SIDDH JEWELLERS PVT. LTD.,KOLKATA vs. THE ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, VARANASI

IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH, VARANASI BEFORE HON’BLE JUSTICE (RETD.) C.V. BHADANG, PRESIDENT AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.179/VNS/2024 A.Y.-2011-12 M/s Siddh Jewellers Pvt. Ltd., No.613 vs. The Asstt. Commissioner of 32, 6th Floor, Ezra Street, South Block, Income Tax, Central Circle, Kolkata-700001, West Bengal Varanasi PAN: AABCL0874F (Appellant) (Respondent) Assessee by: Sh. A.K. Pandey and Sh. Archit Pandey, Advocates Revenue by: Sh. Deepak Yadav, Sr. DR Date of hearing: 03.08.2026 Date of pronouncement: 05.10.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the order of the ld. CIT(A), NFAC dated 13.08.2024, wherein the ld. CIT(A) has partly allowed the appeal of the assessee against the orders passed by the ACIT, Central Circle, Varanasi on 31.03.2013, for the assessment year 2011-12 under section 143(3) of the Income Tax Act, 1961. The grounds of appeal are as under:- “1) That the Ld CIT(A) has erred in law and on facts in sustaining the addition of Rs 2,00,46,379/- made by the Ld. AO on account of alleged suppressed sales. 2) That the Order passed by the Ld. AO u/s 143(3) of the Income Tax Act dated 31.03.2013 is bad in law, invalid and liable to be quashed. 3) That on the facts and Circumstances of the case, the CIT(A) has erred both in law and on facts in confirming the assessment order passed u/s 143(3) of the Income Tax Act, 1961. 4) That on the facts and Circumstances of the case the Order passed by the authorities below is bad in law, arbitrary in nature, without due process of law and also without giving proper opportunity of being heard.” 1

ITA No.179/VNS/2024 Siddh Jewellers Pvt. Ltd. A.Y. 2011-12 2. The facts of the case are that a search and seizure operation was conducted in the case of Banaras Swarn Kala Kendra group of cases on 20.01.2011. Thereafter, these cases were centralized with the ACIT, C.C. Varanasi, among which the case of the assessee was centralized vide order of the CIT, Kolkata-2, dated 28.12.2012. Subsequently, the notices were issued to the assessee under the Income Tax Act, 1961 for filing return of income and scrutinizing the case. The ld. Assessing Officer observed that in the course of survey conducted under section 133A(1) at the business premises of the assessee company, no books of accounts could be found and nor could anybody give any proper explanation with regard to the books. Sh. Prashant Jaiswal, the assessee’s representative during the search, admitted that no books were maintained by the assessee’s company. Ongoing through the audit report of the assessee company, the ld. Assessing Officer observed that closing stock as on 31.03.2010 was worth Rs. 9,11,60,046/- and as per copy of bank account no. 05532320002645 with HDFC Bank, Chandni Chowk, New Delhi, the total purchases of the assessee company for the period 1.04.2010 to 25.01.2011 were Rs. 1,08,65,000/-. From the same, he concluded that the total stock of the assessee company during the financial year up till 25.01.2011 should be more than Rs. 10,20,25,046/-. He noted that the sales of the asesssee company for the F.Y. 2009-10 were Rs. 1,78,22,860/-. Since, the assessee had not maintained any books of accounts therefore, he estimated the sales of the assessee company on the basis of past results to be Rs. 1,48,52,383/-. He also observed that in the previous year, gross profit had been shown at Rs. 2.32% and therefore he accepted these gross profits and deducted the same from the sale figures so computed by him, to arrive at a value of Rs. 1,45,07,807/- for the goods sold during the period. Based upon these figures, the ld. Assessing Officer computed that the assessee ought to be having stocks amounting to Rs. 8,75,17,239/- as on the 2

