M/S. RM MAHAVEER JEWELLERY,CUDDALORE vs. DCIT, CC-3(1), CHENNAI

आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeal), (hereinafter referred to as ‘Ld.CIT(A)’), Chennai-20, dated 17.12.2025 for the Assessment Year (hereinafter referred to as ‘AY’) 2020-21.

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 2 :: 3. The assessee has raised the following grounds of appeal (AY 2020- 21):- 1. The order of the learned Commissioner of Income Tax (Appeals)-20 [CIT(A)] confirming the addition made by the Assessing Officer (AO) is contrary to law, facts, and circumstances of the case. The learned CIT(A) failed to see that addition made under Section 153C is without jurisdiction and deserves to be deleted. 2. The learned CIT(A)-20 failed to see that the Assessing Officer erred in issuing the notice under section 153C of the Income Tax Act, 1961 on 18.03.2022, several months after the search conducted on 10.11.2020 in the case of Mohanlal Jewellers Pvt Ltd, without recording any objective satisfaction or reasons for such delay. The notice issued after an inordinate lapse of time is, therefore, without jurisdiction and liable to be quashed. 3. The learned Assessing Officer has erred in issuing a notice under section 153C even though the seized material/books/documents relating to the appellant were handed over to the Jurisdictional Assessing Officer only on 11.03.2024, i.e., after 01.04.2021. In terms of the first proviso to section 153C(1), this date is the deemed date of initiation of search in the case of an "other person". 4. The learned CIT(A) ought to have see that by virtue of section 153C(3), which mandates that nothing in section 153C shall apply to a search initiated on or after 01.04.2021, the Assessing Officer lacked jurisdiction to invoke section 153C in the appellant's case. Therefore, the notice issued and all consequential proceedings are void ab initio. 5. The learned CIT(A) erred in law and on facts in sustaining an addition towards alleged gross profit on purported unaccounted purchases, in the absence of any legal or factual basis, rendering the addition arbitrary, conjectural, and unsustainable in law. 6. The learned CIT(A) erred in law and on facts in sustaining an addition towards GP in the absence of any incriminating material found during the course of search relatable to the appellant, and based solely on third-party data seized from the premises of another person, which has no evidentiary value against the appellant. 7. The learned CIT(A) erred in law and on facts in sustaining an addition towards GP solely on entries allegedly appearing in a private and unregulated software (JPACK) maintained by a third party, which is neither statutory nor part of the appellant's books, and therefore incapable of forming the basis for estimation of profits. 8. The learned CIT(A) failed to see that the Assessing Officer erred in law in treating ledger entries maintained in the JPACK software seized from MJPL as conclusive evidence against the appellant, without appreciating that the said software was maintained by a third party and that the appellant had no control over, or access to, the said records.

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 3 :: 9. The learned CIT(A) failed to see that the Assessing Officer erred in law and on facts by ignoring the fact that apart from the entries in JPACK, no other corroborative materials were seized pertaining to such entries especially when the appellant has no control over the seized electronic device of a third party. Hence, the additions were made purely on surmise and conjectures and hence are liable to be struck down, 10. The learned CIT(A) erred in confirming the addition made by the Assessing Officer solely based on data extracted from the internally maintained 'JPEG' software, which is merely a customized operational and inventory-management tool used by Mohanlal Jewellers Pvt. Ltd. for internal control purposes. The said software does not constitute the statutory books of account. 11. The learned CIT(A) failed to see that official and legally recognized books are maintained in Tally, which alone reflects all duly accounted financial transactions. In the absence of any corroboration of the JPEG data with the regular books or supporting evidence, reliance placed on such unverified, non-statutory internal software data is erroneous, contrary to settled law, and wholly insufficient to justify the impugned addition. 12. The learned Assessing Officer erred in framing the assessment in complete violation of the statutory provisions and the principles of natural justice by relying upon statements of a third party, which were used adversely against the appellant, despite the appellant's specific request for an opportunity to cross-examine the deponent. The denial of cross-examination vitiates the entire assessment, being contrary to the law laid down by the Hon'ble Supreme Court in Andaman Timber Industries. Consequently, the assessment is bad in law, having been made in breach of natural justice and without adherence to mandatory legal requirements. For these and other grounds that may be rendered at the time of hearing it is most humbly prayed that the Hon'ble Tribunal may be pleased to allow the appellants appeal and thus render justice.

