SAMPATH RAJ SUNIL KUMAR JAIN,SRIKALAHASTI vs. DCIT, CENTRAL CIRCLE, TIRUPATI

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), Visakhapatnam-3, dated

10.12.2025, and pertains to assessment year 2020-21.

1.The order of the learned Commissioner of Income-tax (Appeals) is bad in law, contrary to facts and unsustainable, and is liable to be set aside. The learned CIT(A) erred in confirming the addition of Rs. 3,75,00,000/- made by the Assessing Officer on account of alleged excess stock, without appreciating the facts, evidence and explanations placed on record by the appellant

2.The authorities below erred in relying upon the statement recorded during survey under section 133A, ignoring the fact that such statements have no evidentiary value in law and that the appellant had validly and promptly retracted the same. The learned CIT(A) failed to appreciate that no addition can be made solely on the basis of a survey statement, without any corroborative material OR evidence, as laid down by the Hon’ble Supreme Court in CIT v. S. Khader Khan Son.

3.The learned CIT(A) erred in upholding the rejection of the stock reconciliation and gold deposit agreements submitted by the appellant, without bringing any material on record to disprove the genuineness of the said evidences.

4.The authorities below erred in making the addition without obtaining any valuation of stock by a registered valuer, and the alleged excess stock was determined on estimation and conjectures, which is not permissible in law.

5.The CIT(A) erred in disregarding the CBDT Circular F.No.286/2/2003 IT(Inv.) dated10.03.2003 and Instruction F.No.286/98/2013 IT(Inv.II) dated 12.12.2014, which clearly direct that confessions during survey without supporting evidence should not be relied upon.

6.The learned CIT(A) erred in sustaining a high-pitched assessment, ignoring the fact that the appellant is a tax-audited assessee with regularly maintained books of account and no defects were pointed out therein. The addition of Rs.3,75,00,000/- is arbitrary, excessive and based on surmises and conjectures, and therefore liable to be deleted.

7.The learned CIT(A) erred in confirming the levy of consequential interest and initiation of penalty proceedings, which are purely consequential and unsustainable once the addition itself is deleted.

8.The appellant craves leave to add, alter, amend OR withdraw any of the above grounds at the time of hearing of the appeal.

Sunil Kumar, Proprietor of M/s. Sunil Jewellers is engaged in the business

trading in jewellery and gold filed his return of income (RoI) for AY 2020-

21 on 31.03.2021 admitting total income of Rs.2,57,58,180/-. In this

case, a survey u/s.133A of the Income Tax Act, 1961 was conducted on

11.03.2020. During the course of survey, physical inventory of stock of

gold has been taken and compared with stock available as per the books :: 3 :: inventory which resulted in excess physical stock of 18385.401 grams.

During the course of survey, a sworn statement was recorded from the

assessee on 11.03.2020 and he was asked to explain excess physical

stock found during the course of survey, for which, the assessee arrived

at net closing book stock as on 11.03.2020 26,497.255 grams. Once

again, the assessee was asked to clarify the difference between physical

stock which was at 44,882.656 grams as against the book stock at

26,497.255 grams. The assessee admitted that there is a difference of

excess physical stock 18,385.401 grams. However, stated that the same

needs to be reconciled and arrived at correct stock figures. Further, there

are stones and other materials embedded in gold ornaments which need

to be removed and also the purity is not ‘24’ carat but its purity is ‘18’

carat or 916 KDM. However, considering the fact that, there are certain

discrepancies in the stock, offered additional income of Rs.5 Crs. over and

above the regular income for AY 2020-21. Subsequently, during post

survey enquiry, the assessee has furnished reconciliation along with

books of accounts and claimed that he has received ‘gold deposit

agreements’ from ‘15’ customers/interested parties and received gold

ornaments to the tune of 13,613 grams and in respect of balance

quantity, offered additional income of Rs.1.20 Crs and disclosed in return

of income filed for the year under consideration.

