VIJAY KUMAR,HYDERABAD vs. DCIT CIRCLE-6(1), HYDERABAD, HYDERABAD

आदेश / O R D E R PER MANJUNATHA.G, AM:

This appeal filed by the assessee is directed against the order of the

Commissioner of Income Tax (Appeals), National Faceless Appeal Centre

(NFAC), Delhi, dated 06.10.2025, and pertains to assessment year 2016-

17.

:: 2 :: 2. The brief facts of the case are that the assessee Shri Vijay Kumar,

HUF, filed its return of income (RoI) for AY 2016-17 on 14.10.2016

declaring total income of Rs.1,84,52,020/-. The case was selected for

scrutiny and during the course of assessement proceedings, the AO

observed that the assessee has claimed Long Term Capital Loss of

Rs.7,44,462/- on sale of gold. In this regard, the assessee was requested

to furnish documentary proof of purchase & sale along with working

details. In response, the assessee filed the sales & purchase bills of gold

along with Wealth Tax returns filed for the relevant assessement years.

The assessee further submitted that during the FY 2011-12, it has

purchased 5000 grams of gold bars for Rs.1,12,51,760/- and the same

has been loaned to M/s.P. Satyanarayana & Sons, a partnership firm

@6% interest per annum. The firm issued receipts, vouchers for the

quantity of gold bullion and also paid 6% interest per annum on the gold

loan and the same has been offered to tax. The assessee further

submitted that the firm has returned the gold ornaments equivalent to

5458 grams with 91.60% purity in the Financial Year relevant to AY 2016-

& Sons on 27.02.2016 for a consideration of Rs.1,47,50,000/- and

computed long term capital loss of Rs.7,44,462/-. In support of

arguments, filed relevant details including relevant sales & purchase bills

along with loan details, etc.

:: 3 :: 3. The AO after considering the relevant submissions of the assessee

and also taking note of various facts observed that the assessee has failed

to explain transaction is at arm’s length going by date & events which is

evident from the fact that the assessee has purchased gold from M/s.P.

Satyanarayana & Sons and the same has been loaned to the above firm

on the very same day. Further, the assessee had also failed to file

relevant details at conversion of gold bullion in gold ornaments along with

charges paid for conversion. Although, the assessee was not in physical

position of the bullion which was with the firm it continued to show the

possession of bullion in the Wealth Tax return filed. Further, it can be

seen from the VAT returns filed from February, 2016, there is no

Unregistered Dealer (URD) purchase shown by the firm. From the above,

it appears that the entries of purchase of gold bullion and subsequently

loaned to firm and received back so as to sell the jewellery are in the

nature of accommodation entry made by the assessee and the

partnership firm in the books of accounts without there being any actual

transactions. Therefore, the entire sale consideration of Rs.1,47,50,000/-

shown by the assessee under the head ‘Long Term Capital Gains’ has

been treated as unexplained cash credit and made addition u/s.68 of the

Act.

appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee

reiterated its submissions made before the AO and also filed various :: 4 :: evidences to support its claim. During the appellate proceedings, the

additional evidences filed by the assessee has been forwarded to the AO

for Remand Report. The AO vide Remand Report commented upon

additional evidences filed by the assessee and also noticed certain

discrepancies and claimed that the document submitted by the assessee

in support of its claim is not genuine and further, reiterated the fact that

these are accommodation entries between the assessee and the firm

without there being any actual transactions. The Ld.CIT(A) after

considering the relevant submissions of the assessee and also taking note

of various reasons given by the AO to treat consideration received for sale

of gold ornament as unexplained cash credit observed that the purchase

shown by the assessee is nothing but accommodation entry and the entire

transaction of purchase of bullion and the sale of the same to the

partnership firm as gold ornaments appears to be a make belief

transaction. Therefore, observed that there is no error in the reasons

given by the AO to make addition of Rs.1,47,50,000/- u/s.68 of the Act

and thus, rejected explanation of the assessee and sustained the

additions made by the AO.

