INDOMAL JEWELLERY,CUDDALORE vs. ITO, CC-3(4), CHENNAI

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ITA 2951/CHNY/2025Status: DisposedITAT Chennai05 June 2026AY 2020-2115 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the entries in the third-party software (J-Pack) cannot be used as conclusive proof against the assessee without corroborative material. The lack of opportunity for the assessee to cross-examine the key witness and the AO's failure to conduct further inquiry vitiated the addition.

What were the facts?

The assessee, Indomal Jewellery, faced additions to its income based on unaccounted transactions with M/s Mohanlal Jewellers Pvt Ltd (MJPL), as indicated by data seized from MJPL's accounting software. The assessee denied these transactions, claiming they were either not made or were incorrectly recorded.

What were the issues?

Whether entries in third-party accounting software seized from another entity can be used to make additions to the assessee's income without corroborative evidence and opportunity for cross-examination.

Which sections of the Income-tax Act were involved?

Section 132,Section 153C,Section 143(1),Section 142(1),Section 132(4),Section 292C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & MS. PADMAVATHY S

Hearing: 28.04.2026Pronounced: 05.06.2026

आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the assessee against the orders of the Learned Commissioner of Income Tax (Appeals), (hereinafter referred to as ‘Ld.CIT(A)‘), Chennai-20, all dated 23.09.2025 for the Assessment Year (hereinafter referred to as ‘AY‘) 2017-18 to 2021-22 respectively.

2.

Since the issues involved are common, the appeals for all the assessment years were heard together. Both the parties also argued them

ITA No.2948-2952/Chny/2025 (AY 2017-18 to 2021-22) Indomal Jewellery :: 2 :: together raising similar arguments on the issues. Accordingly for the sake of convenience and brevity, we dispose all the appeals by this consolidated order.

3.

Grievance raised by the assessee in all above appeals relate to the addition made by way of estimated income derived from unaccounted transactions with M/s Mohanlal Jewellers Pvt (in short ‘MJPL’).

4.

Both sides agree that facts and the issue involved are identical in all appeals. Hence, we take up the appeal for AY 2021-22, which decision will apply mutatis mutandis for other appeals. Before adverting to the grounds raised by the assessee, we first consider it fit to cull out the basic facts in the case by referring to the facts for AY 2021-22. Assessee is a Firm engaged in the business of retail sale of jewellery ornaments. The assessee filed the return of income for A.Y.2021-22 on 20.11.2021 declaring a total income of Rs.1,36,600/-which was processed u/s.143(1) of the Income Tax Act, 1961 (hereinafter referred to as “Act”). Search u/s.132 of the Act was conducted on 10.11.2020 in the case of M/s MJPL and other related persons. During the course of search, certain electronic records including desk-top data and Pen drive containing information from the “J-Pack” accounting software were seized which inter alia contained incriminating material having of bearing on the total income of the assessee. The case of the assessee was centralized on 23.06.2023 and

ITA No.2948-2952/Chny/2025 (AY 2017-18 to 2021-22) Indomal Jewellery :: 3 :: thereafter notice u/s.153(C) was issued on 08.08.2024 after recording the satisfaction note.

5.

The AO observed that statement of certain persons including Shri Rajendra Kothari of MJPL were recorded u/s.132(4) of the Act wherein it was stated that “J-Pack” software inter alia contained details of transactions relating to purchase and sale of gold made outside the regular books of account. On examination of the data retrieved from “J- Pack” software, the AO of the searched person analyzed ledger account in the name of “INDOMAL”, which was linked to the assessee. The ledger reflected the transactions of purchase of gold jewellery/ornaments. The AO taking note of the said ledger found the assessee having transaction with MJPL and having regard to the details of the opening and closing balances recorded under the ledger “INDOMAL” in the “J-Pack” software of MJPL, AO tabulated the data concerning the assessee which is found at Page No.3 of the assessment order. The AO, during the course of assessment proceedings, provided copies of the seized ledger named “INDOMAL” extracted from “J-Pack” software to the assessee along with the notice u/s.142(1) of the Act dated 10.12.2024 and asked the assessee to provide the reconciliation of the “J-Pack” ledger extract and that of the ledgers maintained in the book of accounts of the assessee- Firm. In response, assessee filed its reply along with ledgers of M/s MJPL in its books, copies of bank statement. In its reply assessee submitted