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 4 :: ₹1,48,21,100. A search under section 132 of the Income Tax Act 1961 (herein after the Act) was conducted on 10.11.2020 in the case of M/s Mohanlal Jewellers Pvt. Ltd. (MJPL) and other related persons. During the course of the search, certain electronic records including desktop data and pen drives containing information from the “J-Pack” accounting software were seized, which inter alia contained incriminating material having a bearing on the total income of the assessee. Notice u/s 153C was issued to the assessee on 18.03.2024 by DCIT CC-1(3) Chennai. The case of the assessee was centralized on 07.10.2024 and thereafter statutory notices were issued by AO.

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 5 :: Act dated 04.12.2020, concurred with the statement given by Shri Kothari. Having regard to the details of the opening and closing balances recorded under the ledger “VIJAY BHAI CUDDALORE”, in the JPack Software of MJPL, the AO tabulated the data concerning the assessee, which is found at Page 4 of the assessment order. It is seen that, in order to verify the above transactions, the assessee was issued notices u/s 142(1) of the Act on 10.12.2024 asking to explain the above transactions from Jpack Software and pursuant to the same, the assessee furnished copy of ledger of M/s MJPL in its books along with purchase bills vide letter dated 10.12.2024. The AO issued show cause notice pointing out that the J-Pack ledger shows goild ornaments/bullion of total 47640.490 grams (gross weight) were issued to the assessee during FY.2019-20 by M/s. MJPL. According to the AO the entries appearing in J-Pack which match with the bills recorded in the tally purchase ledger of M/s. MJPL, in the books of the assessee are to the extent of 39701.840 grams. The AO noted the opening balance of 1668.280 grams gold as on 01.04.2019. Thus, according to the AO the balance entries are not recorded in the books of account of the assessee. Hence, he gave a show cause dated 17.12.2024 asking the assessee to explain as to why income generated from unaccounted purchase of gold ornament/bullion of 6270.37 grams (47640.490 grams minus 1668.280 grams minus 39701.840 grams) from M/s. MJPL should not brought to tax. The AO noted the assessee

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 6 :: furnished reply on 23.12.2024, stating that “as compared to the J-Pack, there excess purchase of gold to the extent of 12912.53 grams from M/s MJPL for AY 2021-22 relevant to FY 2020-21 and the same may be adjusted for AY 2020-21 relevant to FY 2019-20”. The AO is noted to have rejected the plea of the assessee since assessee didn’t submit any satisfactory explanation for the unaccounted purchases made from M/s. MJPL. The AO is noted to have extensively analyzed the seized material, admission of the assessee and other relevant details and evidences and thereafter quantified the unaccounted transactions conducted by the assessee at Rs.2,12,61,821/- on which he applied gross profit rate of 5.84% and made addition of Rs 12,41,690/-. On appeal, the Ld. CIT(A) concurred with the action of the AO. Aggrieved the assessee is now in appeal before us.

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 7 :: mere presumption that the ledger appearing in the name “VIJAY BHAI CUDDALORE” pertains to the assessee and represents alleged transactions with the assessee, but no material whatsoever has been brought on record to establish any such nexus between the said ledger and the assessee. The Ld. AR relied on the decision of this Tribunal rendered in the case of Kasthoori Raja Dhanush Vs ACIT (ITA Nos. 3188 to 3192/Chny/2024) in support of his contentions. The Ld. AR further urged that, the issue relating to the nature of entries recorded in the J- Pack software had been examined by this Tribunal in the case of MJPL wherein, according to him, it was held that the mechanism of recording entries in the J-Pack software and does not, by itself, establish the nature, authenticity, or taxability of the underlying transactions recorded therein. The Ld. AR further submitted that, though the assessee had admitted to the unaccounted transactions reflected in the ledger extracted from Jpack Software of MJPL, but in his view, this statement cannot be treated as conclusive evidence to justify the impugned addition. He thus wants us to delete the same. The Ld. AR alternatively urged that, the estimation of profits at 5.84% was excessive and submitted that the coordinate Benches in similar cases had estimated the profits at 2%.