assessement proceedings, the AO noticed that the assessee has retracted :: 4 :: his deposition made on 11.03.2020 with regard to voluntary offerings of

additional income of Rs.5 Crs. and therefore, called upon the assessee to

file relevant reconciliation, explaining excess physical stock found during

the course of survey. In response, the assessee submitted reconciliation

and claimed that, he has received gold deposit of 13,613 grams from ‘15’

customers, for which, the assessee has furnished agreements from the

parties indicating the quantity of gold ornaments received from them and

claimed that the unreconciled value of Rs.1.25 Crs. has been offered to

tax and paid relevant tax.

and also by taking note of physical stock found during the course of

survey observed that, the subsequent retraction of deposition given by

the assessee along with ‘gold deposit agreements’ claimed to have been

entered into with ‘15’ persons is only an afterthought but has not any

substance going by the agreements entered into with various persons in a

single day i.e. on 12.02.2020. The AO further noted that, at the time of

survey, assessee has not been able to explain excess stock found during

the course of survey and also admitted additional income by noticing the

discrepancy, however, the subsequent argument that he has received

13,613 grams from ‘15’ persons is only an afterthought without any valid

evidences. The AO further noted that the assessee neither furnished ‘gold

deposit agreements’ at the time of survey nor proved that this practice

had existed in the earlier Financial Years also. The AO had also rejected the arguments of the assessee for valuation of gold jewelry and observed

that the assessee himself has arrived at value of excess stock found

during the course of survey and therefore, observed that without proper

valuation, addition can’t be made is also incorrect. Therefore, rejected

the arguments of the assessee and made addition of Rs.3.75 Crs.

Towards additional income offered during the course of survey but not

admitted in return of income (RoI) filed by the assessee. The relevant

observations of the AO are as under:

5.1 In this regard, the assessee has furnished gold deposit agreements from 15 customers / interested parties, the details of which are as under :

From the above, it can be seen that all the agreements have been made in the month of February, 2020. Further, majority of agreements have been made in a single day i.e. on 12.02.2020. As the survey was conducted on 11.03.2020 and last date for filing the return of income for the assessment year 2020-21 was sufficiently available at his disposal, the assessee has enough time to fabricate all the above agreements.

5.2 In the sworn statement, the assessee had deposed that ", there are stones and other metals embedded in the gold ornaments which needs to be removed from the gross weight before arriving at the net weight. Further, the purity of gold is not 24 carat. They consist of 18 carat and 916 gold. The URD gold is also not of pure gold and suffers from alloy mix.". In this regard, the assessee has not contested even for a single gram of gold that was excess calculated on account of stones embedded in gold ornaments, quality of gold, etc. It is very common to use gold ornaments embedded with stones as such the ornament gains some additional weight on account of stones embedded in that particular ornament. Similarly, as contested by the assessee, quality of gold also varies from ornament to ornament. The assessee has set aside all these issues. All the assessee wants to defend himself in this issue is that the difference is solely because of the above gold deposit agreements which did not produce before concerned authorities at the time of survey. However, the same reason did not put forth before the department authorities at the time of survey as one of the reasons for the excess stock found as per physical inventory made.

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

his arguments made before the AO and submitted that the AO made

addition towards difference in value of physical stock found during the

course of survey without proper valuation of jewellery and by removing

stones and other metals embedded in the jewellery and also considering

the purity of gold ornaments. The assessee further submitted that the AO

ignored reconciliation submitted by the assessee in light of ‘gold deposit

agreements’ entered into with ‘15’ persons in respect of 13,613 grams of

gold ornaments. The assessee further submitted that additions can’t be :: 7 :: made purely on the survey statement without any corroborative evidence.

