RAVI JALAN,PATNA vs. DCIT, CENTRAL CIRCLE-1, PATNA

Per Sonjoy Sarma, Judicial Member: The present appeal filed by the assessee is directed against the order dated 05.06.2025 passed by the Commissioner of Income Tax (Appeal) [hereinafter referred to as the ‘Ld. CIT(A)] u/s 250 of the Income Tax Act, 1961 (the ‘Act’) for the assessment year 2019-20. 2. Brief facts of the case are that, a search and seizure operation u/s 132 of the Act was conducted on 06.09.2018 at the business premises of the assessee’s proprietary concerned namely, M/s Jalan’s Gem & Jewellery Creation, situated at Patna. The assessee is engaged in the business of trading gems and jewellery and regular maintained books of accounts in the ordinary course of business including cash book, ledger, stock register, purchase register, sales register and computerized

I.T.A. No. 360/Pat/2025 A.Y: 2019-20; Ravi Jalan accounting records. Pursuant to the said search proceedings, notice u/s 153A of the Act was issued by DCIT, Central Circle-1, Patna, for the assessment year 2019-20. In response thereto, assessee filed return of income declaring total income of Rs.10,83,430/-. Thereafter, assessment proceedings were completed u/s 143(3) r.w.s 153A of the Act vide order dated 28.09.2021. During the course of search proceedings, inventory of physical cash and stock available at the business premises was prepared by the search team and the same was compared with the books of accounts and computerized records maintained by the assessee on the basis of such comparison, the Ld. Assessing Officer alleged discrepancies relating to cash balance and stock position. The Assessing Officer observed that against the stock reflected in the books of accounts, there was shortage of stock physically found during the course of search. The Ld. Assessing Officer further alleged that such shortage represented unaccounted sales outside the books of accounts and accordingly estimated gross profit at the disclosed GP rate of 10.22% on the alleged shortage of stock. On such basis, addition of Rs.25,50,500/- was made as suppressed business profit arising out of alleged unrecorded sales corresponding to shortage of stock found during the search proceedings. The Assessing Officer further made separate addition of Rs.24,33,052/- on account of alleged shortage of cash by treating the same as unexplained money u/s 69A of the Act. Consequently, the total income of the assessee was assessed at Rs.60,66,982/- as against returned income of Rs.10,83,430/-. 3. Aggrieved by the above order, assessee preferred an appeal before the Ld. CIT(A). During the appellate proceedings, detailed written submission and explanations regarding stock position were furnished by the assessee. It was specifically submitted that the alleged shortage of stock arose due to incorrect comparison of physical stock with

I.T.A. No. 360/Pat/2025 A.Y: 2019-20; Ravi Jalan overstated book stock and failure to properly consider the business realities to jewellery trade, including stock movement and valuation issues. The Ld. CIT(A) while considering the issue partly allowed the appeal of the assessee by holding that the addition of Rs.24,33,052/- made on account of alleged shortage of cash was not proper and it was deleted. However, regarding the issue of addition of Rs.25,50,500/- relating to shortage of stock was sustained with a direction that the same may be assessed as normal business income not as deemed income u/s 69 or 69A of the Act. While sustaining the stock-related addition, the Ld. CIT(A) simultaneously recorded findings acknowledging that there was overstatement of closing stock in the books of accounts and also accepted part of the explanations furnished by the assessee. However, despite recording such findings, the Ld. CIT(A) failed to grant corresponding consequential relief while computing taxable income. As a result, the appellate order was sustained. 4. Still aggrieved by the above order relating to the addition amount of Rs.25,50,500/- on account of alleged shortage of stock and the contradictory findings recorded in the appellate order, the assessee is in appeal before this Tribunal. At the time of hearing, the Ld. AR categorically stated that the impugned addition of Rs.25,50,500/- sustained by the Ld. CIT(A) relating to shortage of stock is wholly unsustainable both on facts and in law and deserves to be deleted in entirety. It was submitted that the entire addition proceeds merely on assumptions, estimations and suspicion without properly appreciating the books of accounts, quantitative records and explanations furnished by the assessee during the course of assessment as well as appellate proceedings. He further submitted that during the course of search conducted u/s 132 of the Act at the business premises of the assessee, physical stock valued at Rs.3,95,89,991/- was found and the same was

I.T.A. No. 360/Pat/2025 A.Y: 2019-20; Ravi Jalan based upon valuation made by the government approved valuer whereas the stock as per the computerized records maintained by the assessee reflected at Rs.6,45,45,964.17/-. Accordingly, alleged shortage of stock amounting to Rs.2,49,55,973.17/- was worked out between book stock and physical stock. On the basis of such alleged shortage, the Ld. Assessing Officer estimated gross profit at the disclosed GP rate of 10.22% over and above declared return income and consequently made addition of Rs.25,50,500/- by treating the same as alleged suppressed business profit arising out of the unrecorded sales corresponding to shortage of stock. The Ld. AR further contended that no incriminating material whatsoever was found during the search proceedings evidencing any unaccounted sales or purchases take place. No unaccounted sales bills, purchase invoices, parallel books of accounts, undisclosed cash realization, suppressed turnover register or secret ledgers were found during the course of search proceedings. Therefore, the entire addition was based merely on mathematical comparison between physical stock and book stock and not upon discovery of any actual incriminating material evidencing undisclosed business activity. He further stated that the assessment in the present case of the assessee has been framed u/s 143(3) r.w.s 153A of the Act. Therefore, the addition could not legally be sustained in absence of incriminating materials discovered during the course of search. Reliance was placed upon the decision of the Hon’ble Supreme Court in PCIT vs. Abhisar Buildwell Private Limited, reported in (2023) 454 ITR 212 (SC), wherein it has been held that addition made u/s 153A of the Act must be based upon the incriminating material found during the course of search. The Ld. AR further stated that the Assessing Officer had not rejected the books of accounts maintained by the assessee u/s 145(3) of the Act. It was submitted that section 145(3) specifically provides that