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 8 :: 14.02.2020, and assessee has replied on 23.12.2024 to the AO that there indeed was excess purchase of gold to the extent of 12912.53 grams from M/s. MJPL for the subsequent year and that the same may be adjusted for the relevant AY 2020-21, but assessee didn’t bother to explain/reconcile along with supporting invoices in respect of 6,270.37 grams of unaccounted purchases quantified by the AO to prove its claim that the said transaction have already been accounted in the subsequent financial year. Thus, the Ld.DR supported the impugned action of the Ld.CIT(A) and further submitted that assessee’s denial of making any unaccounted purchases at the fag end of the assessment is contradictory to its stand taken on 23.12.2024 based on which assessment was framed u/s.153C on 08.01.2025 and hence, the attempt made to deny the transaction does not hold any water and is an afterthought, and deserves to be rejected. Therefore, he doesn’t want us to interfere with the impugned action of Ld CIT(A).

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 9 :: details and ledgers found therefrom. It is further observed that, the Jpack software also contained ledgers of the parties with whom MJPL inter alia had unaccounted transactions and one of the ledgers was titled “VIJAY BHAI CUDDALORE”. It is seen that, Shri Rajendra 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 had affirmed the version of Shri Kothari. We observe that, when the assessee was show caused as to why unaccounted purchase of gold of 6270.37 grams should not be brought to tax for AY 2020-21, assessee is noted to have admitted of excess purchases of gold to the extent of 12912.53 grams from MJPL albeit for the subsequent year and pleaded for adjusting the excess purchases of 6270.37 grams for the relevant year i.e. AY 2020-21. Thus, it is noted that the assessee has accepted having unaccounted transactions with MJPL. It is not the case before us that, the admission obtained from the assessee was not based on certain incriminating material unearthed by the Revenue. It is also not the case that, the assessee had subsequently retracted his statement. Rather, we find that, only at the fag-end of the assessment, the assessee had simply denied having any unaccounted transaction with MJPL. The assessee did not bring on record any cogent material to objectively rebut and show that his admission made vide letter dated 23.12.2024 was incorrect. According to

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 10 :: us, the contention now being raised by the assessee urging us that, the admission made by him in his statement be ignored, cannot be countenanced and for this, we rely on the decision of the Hon’ble Rajasthan High Court in the case of Bannalal Jat Constructions Pvt Ltd Vs ACIT (106 taxmann.com 127) wherein it was held as follows: -

“13. This court in Ravi Mathur, (supra) which was relied by the ITAT in the present case, after considering catena of previous decisions, held that the statements recorded under Section 132(4) of the IT Act have great evidentiary value and it cannot be discarded in a summary and cryptic manner, by simply observing that the assessee retracted from his statement. One has to come to a definite finding as to the manner in which the retraction takes place. Such retraction should be made as soon as possible and immediately after such statement has been recorded by filing a complaint to the higher officials or otherwise brought to the notice of the higher officials by way of duly sworn affidavit or statement supported by convincing evidence, stating that the earlier statement was recorded under pressure, coercion or compulsion. ….. 14. The judgment of the Delhi High Court in Sunil Aggarwal, (supra) relied by the assessee does not in any manner extend any assistance to him because that was a case in which the court found that the assessee, apart from retracting the statement, also discharged the onus on him through cogent material to rebut the presumption that stood attracted in view of the statement made under Section 132(4) of the IT Act with reference to the entries in the books of accounts of the sales made during the year and the stock position. Similar was the position in Kailashben Manharlal Chokshi v. CIT [2008] 174 Taxman 466/[2010] 328 ITR 411, wherein the High Court of Gujarat found that the assessee gave proper evidence in support of his retraction. The High Court of Madras in M. Narayanan & Bros. (supra) held that when assessee had explained his statement as not correct in context of materials produced, no amount could be added to his income on the basis of his statement. Similarly, what has been held by the High Court of Bombay in CIT v. Omprakash K. Jain [2009] 178 Taxman 179[2010] 322 ITR 362 was that the assessing officer, while considering whether retraction was under duress or coercion, had also to consider genuineness of documents produced before him. …. 16. The Punjab and Haryana High Court in Bachittar Singh (supra) in para 7 of the report, held as under: —