In this regard, relied upon the decision of the Hon’ble Supreme Court in

the case of CIT v. S Khader Khan Son reported in [2012] 254 CTR 228

(SC).

assessee and also taken note of reasons given by the AO to make

additions towards additional income offered during the course of survey

but not admitted in the RoI observed that, there is no dispute with regard

to the fact that during the course of survey excess stock to the tune of

18,385.401 grams of gold was found, for which, there was no explanation

from the assessee. It is also an admitted fact that the assessee

voluntarily admitted additional income of Rs.5 Crs. in respect of excess

stock found during the course of survey. However, the subsequent

arguments of the assessee that after reconciliation, he is able to identify

13,613 grams of gold towards ‘gold deposit agreements’ entered into with

‘15’ persons is only an afterthought without any evidences. Further, the

assessee had also failed to prove the existence of ‘gold deposit

agreements’ in the earlier Financial Years. In the absence of any

explanation with regard to genuineness of ‘gold deposit agreements’, the

AO has rightly rejected the explanation of the assessee and made

additions towards additional income offered during the course of survey in

respect of excess stock found in respect of gold ornaments. Therefore, rejected the explanation of the assessee and sustained the additions

made by the AO. The relevant findings of the Ld.CIT(A) are as under:

6.1 I have carefully examined the assessment order, the written submissions filed through ITBA and the detailed arguments advanced by Sri K.P. Gangi Reddy, Chartered Accountant and learned Authorised Representative of the appellant. The learned AR placed reliance on CBDT Circulars on retraction, the decision of the Hon'ble Supreme Court in CIT v. S. Khader Khan Son, 254 CTR 228 (SC), and many judicial precedents to contend that no addition can be made based solely on a survey admission. The AR further argued that (i) the admission stood retracted, (ii) the AO failed to value the gold through a registered valuer, (iii) the AO ignored the 15 gold depositors through whom 13.613 kg was allegedly explained, and (iv) the AO did not invoke any specific provision while making the addition. All submissions and judicial precedents relied upon by him have been duly considered.

6.2 The factual position emerging from the records is as follows. A survey u/s 133A was conducted on 11-03-2020 at the appellant's premises where physical stock of 44,882.656 grams was inventoried as against book stock of 26,497.255 grams, resulting in an excess stock of 18,385.401 grams. During survey, the appellant stated that owing to presence of embedded stones and other metals, varying purity of gold in different ornaments the net weight would be from the gross weight. However, considering the stock discrepancies, he offered Rs. 5 crores as additional income.

During assessment proceedings, in response to notice u/s 142(1), the appellant submitted a fresh reconciliation (point 9), attributing 13.613 kg of the excess stock to gold deposited by 15 individuals as "Loan Gold included in physical stock" and offered the balance of 4772 grams as income. The AO, after examining the agreements produced in support of "Loan Gold", found them to be created post-survey, unsupported by books or contemporaneous evidence, and accordingly treated the balance Rs. 3.75 crore as unexplained investment in excess stock.

6.3 Although the appellant has as many as 14 grounds, they ultimately converge on a few core objections which require adjudication. The first is that the addition cannot survive because the admission made during survey was later retracted, and therefore no reliance can be placed on it. The second objection concerns the absence of valuation by a registered valuer, which according to the appellant renders the survey figures unreliable. The third and most substantial contention is that the excess stock stood explained through the Gold Deposit Scheme involving 15 individuals who contributed 13.613 kg before the survey. Though not mentioned in the original grounds, the Ld AR through written submissions and oral arguments contended that the assessment is vitiated because the Assessing Officer has not expressly invoked the specific statutory provision under which the addition is made. These objections form the crux of the dispute and are discussed in the following paragraphs.

6.4 At the outset, it is a crucial and undisputed fact that 18,385.401 grams of excess gold existed at the time of survey. The appellant has never disputed the quantitative difference either during survey or during assessment. The voluntary disclosure made during survey and the subsequent attempt to explain the difference through 15 depositors both acknowledge the existence of excess physical stock. Therefore, the argument that the addition is based on "mere admission" is factually incorrect. Even without the admission, the existence of undisclosed stock is a primary incriminating fact, permitting the AO to invoke section 69B.

