JANARTHANAN BALASURAMANIAN,TIRUNELVI vs. DEPUTY COMMISSIONER OF INCOME TAX, TIRUNELVELI

The assessee is an individual having interest, dividend and capital gain as source of income. The assessee filed his return of income on 29.07.2022 by declaring a total income of Rs.9,40,220/- for the assessment year 2022-23. Further, the assessee an investor in the start up companies and sold few of his investments during the impugned year and claimed the long term capital loss of Rs.2,16,60,558/- in his return of income. The case was selected for scrutiny under CASS to verify (i) the substantial value of investment in shares, bonds, debentures (ii) set off of large capital loss against the capital gain.

During the assessment proceedings, the assessee submitted his response by providing the details sought for. The AO found that the assessee has sold gold to the tune of Rs.70,30,625/- and claimed cost of acquisition of Rs.63,95,473/- by declaring a net capital gain of Rs.6,38,152/-. The assessee furnished the sales invoice of gold sold, but could not produce the purchase invoices/documents and stated that these documents were damaged due to the recent floods beyond recovery in Tirunelveli. However, the assessee furnished copy of ledger account of the jewellery for the financial year 2016-17 showing the details of gold purchased. However, the AO was not convinced with the explanation and disallowed the entire cost of acquisition of gold claimed by treating the entire sale proceeds of gold amounting to Rs.70,30,625/- as short term capital gain in the absence of date of acquisition of such gold. Further, the AO also made an addition to the tune of Rs.73,98,251/- on account of variations of sundry debtors/creditors as unexplained expenses and income u/s.69 of the Act and concluded the assessment u/s.143(3) r.w.s. 144B of the Act dated 14.03.2024.

Aggrieved by the order of the AO, the appeal was filed by the assessee before the ld.CIT(A) on 12.04.2024. The ld.CIT(A), after perusal of the submissions made by the assessee passed an order dated 19.06.2025 by

Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us by raising the following grounds of appeal: “1. The Ld. CIT(A) erred in upholding the assessment order and computation sheet passed by the Assessing Officer, without appreciating that the same was made in disregard of the facts of the case and the detailed submissions placed on record by the Appellant. thereby rendering the order contrary to law and unsustainable on facts.

Before us, the ld.AR for the assessee assailing the action of the ld.CIT(A), submitted that the ownership of the gold is not disputed as the department has accepted the sale invoices of the gold and assessed the said transactions as capital gain by treating the transactions as the transfer of capital asset. Further, the ld.AR stated that once the explanation of capital asset is accepted, the cost of acquisition has to be given and there is no provision in the Income Tax Act which empowers the AO to assign nil cost of acquisition for an admitted capital assets merely because the original purchase invoice is not available. Further, the assessee could not furnish the purchase invoices of the gold sold due to unprecedented flood in December, 2023 in Tirunelveli District which resulted in destruction of records. These facts have been explained during the assessment proceedings and substantiated by furnishing the new reports. Further, the ld.AR

The ld.AR submitted that the ld.CIT(A) has also erred in upholding the addition of sundry debtors and creditors u/s. 69 of the Act without appreciating the materials placed on record to establish the source of funds and financial capacity of the assessee. The ld.AR took us through the page no.97 to 103 of the paper book filed, wherein the complete details of debtors and creditors including the details of date of transactions and the relationship of the assessee have been provided. Further, the ld.AR stated that all the transactions were routed through the normal banking channels and hence, there were not in the nature of any unexplained investment. Further, the ld.AR submitted that without prejudice to the above arguments, only those transactions which have been arisen during the previous year can only be considered for the aforementioned

Per contra, the ld.DR submitted that the assessee is failed to furnish the details of date of acquisition of the jewellery sold during the impugned assessment year and hence, the AO has rightly treated the same as short term capital gain, without giving any cost of acquisition as a deduction. Further, in respect of addition made u/s. 69 of the Act, the ld.DR supported the order of the authorities.

We have heard both the parties perused the assessment order, the order of the ld.CIT(A) and gone through the submissions of the ld.AR along with he paper book filed. The controversy before us essentially arises on two counts: first, the tax treatment of sale of gold/jewellery and the denial of cost of acquisition while computing capital gains; and second, the addition made u/s.69 of the Act in respect of sundry debtors and creditors. The issues are dealt with separately.

Addition relating to sale of gold and denial of cost of acquisition: The undisputed factual position is that the assessee sold gold for a sum of Rs.70,30,625/- during the relevant previous year. The assessee declared capital gains on such sale after claiming cost of acquisition of Rs.63,95,473/-. The AO did not dispute the factum of sale, nor did he dispute the existence of the asset sold. The sale invoices were accepted. However, since the assessee could not produce the original purchase invoices and since the exact date of acquisition was not, according to the AO, established, the entire sale proceeds were brought to tax as short-term capital gain by adopting the cost of acquisition at nil. The ld.CIT(A) has confirmed this action. In our considered opinion, such an approach is contrary to the scheme of taxation of capital gains and cannot be sustained.

Once the department proceeds on the footing that the transaction represents transfer of a capital asset, the computation of capital gains has to be made strictly in accordance with the statutory mechanism. What is chargeable under the Act is the gain arising from transfer, and not the gross sale consideration itself. Unless the statute expressly deems the cost of acquisition to be nil, the AO cannot, merely for want of one particular form of evidence, discard the claim of cost altogether and assess the entire sale proceeds as income. There is no provision pointed out before us which authorises the AO to assign nil cost to an admittedly existing capital asset merely because the original purchase bills were not available. The impugned computation, therefore, suffers from a fundamental legal error.