ITA No.179/VNS/2024 Siddh Jewellers Pvt. Ltd. A.Y. 2011-12 date of survey. However, he noted that in fact on the date of survey a valuation had been done and the registered valuer had valued the stock at Rs. 6,74,70,860/-. From the same, he concluded that the assessee had made sales out of books and suppressed his disclosed sales by the sum of Rs. 2,00,46,379/-. He accordingly asked the assessee to show cause as to why this amount should not be added back to the income of the assessee. In response, it was submitted that the calculation by the ld. Assessing Officer had been done on an assumption basis. In fact, there was only a difference of 67.999 Grams in the stock, as per the audit report and as per the valuation. The assessee submitted that the difference in the valuation of the stock arose on account of the fact that the valuer had taken a wrong value of diamonds and of pure gold in computing the value of the stock. As per the audit report, the said stock had been disclosed at Rs. 8,75,04,647/- as on 1.04.2010. The assessee had also made purchases of Rs. 81,71,604.81/- during the year and the ld. Assessing Officer had just assumed the figure to be Rs. 1,08,65,000/-, by taking all the credits in the bank statements against the purchases. Thus, it was submitted that the maximum stock available with the assessee at any point of time was only Rs. 9,56,78,251.81/-. It was further argued that the ld. Assessing Officer had adopted a wrong figure of sales amounting to Rs. 1,45,07,807/- whereas the actual figure of sales upto the date of survey was Rs. 4,16,92,678.39/-. These sales were backed up by sales bills, stock register, transfer etc. Thus, it was argued that in fact the closing stock of the assessee company was only Rs. 5,39,85,573/- on the date of survey and not Rs. 6,74,70,860/- as determined by the Valuation Officer and therefore, there was no missing stock as alleged by the ld. Assessing Officer which could be regarded as sales having made out of the books of accounts. However, the ld. Assessing Officer did not find this reply to be acceptable because no books of accounts of the assessee company had been found during the course of survey and neither had any such books of accounts been produced before 3

ITA No.179/VNS/2024 Siddh Jewellers Pvt. Ltd. A.Y. 2011-12 him in the course of assessment. He pointed out that the assessee had specifically been asked to produce the complete books of accounts alongwith registers, bills and vouchers for the relevant assessment year to substantiate the items in the balance-sheet but the assessee had failed to produce them. He, therefore, rejected the explanation of the assessee and made an addition of Rs. 2,00,46,379/- on account of suppressed sales. 3. Aggrieved by the said assessment order, the assessee went in appeal before the ld. CIT(A). The ld. CIT(A) called for a remand report from the ld. Assessing Officer. During the course of the remand report, the assessee filed a reconciliation of stock. Ongoing through the same, the ld. Assessing Officer observed that the assessee had adopted a method of valuing the closing stock at average cost price and worked out its stock accordingly. He pointed out that neither during the course of assessment proceedings nor during the course of remand proceedings, had the assessee filed any supporting evidences to substantiate the quantity of stock shown in the balance-sheet and P&L account. In the circumstances, the value of closing stock given by the assessee could not be accepted and the valuation of closing stock estimated by the registered valuer on the basis of market value must be held to be genuine and considered as the value of the closing stock. He held that, as a result of the difference in closing stock as disclosed by the assessee in the reconciliation statement and as determined by the registered valuer, there was a difference of Rs. 1,34,85,287/-, which was in the nature of unexplained purchases and which needed to be added to the total income of the assessee. Furthermore, he pointed out that since the assessee had failed to produce the books of accounts alongwith supporting evidences to substantiate the items in the final accounts and explain the difference in balance-sheet and valuer’s report, to the tune of Rs. 2,00,46,379/-, this amount of Rs. 2,00,46,379/- should be treated as suppressed sale and added 4

ITA No.179/VNS/2024 Siddh Jewellers Pvt. Ltd. A.Y. 2011-12 to the income of the assessee. The ld. CIT(A) provided a copy of the remand report to the assessee for its comments. In response, it was submitted that there was no dispute with regard to the quantity closing stock found during the course of survey. The only dispute was with regard to the valuation of the stock as recorded in the assessee’s books as well as worked out by the ld. Assessing Officer. The recommendation for addition on unexplained purchases were refuted with the reply that if sales were made outside the books out of unexplained purchases, then the unexplained purchases had to be set off against the sales and there was no need for separate addition. It was further submitted that the Hon’ble Allahabad High Court in the case of V.V.S. Alloys Ltd. vs Assistant Commissioner Of Income Tax (2000) 68 TTJ 516 (All) had pointed out, that when any incriminating documents had been found which represented unrecorded sales and purchases, only the net profit could be taxed as unexplained income in the absence of bills, vouchers and books of accounts. The assessee had already disclosed a net profit of 6.1% and therefore, there was no need for any further addition with respect to purchases out the books of accounts. The ld. CIT(A) considered the submissions of the assessee and he was not impressed by the same. He held that since no books of accounts were maintained by the assessee company and since no bills and vouchers had been produced before the ld. Assessing Officer, the method arrived at by the ld. Assessing Officer to compute the valuation of closing stock as on 25.11.2011 could not be said to be unreasonable, as it was based on the bank statement and corresponding sales figures of the immediately preceding year. He was, therefore, of the view that the ld. Assessing Officer was correct in making the addition of Rs. 2,00,46,379/- as suppressed sales and he dismissed this ground of the assessee. However, certain other expenditures which had been partially disallowed by the ld. Assessing Officer were held to be without basis and deleted. 5