ITA No.2948-2952/Chny/2025 (AY 2017-18 to 2021-22) Indomal Jewellery :: 4 :: that the total gold purchases made by the assessee from MJPL is 203.26 grams as recorded in its books of account for the said period (01.04.2020 to 10.11.2020) and contested the veracity of the purchase as shown in the “J-Pack” ledger as 1671.310 grams. The assessee asserted in its reply dated 25.12.2024, pursuant to the show-cause notice issued by the AO on 20.12.2024, that assessee has not carried out any purchase other than what has been recorded in its books of account. In other words, assessee objected to the proposal made in the show-cause notice to tax the unaccounted purchase based on the “J-Pack” ledger found at the premise of MJPL of 1468.050 grams (1671.310 minus 203.260) and asserted that entries found in the ledger from the 3rd Party premises cannot be used against it, in absence of any tangible material to corroborate the same. The gist of the reply of assessee reproduced by the AO at Page No.6 and 7 of the assessment order reads as under: -

The assessee has stated that they have already submitted the statements and account books for their actual transactions with M/S Mohanlal Jewellers (P) Ltd during this year. Other than that, they had not done any purchases from them and payments made to them. Assessee requested to furnish a copy of the seized materials on which you have arrived at the conclusion that we have made purchases and made payments over and above what we have accounted and submitted. Addition based on unsubstantiated documents, loose sheets, jottings and excel sheets cannot be sustained. Statements recorded solely cannot constitute incriminating material for additions. Unsubstantiated loose papers without corroboration by inquiry cannot be basis for additions. Suspicion alone cannot replace evidence. You have not established any live link between seized material with our record. Assessee in support of its claim quoted the Rama traders Vs First ITO (1998)25 ITO599 (Pat)(TM), Sheth Akshay Pushpavadan Vs Dy CIT (2010) 130 TTJ 42 (Ahd.UO), Jaikumar Jain Vs Asst Commissioner of Income Tax

ITA No.2948-2952/Chny/2025 (AY 2017-18 to 2021-22) Indomal Jewellery :: 5 :: (2007) 11 SOT (Jaipur) (URO), Amarjit Singh Bakshi (HUF) Vs Assistant Commissioner of Income Tax (2003) 86 ITD 13 (Delhi). 6. However, the AO is noted to have rejected the submissions put-forth by the assessee by observing as under: -

i) The assessee had sought for copies of the seized material. The assessee was provided with the copy of the ledger extract of "JPACK" Software along with the questionnaire issued under section 142(1) of the Income tax Act, 1961. ii) With regards to the assessee's claim that they have not made any purchase other than the accounted transactions, it is hereby submitted that the assessee is trying to deny the transactions in the above discussed "JPACK" software ledger, which has not been reflected in assessee's books of accounts. From the manner and the details in which the entries have been made in the "JPACK" software, it cannot be a treated as dumb document. Some of the entries made in the assessee books of accounts are also entered in the "JPACK" software ledger. For example: On 03.08.2020, a sale invoice was issued by the M/S Mohanlal Jewellers (P) Ltd for amount of Rs.5,00,000/- including the CGST and SGST, for jewellery of gross weight of 95.660 grams. The same entry is recorded in the books of accounts of assessee as well as in the books of accounts of the MJPL. The same entry is recorded in the "JPACK" software also on 03.08.2020 with the description "Metal Receipt". iii) Therefore, the correctness of the entries in the "JPACK" cannot be denied. The contention that the transactions recorded in the JPACK, which were not recorded by the assessee, were not done by the assessee is self-serving statement only. The analysis of the "JPACK" entries depicts the actual transactions between assessee and M/s Mohanlal Jewellers (P) Ltd. 7. Thereafter, the AO verified the transaction recorded in the “J- Pack” ledger pertaining to A.Y.2021-22 made with MJPL recorded in the books of the assessee till 10.11.2020 (date of search of MJPL). The AO is noted to have analyzed the seized material and thereafter quantified the unaccounted transactions conducted by the assessee at 1468.050 grams during the period from 01.04.2020 to 10.11.2020 at Rs.65,56,238/- [i.e. 1468.050 grams (1671.310 minus 203.260)]

ITA No.2948-2952/Chny/2025 (AY 2017-18 to 2021-22) Indomal Jewellery :: 6 :: on which he applied gross rate of 36.05.% and made addition of Rs.23,63,524/-. On appeal, the Ld.CIT(A) concurred with the action of the AO.