The explanation offered by the assessee for non-production of original bills is also neither fanciful nor unsupported. The assessee specifically stated that the purchase invoices and old records were destroyed in the unprecedented floods in Tirunelveli in December 2023. This explanation was put forth during the assessment proceedings. More importantly, the assessee did not stop with a mere plea of loss of records. He produced ledger copies

The record also supports the assessee’s plea that the ownership and existence of the asset had been disclosed to the department in earlier years through statutory filings. The ld.AR has specifically referred to the returns for assessment years 2019-20, 2020-21 and 2024-25, wherein jewellery/bullion investments were stated to have been disclosed in Schedule AL. This circumstance materially corroborates the assessee’s case that the gold sold during the impugned year was not an unaccounted or suddenly surfaced asset, but one already forming part of the assessee’s disclosed holdings. The authorities below have not shown that these earlier disclosures were false, inconsistent, or fabricated. In the absence of any rebuttal to such contemporaneous disclosures, the claim of acquisition cannot be brushed aside.

We are therefore of the clear view that the denial of the entire cost of acquisition is unsustainable both on facts and in law. The AO, having accepted the sale transaction and the existence of the asset, was bound to compute the capital gain after allowing the cost of acquisition supported by the available materials on record. The adoption of nil cost has resulted in taxing the entire sale proceeds, which is plainly contrary to the statutory concept of “capital gains.” Such an assessment cannot be approved.

On the question whether the gain is to be treated as long-term or short- term, we find that the assessee has specifically relied on the ledger account showing purchases in financial year 2016-17 and on subsequent asset disclosures in the returns. If these materials are accepted, the asset was clearly held for a period qualifying it as a long-term capital asset. The lower authorities have not dislodged these materials by any contrary evidence; nor have they pointed out any inconsistency in the ledger account or in the asset disclosures. In the absence of any such rebuttal, the assessee’s claim regarding period of holding deserves acceptance. Accordingly, we hold that the sale of gold is liable to be assessed under the head capital gains after allowing the cost of acquisition claimed by the assessee on the strength of the materials produced, and the treatment of the entire sale proceeds as short-term capital gain is deleted.

Addition under section 69 in respect of sundry debtors and creditors: The next issue relates to the addition of Rs.73,98,251/- made u/s.69 of the Act on account of variations in sundry debtors and creditors. The assessee has contended that complete details of the parties, the dates of transactions, and the relationship particulars were furnished; that the transactions were routed through banking channels; that the source and financial capacity stood explained; and that in any case a substantial portion of the balances pertained to earlier years and were merely carried forward. The assessee also pointed out that the addition in respect of sundry debtors was numerically excessive by Rs.39,000/-. These submissions, in our opinion, have not been properly dealt with either by the AO or by the ld.CIT(A).

Section 69 is a deeming provision and, being a deeming fiction, it has to be strictly construed. The section applies to investments made in the financial year immediately preceding the relevant assessment year which are not recorded in the books of account and for which the assessee either offers no explanation or offers an explanation not found satisfactory. Therefore, the sine

The ld.AR has specifically submitted that the details of debtors and creditors, including dates of transactions, were furnished at pages 97 to 103 of the paper book and that the balances had arisen over various earlier years. Once such details were before the authorities, it was incumbent upon the AO to segregate transactions of the year from brought-forward balances and to examine whether any sum representing unexplained investment actually arose during the relevant previous year. No such exercise appears to have been undertaken. Instead, the aggregate variation in debtors and creditors has been brought to tax in a sweeping manner.

Further, the assessee’s stand that the transactions were routed through normal banking channels materially weakens the Revenue’s case u/s.69 of the Act. Where the entries are traceable to banking transactions and supporting details have been furnished, the burden shifts to the AO to demonstrate why the explanation is unsatisfactory. A deeming addition cannot be sustained on conjecture or on general dissatisfaction untethered to specific defects in the evidence. In the present case, neither the assessment order nor the appellate order, as extracted before us, identifies any concrete material to show that the sums represented unexplained investment of the year. The addition, therefore, lacks the factual foundation necessary for section 69 of the Act.

We also find merit in the assessee’s grievance that the ld.CIT(A) has not dealt with the specific contention relating to the excess addition of Rs.39,000/- in respect of sundry debtors. An appellate authority is expected to deal with each substantive contention raised before it. The omission to adjudicate a

In these circumstances, we hold that the addition made u/s.69 of the Act in respect of sundry debtors and creditors is unsustainable. The materials on record show that the assessee had furnished details and explanations; the Revenue has not established that the impugned amounts represented unexplained investments made during the relevant previous year; and the deeming provision has been invoked without satisfying its statutory prerequisites. The entire addition is therefore directed to be deleted.

Ground relating to omission in computation of current year capital loss: The assessee has also raised a ground that the AO, while issuing the computation sheet along with the assessment order, failed to give effect to the current year loss from sale of shares/units of equity-oriented mutual funds, but that subsequently, by order dated 21.07.2025 passed u/s.154 of the Act, the omission was rectified. Since the relief has already been granted by the AO himself through rectification, this ground does not call for any separate adjudication, save to observe that the computation shall stand modified in accordance with such rectification.

In view of the above discussion and findings, we set aside the order of the ld.CIT(A) by directing the AO to allow the cost of acquisition of gold as claimed by the assessee and delete the additions made u/s.69 in respect of sundry debtors and creditors by allowing the grounds of appeal of the assessee.

In the result, the appeal of the assessee is allowed.