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 11 :: "7. It is not disputed that the statement was made by the assessee at the time of survey, which was retracted on May 28, 2003, and he did not take any further action for a period of more than two months. In such circumstances, the view taken by the Tribunal that retraction from the earlier statement was not permissible, is definitely a possible view. The mere fact that some entries were made in a diary could not be held to be sufficient and conclusive to hold that the statement earlier made was false. The assessee failed to produce books of account which may have been maintained during regular course of business or any other authentic contemporaneous evidence of agricultural income. In the circumstances, the statement of the assessee could certainly be acted upon." … 20. Subsequently, on 04.12.2014 during the post-search proceedings, statement of Shri Bannalal Jat was again recorded under Section 131 of the IT Act, wherein he was again confronted with the various documents seized and cash found during the course of search and the consequent surrender made by him in respect of his two concerns and in response thereto, he again confirmed the surrender of undisclosed income amounting to Rs.1,21,43,210/- and Rs.1,35,00,000/-. It is in this background that we have to view his reply to the show-cause notice submitted on 02.12.2016. This show-cause notice was issued to him by the assessing officer when the appellant-company offered the said undisclosed income to tax. The reliability, importance and sanctity of admission made during search could be refuted only by cogent and convincing evidence. We may in this connection refer to earliest judgment of the Supreme Court in Pullangode Rubber Produce Co. Ltd., (supra) wherein it was held that admission is an extremely important piece of evidence but it can't be said that it is conclusive. It is open to the person, who made admission to show that it is incorrect. The assessee should be given proper opportunity to show the correct state of affairs. The law with regard to this has developed much thereafter. There is no gainsay the fact that admission made during the search can be disputed by the assessee and at the same time however it is equally well settled that the statement made voluntarily by the assessee could form the basis of assessment. Mere fact that the assessee retracted the statement at later point of time could not make the statement unacceptable. The burden lay on the assessee to show that the admission made by him in the statement earlier at the time of survey was wrong. Such retraction, however, should be supported by strong evidence stating that the earlier statement was recorded under duress and coercion, and this has to have certain definite evidence to come to the conclusion that indicating that there was an element of compulsion for assessee to make such statement. However, a bald assertion to this effect at much belated stage cannot be accepted. The assessee indulged in maintaining transaction on diaries and loose papers which was not permissible in any of the method of accounting. The assessee, while filing the return of income, has not disclosed any undisclosed income and hence, retracted from the admission made by him during the course of search. Subsequent retraction from the surrender without having evidence or proof of retraction is not permissible in the eyes of law. The statement recorded during the course of search action which was in presence of independent witnesses has overriding effect over the subsequent retraction.”

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 12 :: 10. The reliance placed by the Ld. AR on the decision of Kasthoori Raja Dhanush (supra) is found to be misplaced and factually distinguishable. The said decision was rendered in the context of validity of reopening of assessment u/s 153C of the Act and we find that the material facts involved in that decision was not factually distinguishable in as much as there was no such admission made by the assessee, as done in the present case.

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 13 :: interfere with the findings recorded at para 5.3.1 to 5.3.9 of the impugned order being plausible view and cannot be said to be perverse, hence confirm the same.