8.

Aggrieved the assessee is now in appeal before us. Assailing the action of the AO as well as Ld.CIT(A), the Ld.AR of the assessee inter alia contended that, the veracity of the entries found in the “J- Pack” software (ledgers with the name of “INDOMAL”) were never enquired by the AO independently before concluding the assessment proceedings. The Ld AR pointed out that impugned additions were solely based on the entries found in the ledger which assessee does not have any control, being found from the premise of third party/MJPL. According to the Ld.AR the ledger software “J- Pack”/ledger with acronym “INDOMAL” was admittedly under the control of the employees of MJPL. Hence, whatever entries made therein cannot be used against the assessee to fasten liability over it unless there is corroborative material. According to the Ld.AR the impugned addition was only on speculation. The Ld.AR taking us through the assessment order showed us that even though assessee contested the entries which were recorded in the ledger of MJPL (“J- Pack” software) the AO did not make any inquiry to summon Shri Rajendra Kothari or Suresh Khatri to establish the allegation that assessee had conducted unaccounted purchases with MJPL, which

ITA No.2948-2952/Chny/2025 (AY 2017-18 to 2021-22) Indomal Jewellery :: 7 :: purchases are not recorded in the books of the assessee. Therefore, the Ld.AR submitted that the Ld.CIT(A) erred in confirming the GP addition based on entries made in the ledger maintained in the “J- Pack” software. In this regard, the Ld AR pointed out that the assessee had contested the veracity of the unaccounted purchases to the tune of Rs.1468.050 grams, then the AO ought to have summoned and examined the makers of the statement viz Shri Rajendra Kothari and Suresh Kothari and clarified from them and even allowed assessee to cross-examine them without which, AO ought not to have drawn adverse view against the assessee. He thus wants us to delete the same.

9.

The Ld.AR relied on the decisions of this Tribunal rendered in the case of Kasthoori Raja Dhanush vs ACIT (ITA Nos.3188 to 3192/Chny/2024) in support of his contention that mere entry in the ledger bearing the name of “INDOMAL” cannot be said to pertain to that of assessee and such entries cannot represent alleged transaction with the assessee. According to Ld AR, no material whatsoever has been bought on record to establish any such nexus between the said ledger and the assessee. The Ld.AR further alleged that the issue relating to the nature of entries recorded in the “J- Pack” software has been examined by this Tribunal in the case of MJPL wherein, according to him it was held that the mechanism of

ITA No.2948-2952/Chny/2025 (AY 2017-18 to 2021-22) Indomal Jewellery :: 8 :: recording entries in the “J-Pack” software does not by itself, establish the nature, authenticity or taxability of the underlying transactions recorded therein. Hence, even if assessee has recorded certain transaction which tallies with the entries found in J-Pack ledger of MJPL, that cannot be the basis for drawing adverse inference for entries which are not recorded in its book vis a vis that of the entries found in J-Pack ledger of MJPL as unaccounted transactions. Hence according to assessee, the entries maintained by the 3rd party in their application software alone cannot be held to be conclusive proof against the assessee, hence, it would be unsafe to fasten addition in the hands of assessee. Therefore, the Ld AR pleaded for deleting the addition.

10.

Per contra the Ld.DR fully supported the action of both the Ld.CIT(A) as well as the AO and does not want us to interfere with the impugned action of the Ld.CIT(A).

11.

Heard both parties and perused the material placed before us. We note that, a search action was conducted on 10.11.2020 at the premises of the MJPL, in the course of which, a pen drive was found which contained accounts maintained in “J-Pack” software. The facts available on record shows that MJPL had admitted that the accounts maintained in its software contained both their unaccounted and accounted transactions

