M/S. SABARI DIAMONDS & JEWELS,TIRUPUR vs. DCIT, CC-3(3), CHENNAI

It is mentioned by the Assessing Officer in the assessment order that pen drives containing JPACK data were also found and seized from the residential premises of Shri.Rajendra Kothari (Accountant of MJPL).Statements were recorded from Shri.Suresh Kumar Khatri on 11.11.2020 and on 04.12.2020. Statements were also recorded from to 1999 /Chny/2025 (AYs 2018-19 to 2021-22) M/s. Sabari Diamonds & Jewels :: 3 ::

Shri.Rajendra Kothari on 10.11.2020 and on 30.11.2020.Based on the above statements and on identification of ledgers from the JPACK software, it is mentioned by the Assessing Officer in the assessment order that a ledger named “SABARI” was found, which was extracted and provided to the assessee during the course of assessment proceedings.

The Assessing Officer based on the ledger extracted from JPACK software arrived at the unaccounted purchases made by the assessee across the assessment years in appeal and made additions in respect of gross profit towards unaccounted purchases for each of the assessment years.

Subsequently, the Assessing Officer initiated penalty proceedings and passed orders u/s.270A for the assessment years involved levying penalty u/s.270A(9)(e) on the addition in respect of gross profit towards unaccounted purchases at the rate of 200% of the tax sought to be evaded for the reason that the assessee had under-reported its income in consequence of misreporting of income.

To canvass the fact that penalty proceedings are independent of assessment proceedings, the Ld. AR placed reliance on the decision of the Hon’ble Supreme Court in Anantharaman Veerasinghaiah & Co. v C.I.T [1980] 123 ITR 457 (SC), wherein the Hon’ble Supreme Court has stated as follows:

“6. …….In the penalty proceeding the taxing authority is bound to consider the matter afresh in the material before it and, in the light of the burden to prove resting on the Revenue, to ascertain whether a particular amount is a revenue receipt. No doubt, the fact that the assessment order contains a finding that the disputed amount represents income constitutes good evidence in the penalty proceeding but the finding in the assessment proceeding cannot be regarded as conclusive for the purposes of the penalty proceeding.” to 1999 /Chny/2025 (AYs 2018-19 to 2021-22) M/s. Sabari Diamonds & Jewels :: 5 ::

It was further submitted by the Ld. AR that similar views have been taken in the following catena of cases:

I. B.MuniappaGounder v CIT [1976] 102 ITR 7987 (Mad) II. Krishnan Lal Shiv Chand Rai v CIT [1973] 88 ITR 293 (P&H) III. CIT v J K Synthetics Ltd. [1996] 219 ITR 267 (Del) IV. CIT v Doris S. Luiz [1974] 96 ITR 646 (Ker) The Ld. AR also placed reliance on the decision of the Hon’ble Supreme Court in the case of CIT v Khoday Eswarsa & Sons [1972] 83 ITR 369 (SC)wherein it was held that penalty cannot be levied solely on the basis of the reasons given in the original order of assessment.

The Ld. AR on the basis of the above judicial precedents, submitted that even in penalty proceedings, the assessee is not barred from challenging the findings of the assessment order based on which the Assessing Officer levied penalty particularly in view of the fact that penalty proceedings are distinct from assessment proceedings and that penalty cannot be levied solely on the basis of the reasons given in the original order of assessment.