appeal before this Tribunal.

that the Ld.CIT(A) erred in sustaining the additions made by the AO :: 5 :: without appreciating the fact that the transaction between the assessee

and partnership firm are genuine which are supported by necessary

evidences including purchase bill for purchase of bullion, receipts for loan

transactions between the assessee and the firm, sale bill for subsequent

sale of gold ornaments coupled with Wealth Tax filed for relevant

assessement year. The Ld. Counsel for the assessee further submitted

that although, the assessee has submitted relevant details in support of

its case, but the AO made an allegation that these are accommodation

entries, even though, the assessee has disclosed relevant transactions in

their books of accounts by filing all the details. The Ld. Counsel for the

assessee further submitted that the AO invoked Sec.68 of the Act and

made addition as unexplained credit, but fact remains that the assessee

has not received any credit in the books of accounts for the year under

consideration and the credit is only in the books of accounts of the

partnership firm. Therefore, invoking Sec.68 of the Act is incorrect. The

Ld. Counsel for the assessee submitted that the assessee has arranged its

transaction within the four corners of law. The AO has not pointed out

any incorrectness in the transaction. However, only presumed that it is

only an accommodation entry. But, fact remains that, the firm has

maintained regular books of accounts for all these assessement years and

also filed audited report where transactions at purchase and sale has been

disclosed. Therefore, merely for certain discrepancies any invoices, etc.,

the AO can’t allege that the entire transaction of purchase of gold and :: 6 :: subsequently loaned to firm and final sale of gold ornaments by the

assessee is accommodation entries. Therefore, he submitted that the

additions made by the AO should be deleted. In this regard, he relied

upon the decision of the Hon’ble Supreme Court in the case of Dhakeswari

Cotton Mills Ltd. v. CIT reported in [1954] 26 ITR 775 (SC).

of the Ld.CIT(A) submitted that the assessee has not explained the logic

behind purchase of gold bullion from firm and subsequently loaned the

gold bullion to the partnership firm. Further, the assessee has also not

explained the conversion of gold bullion into jewellery by filing necessary

details. Therefore, the arguments of the assessee that the transaction

between the firm and the assessee are genuine and not accommodation

entry is not backed by evidences going by the sequence of events and the

findings given by the AO. Since the assessee has not explained the logic

behind the transaction and further going by the reasons given by the AO,

it appears that without any physical movement of gold, the assessee has

passed entries in the books of accounts of the firm and the assessee so as

to create income and losses. Therefore, the AO has rightly held that the

transactions are in the nature of accommodation entries and rightly made

addition towards consideration received for sale of gold ornaments as

unexplained cash credit. The Ld.CIT(A) after considering relevant facts

has rightly sustained the addition. Therefore, he submitted that the order

of the Ld.CIT(A) should be upheld.

:: 7 :: 8. We have heard both the parties, perused the materials available on

record and had gone through orders of the authorities below. The AO has

made addition of Rs.1,47,50,000/- u/s.68 of the Act as unexplained cash

credit on the ground that arrangements between the assessee and the

partnership firm M/s.P. Satyanarayana & Sons is only an accommodation

entry without any actual transaction. The AO has come to the above

conclusion on the ground that the assessee has not explained the logic

behind these transactions and further going by the sequence of events,

the assessee has shown purchase of gold bullion in the FY 2011-12 and

on the same day, the assessee has loaned the gold bullion to the

partnership firm. Further, the assessee claimed to have received gold

ornament of 5458 grams, but no evidence has been filed for conversion of

gold bullion into gold ornaments. Therefore, these transactions are

accommodation entries without any commercial substance and thus,

entire consideration received by the assessee for sale of gold ornament

has been treated as unexplained cash credit.