ITA No.2948-2952/Chny/2025 (AY 2017-18 to 2021-22) Indomal Jewellery :: 9 :: and also offered additional income across several years with reference to the details and ledgers found therefrom. It is further observed that “J- Pack” software also contained ledgers of the parties with whom MJPL inter alia had unaccounted transactions and one of the ledgers was titled “INDOMAL”. It is seen that Shri Rejendra Kothari from whose possession this Pen-drive was found had explained the modus operandi for recording unaccounted transactions in these ledgers. It is also noted that Shri Suresh Khatri, key person of MJPL has confirmed the version of Shri Kothari. We observe that when assessee was confronted with this J-Pack ledger, has denied to have carried out any unaccounted purchases from MJPL and filed copy of the ledger of M/s MJPL in its book, along with copies of bank statement and reconciliation of issued & receipts and entries shown in “J-Pack” ledgers. The assessee also furnished bills/invoices copies for accounted purchases made from M/s MJPL and claimed that it had done only those transactions with MJPL which were recorded in its books of account and requested AO to accept the audited financial statement of the assessee. The AO acknowledged that assessee denied the transaction as shown in the “J-Pack” account which have not been recorded in its (assessee’s) books of accounts. However, the AO brushed aside the denial made by the assessee on the reason that some of the transactions which have been recorded in the books of account of the assessee are also found recorded in the J-Pack account in the same

ITA No.2948-2952/Chny/2025 (AY 2017-18 to 2021-22) Indomal Jewellery :: 10 :: manner. Therefore, according to AO the correctness of the entries in the J-Pack account cannot be denied by the assessee. In other words, the transactions recorded by assessee in its book’s tallies with the J-Pack account in the same manner date wise. Hence, it is improbable that ledger maintained by MJPL in J-Pack software would be wrong. Further, according to AO, assessee failed to reconcile the unmatched entries, nor prove that it didn’t carry out unaccounted transaction with MJPL. Therefore, the AO rejected the denial of assessee and thereafter quantified the unaccounted transactions conducted by the assessee at 1468.050 grams during the period from 01.04.2020 to 10.11.2020 at Rs.65,56,238/- [i.e. 1468.050 grams (1671.310 minus 203.260)] on which he applied gross rate of 36.05.% and made addition of Rs.23,63,524/-. On appeal, the Ld.CIT(A) concurred with the action of the AO, which impugned action is under challenge before us.

12.

We find that the impugned addition hinges on the entries of ledger extract of INDOMAL in the books of MJPL maintained in J-Pack software and the statements of Shri Kothari and Suresh Khatri of MJPL. When confronted with the ledger extract of INDOMAL in the books of MJPL, the assessee is noted to have denied the unaccounted transactions and asserted that it has purchased only 203.260 gms of gold from MJPL (AY 2021-22), and filed relevant evidence like bills/invoices, books of account and payments made through banking channel. However, the AO didn’t

ITA No.2948-2952/Chny/2025 (AY 2017-18 to 2021-22) Indomal Jewellery :: 11 :: accept the denial of unaccounted purchases because out of the gold issued weighing 1671.310 gms as per J-Pack ledger, only gold weighing 203.260 gms was accounted in the books of the assessee, hence according to AO, balance gold 1468.050 gms needs to be treated as unaccounted purchases. Failure of the assessee to reconcile the unmatched entries; and failure to prove that it didn’t carry out unaccounted transaction with MJPL; are noted to be the reasons assigned to reject the assessee’s denial of carrying out any unaccounted transaction with MJPL. We do not agree with the reasoning given by the AO for fastening the liability/addition for the following reasons.

13.

We agree with the Ld.AR that, the assessee cannot be expected to prove a negative. Instead, the onus lay on the Revenue to substantiate the unmatched entries with some independent tangible material, if they were seeking to use the same against the assessee. According to us, the entries found in “J-Pack” application software which was seized from the premises of MJPL, could have been explained by MJPL alone. The case of the Revenue is that Shri Kothari of MJPL had claimed these entries to be unaccounted for, and thus it was rightly added in the hands of the assessee. On the other hand, the Ld.AR has submitted that, the statement given by Shri Kothari could have been in the context of the books of account of the MJPL and not the assessee. The Ld.AR submitted

ITA No.2948-2952/Chny/2025 (AY 2017-18 to 2021-22) Indomal Jewellery :: 12 :: that, the Shri Kothari who was an employee of MJPL could not have possibly known as to whether the assessee had accounted or not, these transactions in their books of account. He corroborated his submission by showing that majority of these entries were recorded in the books of account of the assessee. We also note that no opportunity to cross- examine Shri Kothari/Suresh Khatri was given to the assessee. We thus, find force in the Ld.AR’s plea that the statement of Shri Kothari cannot come to the aid of the AO to fasten a liability on the assessee without corroborative material which is absent in this case.