I.T.A. No. 360/Pat/2025 A.Y: 2019-20; Ravi Jalan books of accounts can be rejected only where the Assessing Officer is not satisfied about the correctness or completeness of the accounts or where prescribed accounting standards and methods have not been regularly followed. However, in the present case of the assessee, regular books of accounts maintained by the assessee has been accepted, purchases recorded therein had been accepted as well as sales disclosed during the year has not been rejected, quantitative records maintained in the ordinary course of business which was accepted and audited financial statements has also been accepted by the Revenue authorities. No defect whatsoever has been pointed out in the purchase records, sales register or books of accounts. No falsity in the audited accounts has been established. The contention of the assessee is that assessee had specifically explained during the search proceedings as well as assessment proceedings that alleged discrepancies arose due to accounting and reconciliation issues in the computerized records and also because part of the stock was lying outside the premises in the ordinary course of business. It was specifically explained that stock value of Rs.31,63,546/- had been sent to International Gemological Institute (IGI), Kolkata for certification and stock valued at Rs.40,10,986/- had been sent to approval basis to M/s Kuja Jewels. The said explanation was also recorded by the Ld. CIT(A) at page-13 of the appellate order. In this connection, assessee has submitted the documentary evidence including receipts furnished by International Gemological Institute (IGI), Kolkata dated 06.09.2018 was already available on the record and no material had been brought by the Revenue authorities to establish that explanation furnished by the assessee was false or fabricated. However, the Ld. CIT(A) did not allow while passing the impugned order on this fact. It was also contended that estimation of the gross profit itself was unsustainable in law in absence of rejection of books of accounts u/s 145(3) of the Act. Reliance was placed on the decision of the Hon’ble Supreme Court, as in the case

I.T.A. No. 360/Pat/2025 A.Y: 2019-20; Ravi Jalan of Sargam Cinema Vs. CIT reported in (2010) 328 ITR 513 (SC), where it was held that estimation of income without rejection of books has been made by the Ld. Assessing Officer and therefore estimation of gross profit at the rate of 10.22% itself become unsustainable. The Ld. AR further stated that without prejudice to the above submissions, he alternatively submitted that even assuming without accepting that some estimation was required. The GP rate of 10.22% was excessive and arbitrary. He contended that in order to by please and avoid prolong litigation, it was prayed that GP rate may be reasonably restricted to 3% instead of 10.22%. 5. On the other hand, the Ld. DR supported the decision of the authorities below. 6. We, after hearing the rival submissions and perusing the material available on record. We find that in the present case of the assessee, alleged difference of stock amounting to Rs.2,49,55,973/-. The contention of the assessee is that while estimating the alleged profit of such difference, the Assessing Officer failed to consider tax arose valued at Rs.31,63,543/- had been sent to International Gemological Institute (IGI), Kolkata for certification and stock valued at Rs.40,10,956/- had been sent on approval basis to M/s Kuja Jewels. Therefore, such stock could not have been treated as unexplained or shortage stock while comparing the tally data with physical stock available at the premises. We, further notice that admittedly no books of accounts of the assessee were rejected u/s 145(3) of the Act which is necessary requisite where the estimation of income sought to be made, however, the Assessing Officer failed to do so. Considering the facts and circumstances and the submissions advanced by both the parties, we are of the view that application of GP rate of 10.22% is excessive and arbitrary where the declared income was accepted by the Assessing Officer without rejecting

I.T.A. No. 360/Pat/2025 A.Y: 2019-20; Ravi Jalan the books of accounts which is arbitrarily and not proper under the provisions of law. Therefore, in the interest of justice and fair play, we direct the Assessing Officer to restrict the estimation to 4% on the alleged stock difference of Rs.2,49,55,973.17/- i.e., Rs.9,98,239/- by applying GP rate on alleged stock difference, and the remaining addition of Rs.15,52,261/- stands deleted. 7. Accordingly, appeal of the assessee is partly allowed.

Kolkata, the 18th May, 2026.

Sd/- Sd/- [Laxmi Prasad Sahu] [Sonjoy Sarma] Accountant Member Judicial Member Dated: 18.05.2026. DP, PS Copy of the order forwarded to: 1. Appellant - 2. Respondent - 3. CIT(A)- 4. CIT- 5. CIT(DR)

//True copy// By order Assistant Registrar, Kolkata Benches