With respect to the merits of the case, the Ld. AR submitted that the Assessing Officer on the basis of statements recorded from Shri.Suresh Kumar Khatri and Shri.Rajendra Kothari and on identification of ledgers from the JPACK software named “SABARI” for each of the assessment to 1999 /Chny/2025 (AYs 2018-19 to 2021-22) M/s. Sabari Diamonds & Jewels years involved in appeal, arrived at the unaccounted purchases purportedly made by the assessee and made additions in respect of gross profit towards such purported unaccounted purchases for each of the assessment years and consequently, levied penalty u/s.270A(9)(e) at the rate of 200% of the tax sought to be evaded on such additions for the reason that the assessee had under-reported its income in consequence of misreporting of income. The Ld. AR in this regard, firstly, submitted that the ledger extracted from JPACK ledger relied upon by the Assessing Officer to make additions in respect of gross profit towards sale of purported unaccounted purchases only states the name as “SABARI” and not the name of the assessee which is M/s.Sabari Diamonds & Jewels. It was submitted that merely because the name “SABARI” is reflected in the ledger, the same does not mean that it relates to the assessee. It was also submitted that the name “SABARI” is a very common name in the southern parts of India and it cannot be inferred that the name “SABARI” denotes the assessee for the simple reason that there can be many other assessees across the country having the same common name. The Ld. AR submitted that the name “SABARI” does not refer to the assessee and the assessee has time and again denied undertaking any transactions with MJPL barring the sole purchase transaction undertaken in the financial year 2018-19 relevant to assessment year 2019-20 which was duly substantiated with proper evidence in the form of ledger account of MJPL to 1999 /Chny/2025 (AYs 2018-19 to 2021-22) M/s. Sabari Diamonds & Jewels in the books of the assessee and bill in respect of the same. The Ld. AR as regards the said contention finally submitted that only “Sabari Diamonds & Jewels” refers to the assessee and the Assessing Officer’s reliance on ledger named “SABARI” which is not the name of the assessee, to pin the additions of the assessee, without any corroborative evidence is devoid of any merits. The Ld. AR, secondly, contended that the sworn statements recorded from Shri.Suresh Kumar Khatri and Shri.Rajendra Kothari do not contain a whisper about the assessee (M/s.Sabari Diamonds & Jewels) anywhere in their statements, and more particularly there is no statement identifying that the transactions in the ledger by name “SABARI” actually pertains to the assessee. In fact, the Ld. AR pointed out to the sworn statement of Shri.Suresh Kumar enclosed in the Paper Book and submitted that, at best, in the sworn statement of Shri.Suresh Kumar Khatri in response to Q.No.27, he identifies the ledgers grouped under customers and states that the same is contained in Annexure to the statement wherein it may be seen that the name “SABARI” is not to be found anywhere, which is not even the actual name of the assessee, thereby proving that the assessee had not entered into any unaccounted purchase transactions with MJPL. The Ld. AR further pointed out various discrepancies in the ledger by name “SABARI” extracted from the JPACK software, which was relied upon by the Assessing Officer (AO), details of such discrepancies are reproduced assessment year wise as under: to 1999 /Chny/2025 (AYs 2018-19 to 2021-22) M/s. Sabari Diamonds & Jewels a) ASSESSMENT YEAR: 2018-19 Before pointing out the discrepancies in the ledger named “SABARI” extracted from the JPACK software reflecting transactions purportedly carried out by the assessee with MJPL for the assessment year 2018-19, the Ld. AR drew reference to the table present at Page 3 of the assessment order of AY 2018-19 which is reproduced as under:

Ledger Name SABARI F.Y 2017-18 Receipt Issued Metal Amount Metal Amount Gross Net Gross Net Opening Balance 0 0 0 Purchases during the F.Y 661.64 636.16 77410 1074.6 1032.28 774.10

Closing Balance 412.96 396.12 It was submitted by the Ld. AR that the above table reproduced in the assessment order denotes the summary of transactions that the assessee has purportedly carried out with MJPL during the financial year 2017-18 relevant to assessment year 2018-19 wherein the column “Issued” reflects purported purchases made by the assessee from MJPL and the column “Receipt” reflects purported sales made by the assessee to MJPL.

The Ld. AR specifically pointed out that under the receipt column, the figures 661.64 as gross weight and 636.16 as net weight appears which denotes that the assessee has purportedly sold gold to MJPL. The Ld. AR to 1999 /Chny/2025 (AYs 2018-19 to 2021-22) M/s. Sabari Diamonds & Jewels also drew reference to the relevant extract of table at Page 5 of the assessment order which shows the break-up of transactions in the ledger “SABARI” for the financial year 2017-18 relevant to assessment year 2018-19, which is as under:

Tr. Code Receipt Issued Details Gross Touch Net Wt Amount Gross Touch Net Wt Amount

15/09 661.64 96.15 636.16 METAL ISSUE From the above table, the Ld. AR pointed out that under the Issued column, the figures 661.64 as gross weight and 636.16 as net weight appears, thereby denoting that the assessee had purportedly purchased gold from MJPL.

It was submitted by the Ld. AR that on comparison of the manner in which the above transaction is reflected at two different pages of the assessment year, it is clear that the said entry cannot be relied upon since at one place the said entry denotes that the assessee has sold gold to MJPL and on the other the very same entry denotes that the assessee has purchased gold from MJPL, which definitely cannot be the case.