ITA No.179/VNS/2024 Siddh Jewellers Pvt. Ltd. A.Y. 2011-12 4. The assessee is aggrieved at this order passed by the ld. CIT(A) and has accordingly come before us. Sh. Anand Kumar Pandey and Sh. Archit Pandey, Advocates (hereinafter referred to as the ld. ARs) appearing before us, pointed out that in a case that where there was no allegation of unexplained investment in purchase of stock, the entire amount of alleged suppressed sale could not be added back in the hands of the assessee. Our attention was invited to the decision of the Hon’ble Allahabad High Court in the case of V.V.S. Alloys Ltd. vs Assistant Commissioner Of Income Tax (supra) which had been cited by the assessee before the ld. CIT(A). It was submitted that the Hon’ble High Court in such case had pointed out, that where there was no evidence of undisclosed investment, the undisclosed income on account of suppressed sale could only be to the extent of the profit from the sale. Accordingly, it was prayed that the addition be restricted to the gross profit of 2.3% of the allegedly suppressed sale of Rs.2,00,46,379/- 5. On the other hand, Sh. Deepak Yadav, ld. Sr. DR (hereinafter referred to as the ld. Sr. DR) pointed out that there was clear evidence of suppression of sales in the instant case, which had been discovered during the course of survey. He pointed out that the assessee was not maintaining books of accounts as had been disclosed by the representative present at the time of survey and further evidenced by the failure to produce them before the ld. Assessing Officer during the course of assessment. Thus, no credence could be paid to the audit report and it was a fit case to hold that there was no maintenance of a stock register. The ld. Sr. DR pointed out that this was not a case of excess stock but this was a case of suppressed sales i.e. sales which have been made, but not reflected or offered to tax by the assessee. Therefore, he prayed that the addition made by the ld. Assessing Officer should be confirmed as the valuation report had clearly brought out the fact that there was a lesser stock in the hands of the assessee then what the 6

ITA No.179/VNS/2024 Siddh Jewellers Pvt. Ltd. A.Y. 2011-12 assessee was supposed to have, as per the computations of the ld. Assessing Officer. 6. We have duly considered the facts and circumstances of the case and the arguments advanced by both the parties. We note that the allegation against the assessee is that the assessee has made sales outside the books of accounts. This conclusion is arrived at by comparing the valuation of stocks as disclosed in the audit report and the valuation of stock actually found at the assessee’s premises during the survey proceedings held on 25.11.2011. The ld. Assessing Officer has sought to determine the extent of stock on the basis of the figures of opening stock as present in the final accounts wherein the purchases and sales of the period have been sought to be estimated on the basis of entries in the bank account. On this basis, the ld. Assessing Officer has computed what the stock ought to be and, finding it to be of lesser value on the date of survey, concluded that sales have been made outside of the books. While the assessee has not produced its books of accounts, justifying a rejection of the same, the action of the ld. Assessing Officer to add the entire amount of allegedly suppressed sale does not appear to be sustainable. This is because the starting point for the computation made by the ld. Assessing Officer is the opening stock as contained in the assessee’s own accounts. Thus, no allegation has been levelled that any part of the stock that was purportedly sold outside the books of accounts was undisclosed investment of the assessee. Infact, during the course of arguments, the ld. DR has pointed out that this is not a case of excess stock but of suppressed sale. In the circumstances, we are of the view that the entire sale value cannot be added back to the income of the assessee as undisclosed income since the stocks were duly explained out of the previous year’s balances as reflected in the audited accounts. Therefore, we are in agreement with the ld. AR that only the element of profit contained in such transactions can be the subject 7

ITA No.179/VNS/2024 Siddh Jewellers Pvt. Ltd. A.Y. 2011-12 matter of addition. Accordingly, we confirm the addition to the extent of 2.32% of these allegedly suppressed sales on the basis of the profit which had been adopted by the ld. Assessing Officer in his assessment order and delete the balance additions made on account of the value of the sold jewellery. Ground no.1 is accordingly partly allowed. The ld. ARs have not furnished any arguments in respect of ground no. 2 and accordingly, the same is dismissed as not pressed. As we have substantially varied the addition made by the ld. Assessing Officer, ground no. 3 is held to be partly allowed. Finally, as the ld. ARs have not brought any material to demonstrate that the orders passed by the lower authorities are bad in law or did not follow the due process of law, ground no. 4 is dismissed as not pressed. 7. In the result, the appeal is held to be partly allowed. Order pronounced as per Rule 34(4) of Income Tax (Appellate Tribunal) Rules, 1963 on 05.10.2026.

Sd/- Sd/- Sd/- [JUSTICE (RETD.) C.V. BHADANG] [NIKHIL CHOUDHARY] PRESIDENT ACCOUNTANT MEMBER DATED: 05/10/2026 Sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR, ITAT 4. CIT, 5. The CIT(A) By order Sr. P.S.