addition of Rs.1,47,50,000/- u/s.68 of the Act, in light of various

arguments of the Ld. Counsel for the assessee along with relevant

evidences. There is no dispute with regard to the fact that the assessee

has furnished all possible evidences including invoices for purchase of

5000 grams of gold bullion from M/s.P. Satyanarayana & Sons in the FY

2011-12. The assessee had also furnished relevant documents for loan :: 8 :: transaction between the assessee and the partnership firm including

payment of interest @6% per annum. The assessee had also filed Wealth

Tax return to prove ownership of gold bullion. The sale of gold ornament

is supported by bills issued by M/s.P. Satyanarayana & Sons. From the

evidence filed by the assessee including purchase & sale bills of bullion

along with ledger account of the assessee in the books of accounts at

partnership firm and relevant stock register, it appears that the

transaction between the assessee and the partnership firm are not

accommodation entry, but a real transaction between two parties in the

ordinary course of business. This is because, the parties at liberty to

arrange their transactions as per convenience or suits their requirement.

However, such transactions should be within the four corners of law. In

the present case, the AO has not made out a case, that the transaction

between the assessee and partnership firm are not within the four corners

of law and made purely for the purpose of avoidance of tax. Although,

the AO doubted transaction between the assessee and the partnership

firm, but in our considered view, observations of the AO is only a

suspicion without there being any substance, because, the transaction is

completely supported by necessary bills & vouchers and books of

accounts. In our considered view, the additions made by the AO towards

consideration received for sale of gold ornaments of Rs.1,47,50,000/-

u/s.68 of the Act is totally unwarranted going by the facts of the present

case. At this stage, it is relevant to refer to the decision of the Hon’ble :: 9 :: Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. DCIT

(supra) where the Hon’ble Supreme Court clearly held that the AO is not

fettered by technical rules of evidence and pleadings and he has entitled

to act on material which may not be accepted as evidence on account of

Law, but in making assessement u/s.23(3) of 1922 Act, he is not entitled

to make a pure guess and make an assessement without reference to

any evidence or any material at all. In the present case, going by the

facts available on record, we find that the additions made by the AO is

purely on guess work without any evidence and therefore, in our

considered view, the additions made by the AO can’t be sustained. The

Ld.CIT(A) without appreciating the relevant facts simply sustained the

additions made by the AO and thus, we set aside the order of the

Ld.CIT(A) and direct the AO to delete the addition of Rs.1,47,50,000/-

made u/s.68 of the Act.

Order pronounced on the 24th day of June, 2026, in Hyderabad. Sd/- Sd/- (िवजय पाल राव) (मंजूनाथा. जी) (VIJAY PAL RAO) (MANJUNATHA.G) उपा�� /VICE-PRESIDENT लेखा सद�/ACCOUNTANT MEMBER

Hyderabad, dated 24.06.2026. TLN

आदेशकी �ितिलिप अ�ेिषत/ Copy of the order forwarded to:

िनधा�रती/The 1 : Vijay Kumar, Plot 839Q, Road No.44A, Jubilee Hills, Hyderabad-500 033. Assessee राज�/ The Revenue 2 : The DCIT, Circle-6(1), Hyderabad.

3 The Principal Commissioner of Income Tax, Hyderabad. िवभागीय�ितिनिध, आयकर अपीलीय अिधकरण, हैदराबाद / DR, ITAT Hyderabad. 4 गाड�फ़ाईल / Guard file 5

आदेशानुसार / BY ORDER

Digitally signed by TUMMALACHARLA TUMMALACHARLA LAKSHMI NARAYANA DN: cn=TUMMALACHARLA LAKSHMI LAKSHMI NARAYANA, c=IN, o=INCOME TAX APPELLATE TRIBUNAL, ou=INCOME TAX NARAYANA APPELLATE TRIBUNAL, CHENNAI BENCH Date: 2026.06.24 12:35:51 +05'30'

Sr. Private Secretary ITAT, Hyderabad