Once this foundational fact is established, the narrative naturally shifts to whether the explanation offered-i.e., the Gold Deposit Scheme-is credible. During survey, when specifically questioned about sources such as URD gold, customers' gold or personal gold, not a single mention was made about any gold loan depositors. Even examination of financial statements filed during appeal proceedings shows that no such scheme existed prior to February 2020 or after February 2020. The loan agreements-submitted only during assessment almost after two years of survey-are identically drafted, executed on three days (12-02-2020, 18-02-2020 and 20-02-2020), and was absent in the books on the date of survey. No depositor was produced; no confirmations were filed; no proof of delivery of gold was furnished during the course of survey except for the self-serving agreements during assessment. These factors cumulatively indicate that the explanation is an afterthought.

The conduct of the appellant also fails the tests laid down by the Hon'ble Supreme Court in Sumati Dayal v. CIT, 214 ITR 801 (SC), and CIT v. Durga Prasad More, 82 ITR 540 (SC), which require the Assessing Authority to apply the test of human probabilities. A sudden influx of 13.6 kg of gold from 15 persons within nine days, for a scheme never heard of before or after, without a single entry in books on the date of survey, is inconsistent with human conduct and business probabilities. This finding is further supported by Samaddar Brothers vs. Commissioner of Income-tax [2023] 148 taxmann.com 453 (Calcutta)/[2023] 292 Taxman 323 (Calcutta) [13-02-2023], where explanations created post-survey were rejected, and Pavankumar M. Sanghvi vs. Income-tax Officer [2018] 97 taxmann.com 398 (SC)/[2018] 258 Taxman 160 (SC) [01-05-2018] (SLP dismissed), where post-survey documents were held unreliable. Similarly, Commissioner of Income-tax vs. Kuwer Fibers (P.) Ltd. [2017] 77 taxmann.com 345 (Delhi) [20-10-2016] and Neeraj Agrawal vs. Deputy Commissioner of Income-tax [2023] 152 taxmann.com 632 (Allahabad - Trib.)/[2023] 103 ITR(T) 398 (Allahabad - Trib.) [14-03-2023] held that explanations not supported by books cannot be accepted. These apply directly to the present facts.

Accordingly, the first two limbs of the appellant's arguments-retraction and valuer-stand answered. The retraction becomes irrelevant once the appellant himself accepts excess stock and attempts to explain it through depositors. The valuer objection is misplaced because the issue pertains to quantity, not to the value of the ornaments.

6.5 The appellant's reliance on CIT v. S. Khader Khan Son, 254 CTR 228 (SC), is misplaced. The present addition is not based on the survey admission but on the undisputed physical excess stock. The ratio in Khader Khan applies only where an addition is made solely on the basis of a survey statement without corroboration. In the present case, the addition is founded on a tangible, quantified discrepancy, with the appellant's explanation found unsatisfactory. Once the appellant chose to furnish a reconciliation in response to notice of the AO under section 142(1), the retraction ceased to have any consequence.

6.6 As regards the argument that the AO did not invoke a specific section, the nature of the addition clearly corresponds to section 69B, and it is well-settled that omission to mention the precise section does not vitiate the assessment when the factual foundation is clear.

6.7 Having considered all submissions, documents and case law, I hold that the appellant has failed to discharge the burden of explaining stock difference of 13.613kg gold and the genuineness of the claimed 15 gold depositors is unsupported by contemporaneous evidence, not reflected in books, inconsistent with the conduct at the time of survey, contrary to normal business practices, and fails the tests of human probabilities as laid down in Sumati Dayal and Durga Prasad More. Payment of interest to such claimed deopositors and deducting TDS on such interest subsequently would not make the unexplained admitted excess stock explained. Accordingly, the addition of Rs. 3,75,00,000 is confirmed and the related grounds are dismissed.

before the Tribunal.

in sustaining the additions made by the AO towards additional income

offered during the course of survey for Rs.3.75 Crs. without appreciating

the fact that the assessee has reconciled the excess stock by filing

relevant details including ‘gold deposit agreements’ from ‘15’ persons

along with their identity towards genuineness and creditworthiness. The

Ld. Counsel for the assessee further submitted that the addition can’t be

made solely on the basis of survey statement as held by the plethora of

judicial precedents, including the decision of the Hon’ble Supreme Court

in the case of Khader Khan Son (supra). In the present case, the AO

made addition only on the basis of survey statement without considering

the reconciliation filed by the assessee along with evidences. The

assessee has furnished relevant ‘gold deposit agreements and also filed

particulars of those parties. Further, the assessee has also paid interest

on gold loans taken from ‘15’ persons in the subsequent Financial Years.

