied upon by the parties. In the present case, going through the factual matrix of the issue, we find that there was a shortage of stock in the assessee’s premises when it was investigated during search and seizure operation on 24.09.2019. It is also a fact that a cash surplus amounting to Rs. 1,00,10,000/- was found and seized during the search action, it was not found recorded in the books of the assessee. The sale value of shortage of stock was computed at Rs. 1,28,63,678/- by the ld. AO, whereas as per the assessee, the amount was Rs. 1,18,09,152/-. After completion of the search, the assessee has furnished details of cash sale so as to clarify that the excess cash found during the search pertains to the shortage of stock found during the search for which party wise details of sales from 02.09.2019 to 24.09.2019 was furnished before the ld. AO. The ld. AO did not believe on the submissions of the assessee and treated the same as an afterthought to save the legitimate taxes u/s. 115BBE of the Act. The ld. CIT(A) discussed the issue at length (extracted supra) and had arrived at a decision that and the shortage of stock is accepted by the ld. AO, the sale of the same should also be accepted, accordingly had followed the methodology of telescoping, the generation of cash from such shortage of stock which is duly accounted for and incorporated in the books of assessee for the relevant period, which are never doubted or rejected by the ld. & C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited AO, cannot be disbelieved or denied. After considering the aforesaid facts and circumstances of the present case, as the shortage of stock has worked out in the valuation report for Rs. 1.18 crore has been taxed by the ld. AO at Rs. 1.28 crore, wherein apart from the rate of gold coin/gold fine and jewellery per gram, there was no difference of opinion regarding the quantity of shortage between the assessee and the ld. AO. Therefore, it can be safely gathered that the generation of cash of Rs. 1,00,10,000/- would be from the sale of unaccounted stock of the assessee and therefore the same is nothing but the business income of the assessee. We find conviction in the observations of the ld. CIT(A) that there was no evidence of any income in the hands of the assessee other than the business income, neither any material to substantiate that there was any cash generation by the assessee by any other activity than that of its business. We concur with the finding of Ld. CIT(A) that the cash found during the search was related to cash sales of the assessee of unaccounted stock only, which is duly added by the assessee in its turnover and had offered the profit on same while filing the return for relevant assessment year.
10.10 In view of the aforesaid observations, we agree with the decision of the ld. CIT(A), therefore, we do not wish to interfere with the same.
& C.O. No. 88/Mum/2025 (A.Y. 2020-21) Radhamohan Marketing Private Limited 10.11 In the result, ground no. 3 of the revenue challenging the decision of ld. CIT(A) regarding unaccounted cash found during the search being devoid of any substance cannot survive the same therefore has been rejected.
11 Since all the three grounds raising the controversies therein by the revenue are dismissed by us with the aforesaid observations, accordingly the substantive additions made by the ld. AO are deleted by the ld. CIT(A), have been decided by us by approving the decision of the ld. CIT(A), therefore, the grounds of appeal raised by the assessee as cross objector are rendered only academic, therefore, does not require any adjudication.
12 In combine result, both the appeals of the revenue and cross objections filed by the assessee stands dismissed in terms of our aforesaid observations. Order pronounced in the open court on 11.09.2025