14.

It is settled that presumption set out in section 132(4), 132(4A) and 292C is only against the searched person which in this case is MJPL. Hence, contents of the material seized from the possession of the MJPL viz. entries in J-Pack application software seized from MJPL, can be presumed to be true only qua MJPL. Likewise, the statement of Shri Kothari recorded on the basis of material found in his possession can be used as valid evidence in the income tax proceedings of MJPL. Thus, said presumption cannot be extended to the assessee, unless the assessee was afforded an opportunity to cross-examine him. It is well settled in law that such 3rd party material or statement cannot be treated as conclusive proof against an assessee, unless there is other corroborative material linking the same to the assessee. Hence, we thus agree with the assessee

ITA No.2948-2952/Chny/2025 (AY 2017-18 to 2021-22) Indomal Jewellery :: 13 :: that the contents of J-pack software, which was unilaterally maintained by that party (MJPL) cannot be straight away used adversely against the assessee, without any corroborative material evidence. It is noted that assessee was able to substantially reconcile the entries out of the total entries found in the J-Pack application software. Insofar as the unmatched entries are concern, the assessee had contended that, these could have been mistakenly entered by Shri Rajendra Kothari in the software under the name of assessee. To support his contentions, he referred to certain contra entries, which suggest that when Shri Kothari identified the entries which were wrongly posted to the name of the assessee, he would pass a contra entry to transfer it to the correct head, which this Tribunal in identical facts and circumstances noted in Lalitha Jewelry Case [ITA Nos.675 to 680/Chny/2025 dt.12.06.2025]. We agree with the Ld AR that these unmatched entries could also be a case of incorrect accounting, mistaken identity or that the entries of some other customers were wrongly posted to these accounts. 15. According to us, ordinarily any unmatched entries with the books of 3rd party raises a suspicion against the assessee, then AO to enquire and bring corroborative evidence against assessee, especially when assessee has denied such transaction. However, the AO despite assesee’s denial has not enquired about the veracity of such entries found in the ledger of MJPL and has refused to allow cross-examination of the makers of

ITA No.2948-2952/Chny/2025 (AY 2017-18 to 2021-22) Indomal Jewellery :: 14 :: statement on behalf of MJPL. Such an omission on the part of AO in the given facts of the case vitiates the adverse view taken against the assessee that it indulged in unaccounted transaction with MJPL and the addition made is fragile for violation of natural justice. 16. According to us, once the assessee had denied unaccounted transactions with MJPL, thereby challenged the veracity of the contents of the entries in the J-Pack application software, then not only the AO ought to have examined Shri Kothari to test the veracity of his statement but he also ought to have confronted Shri Kothari of M/s MJPL to ascertain the true content and nature of the unmatched entries. Also, an opportunity should have been given to the assessee to cross-examine Shri Kothari/Suresh Khatri particularly when the assessee at all times had denied having any unaccounted transaction with MJPL and even MJPL had submitted their confirmation of accounts. In our considered view on the given facts, the impugned addition cannot be sustained since assessee has not accepted the contents of the J-Pack ledgers in its entirety qua assessee, and specifically denied having any unaccounted transaction with MJPL and asserted that the entries maintained is unreliable qua assessee. In such a scenario, in order to fasten liability, there should be corroborative evidence, which is absent. Anyway, the entries maintained by the 3rd party in their application software alone cannot be held to be conclusive proof against the assessee, hence, it would be unsafe to fasten

ITA No.2948-2952/Chny/2025 (AY 2017-18 to 2021-22) Indomal Jewellery :: 15 :: addition in the hands of assessee. Therefore, in the light of fore going discussion, we direct the deletion of addition for AY 2021-22.

17.

No change in facts or law could be pointed out qua other captioned AYs, hence on the aforesaid reasoning, the grounds of appeal on merits against addition are allowed on the basis of the same reasoning given for A.Y.2021-22. Thus, assessee succeeds and we direct the impugned additions be deleted for all the assessment years.

18.

In the result, appeals of the assessee are allowed.

Order pronounced on the 05th day of June, 2026, in Chennai. Sd/- Sd/- (एबी टी. वक�) (प�ावती .एस) (ABY T. VARKEY) (PADMAVATHY S) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER चे�नई/Chennai, �दनांक/Dated: 05th June, 2026. YS आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

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