Therefore, the AO ought to have accepted the explanation of the assessee :: 11 :: and not made addition towards difference amount only on the basis of

survey statement.

not even considered the arguments of the assessee right from the

beginning including from the date of survey where assessee has made a

clear statement for incorrect valuation of gold by the AO. Furtherr, the

AO ignored arguments of the assessee and taken value of gold at ‘24’

carat purity, even though, the assessee claimed that the gold ornaments

found during the course of survey contain stones and other metals and

also purity of gold was not ‘24’ carat but ‘18’ carat and 916 KDM

category. The Ld. Counsel for the assessee submitted that the CBDT vide

Circular F.No.286/2/2003-IT(Inv) dated 10.03.2003 specifically directed

officers to not obtain confession during search/survey proceedings

without supporting evidence. In the present case, the AO had taken

confession statement from the assessee and by ignoring retraction filed

by the assessee has made addition without any supporting evidence.

Therefore, he submitted that the additions made by the AO should be

deleted.

of the Ld.CIT(A) submitted that there is no dispute with regard to the fact

that there was excess physical stock of gold ornaments to the tune of

18,385.401 grams and the assessee has failed to explain the excess stock :: 12 :: found during the course of survey. It is also an admitted fact that the

assessee had voluntarily admitted additional income of Rs.5 Crs. but to

cover up various discrepancies including excess stock found during the

course of survey. Further, subsequent retraction of deposition in light of

‘gold deposit agreements’ from ‘15’ persons is only an afterthought

without any supporting evidences. Further, the assessee has failed to

prove existence of such claim either in the previous Financial Year or in

the subsequent Financial Years. Therefore, the explanation offered by the

assessee in respect of 13,613 grams of gold in light of ‘gold deposit

agreements’ after a period of two years from the date of survey can’t be

accepted. Further, the AO has not made addition only on the basis of

statement recorded from the assessee and it is further supported by the

excess stock found during the course of survey which is clear evidence of

undisclosed income of the assessee. The AO and the Ld.CIT(A) after

considering relevant facts has rightly sustained the additions made by the

AO, and therefore, he submitted that the additions made by the AO and

sustained by the Ld.CIT(A) should be upheld.

record and had gone through orders of the authorities below. There is no

dispute with regard to the fact that during the course of survey u/s.133A

of the Act on 11.03.2020, excess physical stock of gold ornaments to the

tune of 18,385.401 grams was found which couldn’t be explained by the

assessee with relevant details. In fact, the department found at the :: 13 :: business premise of the assessee, physical stock of 44,882.656 grams of

gold as against the book stock of 26,497.255 grams, resulting into

difference of excess physical stock 18,385.401 grams and the same was

not explained by the assessee. Although, the assessee claimed that the

same needs to be reconciled and arrived at correct stock figures by

removing metals and stones embedded in the gold ornaments, by

considering the purity of gold is not ‘24’ carat, but the assessee

voluntarily admitted additional income of Rs.5 Crs. to buy peace and to

end protracted litigation with the Department. Further, while filing RoI for

the year under consideration, the assessee had only admitted additional

income of Rs.1.25 Crs. towards excess stock found during the course of

survey and claimed that the remaining balance of Rs.3.75 Crs. in respect

of 13,613 grams of gold was reconciled in light of ‘gold deposit

agreements’ with ‘15’ persons/interested persons. Therefore, it is

necessary for us to examine the reasons given by the AO to make

addition of Rs.3.75 Crs. towards additional income offered during the

course of survey but not admitted in the RoI, in light of above facts.