Apart from the above, the Ld. AR submitted details of the other discrepancies in the ledger “SABARI” extracted from the JPACK software to 1999 /Chny/2025 (AYs 2018-19 to 2021-22) M/s. Sabari Diamonds & Jewels reflecting transactions for the assessment year 2018-19 which are as under:

Tr. Code Receipt Issued Details Gross Touch Net Amoun Gross Touch Net Wt Amount Wt t

13/01 RATE 18.89 135.2 25.55 774.10 PURCHASE 0 6 0 NIL

Balance 412.96 95.92 396.12 0 0

1) The Assessing Officer in the assessment order has clearly stated in Para 8.2 (i) at Page 6 of the assessment order for AY 2018-19 that column 2 “TOUCH” signifies purity of gold. That being the case, it may be noted that in the transaction dated 13.01.2018, the touch % (Purity of gold) of 18.890 gms is stated as 135.26% which is not possible in the jewellery business.

2) In the closing balance of 412.960 gms, the touch % of 95.92% is arbitrary. At best, it could have been only the average of last 3 entries dated 18.03.2018, 23.03.2018 and 31.03.2018 which works out to 95.67% and not 95.92% as stated in the ledger. b) ASSESSMENT YEAR: 2019-20 Tr. Code Receipt Issued Details Gross Touch Net Wt Amount Gross Touch Net Wt Amount 30/06 METAL 3.370 0.59 0.020 ISSUE NIL 18/11 METAL 0.010 100.0 0.010 RECEIPT 0 27/11 CASH 11271.2 5 BILL MJPL 09/12 RATE 371.14 95.65 355.00 11271.2 PURCHASE 0 0 5 NIL to 1999 /Chny/2025 (AYs 2018-19 to 2021-22) M/s. Sabari Diamonds & Jewels :: 11 ::

1) In the transaction dated 30.06.2018, the touch % (Purity of gold) of 3.370 gms is stated as 0.59% which is not possible in the jewellery business.

2) In the transaction dated 18.11.2018, it is not possible to transact 0.010 gms of gold with a touch % (Purity of gold) of 100%.

3) In the transaction dated 27.11.2018, the amount is mentioned as 11271.25 which actually tallies with the books of the assessee and duly supported by the copyof the ledger account of MJPL in the books of the assessee and the GST bill. However, even in respect of this transaction, the Ld. AR submitted that the following discrepancies arise: • There are no quantity details present against the 27.11.2018 entry. • Payment for this purchase was made through banking channels on two different dates, a fact that is also recorded in the assessment order by the Assessing Officer but in the ledger, the narration is mentioned as CASH. • Moreover, the gross and net weight figures in the subsequent entry dated 09.12.2018 do not match with the gross weight as per the purchase bill of the assessee dated 27.11.2018. In the entry dated 09.12.2018 in the JPACK ledger, the gross weight is shown as 371.140 gms whereas the gross weight as per the purchase bill was 369.790 gms. c) ASSESSMENT YEAR: 2020-21

Tr. Code Receipt Issued Details Gros Touch Net Wt Amount Gross Touch Net Wt Amoun s t

07/07 1.170 METAL ISSUE NIL

21/03 11.27 0.27 0.030 METAL 0 ISSUE NIL

1) In the transaction dated 07.07.2019, it is stated that the assessee has purchased 1.170 gms of gold where such low quantities are not transacted by dealers.

2) In the transaction dated 21.03.2020, it is not possible to transact 11.270 gms of gold with a touch % (Purity of gold) of 0.27%. to 1999 /Chny/2025 (AYs 2018-19 to 2021-22) M/s. Sabari Diamonds & Jewels :: 12 ::

Therefore, in the light of above table, the Ld. AR finally concluded that the additions made in the assessment order though accepted by the assessee solely for the reason of purchasing peace with the department cannot become a reason for automatic levy of penalty u/s.270A of the Income Tax Act and thus prayed that the penalty u/s.270A levied by the Assessing Officer be deleted for all the assessment years involved in appeal.

The Ld. AR further submitted that the additions cannot be based on mere loose sheets and consequently no penalty can be levied on such additions.