We are of the view that a reasonable profit rate should be estimated and if the gross profit rate is to be added that can be added at the rate of 2%, going by the nature of business of the assessee and similar line of business only on the unaccounted part or payment made in cash for which cash was utilized for making purchases and consequent sale of MJPL. Hence, we are of the view that a reasonable estimate of gross profit of 2% will meet the ends of justice for both sides i.e., for the Department as well as for the assessee for all these six assessment years for unaccounted purchases only of gold from MJPL not recorded in the regular books of accounts. Hence, we direct the AO to apply gross profit rate of 2% on cash payment made for unaccounted purchases of gold from MJPL for these relevant six assessment years and not on

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 14 :: recorded purchases. The assessee will file complete detail of purchases made in cash payment and purchases made through banking channel i.e., RTGS etc., before the AO and the AO will accordingly apply profit rate only on unaccounted purchases made through cash payments of gold through MJPL as recorded in the seized document 'Amanullah KDR' i.e., ledger account find in J- Pack software. Hence, in view of the above direction for computation of income, the matter is restored back to the file of the AO for applying profit rate of 2% only on unaccounted cash payments made to MJPL. 14. To consider this plea, the Bench queried the Ld. AR the basis for adoption of G.P @ 2% as opposed to the G.P as per the assessee- appellant’s books. In reply, the Ld. AR stated that the G.P rate as per the books of accounts is the result of retail sale of gold jewells, which involves incurring several expenses to make the product fit for sale, such as, making charges, wastage charges etc. Furthermore, the retail sale of gold and gold jewells is a wide market, and the demand for the products sold is high with various players involved in said line of business. In such a scenario with high demand, the appellant would be free to sell the goods at healthy prices, which at the same time need to be competitive.

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 15 :: evidenced by the seized materials, which refer to gold being 100% pure [purity being referred to as touch in the seized material]. The Ld. AR stated that the gold is sold in quick transactions (i.e.) purchases and sales being made within the accounting year. The purchases made outside the books would not be retained in hand for elongated period and would be sold off almost instantaneously, to earn profits and utilize the funds earned there from.

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 16 :: sector in India. According to this study, the profit that is earned by the wholesalers is in the range of 0.9% to 2.15%. The same has been arrived at after a detailed study of the gold sector, enquiry into the demand for gold and the purchase power/patterns of the people. He thus prayed that the G.P for the unaccounted sales be fixed at 2%.

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 17 :: the same, we direct the AO to re-work and estimate the profit at 2% instead of 5.84% as computed in the assessment order for AY 2020-21. The AO is directed to re-compute the final assessable income.

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 18 :: assessee/other-person; and then such a date would be considered as the date of initiation of search for the assessee/other-person for all purposes u/s 153C of the Act. Thus, in this case, according to the Ld.Counsel, since the date of recording of ‘Satisfaction Note’ is on 18.03.2024, the date of search should be deemed as 18.03.2024. And once the date of search is deemed to be 18.03.2024, according to the Ld.Counsel, then as per Section 153C (3), special provisions of Section 153C of the Act will not apply to a search initiated on or after 01.04.2021. Hence, according to the Ld.Counsel, the very act of AO recording ‘Satisfaction Note’ and the consequent issuance of notice dated 18.03.2024 by the AO is without any authority and contrary to sub-section (3) of Section 153C of the Act and therefore, resultant framing of assessment is non-est in the eyes of law. For such a proposition, he cited the decision of the Hon’ble Madras High Court in the case of Harigovind v. ACIT [supra]. In such a scenario, according to the Ld.Counsel, the addition saddled by passing assessment order u/s.153C read with section 143(3) of the Act is unsustainable, and bad in law, and null in the eyes of law.

ITA No.167 /Chny/2026 (AY 2020-21) RM Mahaveer Jewellery :: 19 ::

Order pronounced on the 05th day of June, 2026, in Chennai.

Sd/- Sd/- (बालकृ�न एस) (एबी टी. वक�) (BALAKRISHNAN. S) (ABY T. VARKEY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL 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

YASHV Digitally signed by YASHVIR IR SINGH Date: 2026.07.01 SINGH 19:14:45 +05'30'