18,385.401 grams of gold, when compared to physical stock and book

stock. It is also an admitted fact that the assessee couldn’t explain the

difference and offered additional income of Rs.5 Crs. over and above the

regular income for the Financial Year 2019-20 relevant to AY 2020-21.

However, the assessee came out with a new explanation and claimed that :: 14 :: after reconciliation, he found that 13,613 grams of gold pertains to ‘gold

deposit agreements’ entered into with ‘15’ persons and the same should

be excluded or considered while arriving at excess tock found during the

course of survey. To support this argument, the assessee filed affidavit of

15 parties along with agreements and claimed that they have deposited

gold ornaments with them, for which, the assessee has paid interest in

the subsequent Financial Year. We find that the assessee has taken this

argument for the first time nearly two years after the date of survey that

too at the time of assessement proceedings. Further, at the time of

survey, there was no such agreement found by the Department, nor the

assessee has furnished any agreements to explain the excess stock found

during the course of survey. There was no entry in the books of accounts

maintained by the assessee for his business with respect to gold loan

agreements. Further, the assessee has not filed any proof to establish

that similar scheme had existed in the past. Therefore, in our considered

view, in the absence of any proper explanation with regard to ‘gold

deposit agreements merely by filing agreements along with affidavit, the

explanation offered by the assessee for 13,613 grams of gold can’t be

accepted. In our considered view, mere payment of interest in the

subsequent Financial Year doesn’t prove the genuineness of gold deposit

agreement entered into by the assessee with above parties. Since the

assessee has not made this claim at the time of survey and also the ‘gold

deposit agreements’ are not supported by further evidences, in our :: 15 :: considered view, reconciliation filed by the assessee for explaining 13,613

grams of gold can’t be accepted. Therefore, in our considered view, the

explanation of the assessee for explaining 13613 gms of gold jewellery

cannot be accepted.

in light of certain judicial precedents including the decision of the Hon’ble

Supreme Court in the case of Khader Khan Sons (supra) and also the

decision of the Hon’ble Supreme Court in the case of Pullangode Rubber

Produce Co. Ltd. v. State of Kerala reported in [1973] 91 ITR 18 (SC).

There is no dispute with regard to the ratio laid down by the Hon’ble

Supreme Court in the above two cases to the effect that no addition can

be made only on the basis of survey statement without any corroborative

evidences. This fact is also strengthened by the Circular issued by the

CBDT vide Circular F.No.286/2/2003-IT(Inv) dated 10.03.2003, where

the CBDT specifically directed the officers to not to obtain confession

during survey proceedings without supporting evidences. But, fact

remains that in the present case, additions made by the AO is not only on

the basis of sworn statement recorded from the assessee at the time of

survey but further supported by the corroborative evidences in the form

of excess physical stock of gold ornaments found during the course of

survey which was not explained by the assessee. Therefore, in our

considered view, the arguments of the Ld. Counsel for the assessee in

light of above decisions does not hold good and contrary to the facts

:: 16 :: available on record. Therefore, we are of the considered view that the AO

has rightly made additional income offered during the course of survey

but not admitted RoI towards excess stock found during the course of

survey for Rs.3.75 Crs. The Ld.CIT(A) after considering relevant facts has

rightly sustained the additions made by the AO. Thus, we are inclined to

uphold the findings of the Ld.CIT(A) and dismiss the appeal filed by the

assessee.

Order pronounced on the 19th 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 19.06.2026. TLN

आदेशकी �ितिलिप अ�ेिषत/ Copy of the order forwarded to: िनधा�रती/The 1 : Smapath Raj Sunil Kumar Jain, 3-1041/a, Nagari Street, Srikalahasti-517 644. Assessee राज�/ The Revenue 2 : The DCIT, Central Circle, Tirupati. 3 The Principal Commissioner of Income Tax, Tirupati. ि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: 2026.06.19 11:21:38 +05'30'

Sr. Private Secretary ITAT, Hyderabad