In this regard, the Ld. AR submitted that the loose sheets, in the instant case, extracts of the ledger named “SABARI” from the JPACK software have no evidentiary value and the additions based on the same without any corroborative evidence is not valid in the eyes of law. In support of the same, the Ld. AR relied on the following decisions: a) CIT(A) v Sunil Kumar Sharma [2024] 165 taxmann.com 846 (SC) b) DCIT v Sunil Kumar Sharma [2024] 469 ITR 197 (Kar) c) Common Cause (A Registered Society) v UOI [2017] 394 ITR 220 (SC) d) CBI v V.C.Shukla and Others [1998] 3 SCC 410 It was also submitted that the Assessing Officer has not brought on record any material or other corroborative evidence to show that the assessee had indeed made unaccounted purchases from MJPL. In fact, even the statements recorded from Shri.Suresh Kumar Khatri and to 1999 /Chny/2025 (AYs 2018-19 to 2021-22) M/s. Sabari Diamonds & Jewels :: 13 ::

Shri.Rajendra Kothari where they identify the list of customers grouped in the JPACK software, has no mention of a customer by name “SABARI”, leave alone the mentioned of the actual name of the assessee firm M/s.Sabari Diamonds & Jewels. In such a case, it was contended by the Ld. AR that mere reliance on ledger extracts which does not even have the name of the assessee, for making additions and consequently levying penalty u/s.270A on the said additions is not warranted in the facts and circumstances of the case.

The Ld. AR further submitted that since opportunity of cross examination not provided, the same renders the assessment invalid. For this proposition, the Ld. AR placed reliance on the following decisions of the Hon’ble Supreme Court:

Andaman Timber Industries v CCE [2015] 281 CTR 241 (SC) Kishinchand Chellaram v CIT [1980] 125 ITR 713 (SC)

The Ld. AR in this regard submitted that the assessee during the course of assessment proceedings had specifically requested for an opportunity to cross examine which was denied by the Assessing Officer for the following reasons: a) That Shri.Suresh Kumar Khatri has only identified the JPACK ledger pertaining to the assessee and that there was no other statement or information given by him against the assessee. b) That the JPACK ledger account pertains to the assessee was proved beyond doubt as on cross verification it was found that many of the transactions recorded in the JPACK account match with the transactions recorded in the books of accounts of the assessee. to 1999 /Chny/2025 (AYs 2018-19 to 2021-22) M/s. Sabari Diamonds & Jewels c) That besides the above reasons, the unaccounted income is determined based on the analysis of the entries in the seized material and not based on the statement of Shri.Suresh Kumar Khatri.

The Ld. AR in this connection, submitted that the above observations of the Assessing Officer in denying the opportunity of cross examination were incorrect since: a) There is no shred of evidence to demonstrate that Shri.Suresh Kumar Khatri in his statement had identified that the ledger “SABARI” extracted from the JPACK software belonged to the assessee. In fact, in Para 6.6 at Page 3 of the assessment order for the assessment year 2018-19, it can be seen that the Assessing Officer has merely stated that “On further investigation of the said "J Pack” Software, it is found that a ledger named “SABARI” is maintained.” This goes on to show that the observation of the Assessing Officer in this regard to deny the opportunity to cross examine was not valid. b) The observation of the Assessing Officer that on cross verification it was found that many of the transactions recorded in the JPACK account match with the transactions recoded in the books of accounts of the assessee is also not valid since it was demonstrated beyond doubt that the assessee had entered into only one solitary purchase transaction with MJPL across the 4 assessment years involved in appeal and that no other transactions as reflected in the ledger “SABARI” extracted from the JPACK software pertained to the assessee.

Therefore, it was contended by the Ld. AR that since the reasons for denying opportunity of cross examination fails, the assessment order is rendered invalid and thus the additions made have no legs to stand, much less the penalty levied on such additions.

The Ld. AR submitted that the facts of MAK Data differ from the present case. In MAK Data, the assessee merely disclosed income to “buy peace” without providing any explanation for such disclosure. In contrast, the present assessee has denied any link to the transactions recorded in the JPACK ledger under the name “SABARI.” The additions were accepted solely to avoid prolonged litigation and not due to any detection of undisclosed income by the Assessing Officer. Furthermore, during the penalty proceedings, the assessee challenged the validity of the additions and provided adequate explanations to counter the Department’s findings.

Therefore, simply because the assessee did not appeal against the assessment order does not automatically justify the levy of penalty under section 270A. Considering these distinctions, we hold that the decision in MAK Data (P.) Ltd. is not applicable to the present case. to 1999 /Chny/2025 (AYs 2018-19 to 2021-22) M/s. Sabari Diamonds & Jewels :: 17 ::

Hence, reliance solely on the ledger extracts and statements to impose penalty under section 270A was unjustified. Even assuming the additions could have been made, they suffer from several inconsistencies, as pointed out by the Ld. AR, showing that the material relied upon is insufficient to establish unaccounted purchases. to 1999 /Chny/2025 (AYs 2018-19 to 2021-22) M/s. Sabari Diamonds & Jewels :: 18 ::