ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE3-(1), HYDERABAD vs. VAISHNAVI BULLION PRIVATE LIMITED, HYDERABAD

Per Laliet Kumar, J.M. These are the cross appeals filed by the assessees mentioned above and Revenue feeling aggrieved by the order of ld. Commissioner of Income Tax (Appeals) – 11, Hyderabad, (hereinafter referred as “ld. CIT(A)”) passed on 07.09.2020 for A.Y. 2017-18.

“1. The ld.CIT(A) erred in confirming the addition of Rs.11,74,50,000/- which is not sustainable on facts and in law. 2. The ld.CIT(A) erred in not considering the fact that the cash deposited in the bank account of the appellant reflected the business turnover of the appellant and the appellant has offered net profit earned on such turnover in his return of income and paid taxes. 3. The ld.CIT(A) erred in not considering the evidence that the cash deposited in the bank account of the appellant was utilized for purchase of gold bullion by the appellant in the normal course of his business. 4. The ld.CIT(A) erred on facts and in law in granting partial relief of Rs.28,37,00,000 out of cash deposit of Rs.40,11,50,000 and confirming the addition of Rs.11,74,50,000/- although the entire cash deposits are of the same genre of business. 5. The ld.CIT(A) erred in law in confirming the AOs findings that the provisions of section 68 are attracted in respect of cash deposits made in the appellant’s bank account. 6. The ld.CIT(A) erred in law in confirming the AOs findings that the provisions of section 68 are attracted in respect of cash deposits made in the appellant’s bank account despite the fact that the AO 2

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

did not make any inquiries to satisfy himself about the explanation offered by the appellant although making of such inquiries is a condition prerequisite for invoking the provisions of section 68. 7. The ld.CIT(A) erred on facts and in law in ignoring the various judicial pronouncements of High Courts and Supreme Courts submitted by the appellant which showed that the AO could not have invoked the provisions of section 68 considering the facts of the appellant’s case. 8. The ld.CIT(A)’s finding that the AO, in the statement recorded from the appellant u/s 131 on 20.11.2019 discussed the issues raised by the appellant is contrary to the facts on record. 9. The ld.CIT(A)’s finding that the AO, in the statement recorded from the appellant u/s 131 on 20.11.2019 discussed at length the explanation regarding sources of cash as submitted by the appellant in his letter dt.01.11.2017 is not a fact and is based on the wrong appreciation of the contents of the assessment order. 10. The finding of the ld.CIT(A)’s that the requirements of section 68 are met by AO is not based on correct appreciation of the provisions of section 68 of the Act in as much as that the ld.CIT(A) erred in law in concluding that recording of statement u/s 131 from the appellant amounts to conduct of due inquiries contemplated under section 68 of the Act.”

“1. The ld.CIT(A) erred both in law and on facts of the case in allowing relief to the assessee. 2. The ld.CIT(A) erred in granting relief of Rs.28,37,00,000/- in respect of the addition made u/s 68 on the ground that the deposits received from Mr. Neel Sundar stood explained. 3. The Ld.CIT(Appeal) erred in disregarding the fact that acceptance of cash in SBNs and purchase of bullion with such 'ceased legal tender' cannot be treated as a legal business transaction in view of the special circumstances prevalent after announcement of demonetization. 4. The Ld.CIT(Appeal) erred in treating a portion of the credits as explained when the assessee was prevented by RBI norms in 3

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

accepting cash in SBNs either directly or indirectly after 08.11.2016. 5. The Ld.CIT(Appeal) erred in ignoring the trite principle that a later special law though not so consistent with earlier general law; will prevail over the earlier general law- when the Reserve Bank of India issued Special Law by way of Notifications after demonetization barring SBNs as legal tender after 08.11.2016 - the sale advances received not in legal tender cannot be treated as per general law of Income Tax Act. 6. The Ld.CIT(Appeal) erred in ignoring the findings of Central Forensic Science Laboratory that the computer systems claimed to have been used by the assessee for making advance credit entries on 08.11.2016 were not at all opened/used on that date and consequently the credit entries in the books of account are ante- dated to escape the consequences of accepting SBNs after demonetization. 7. The ld.CIT(Appeal) erred in taking into cognizance the letter dated 01.11.2017 claimed to have been filed by the assessee before the assessing officer without calling for a remand report as no such letter had been filed before the assessing officer. 8. The ld.CIT(Appeal) erred in granting relief solely on the basis of the statements given by Mr.Neel Sundar before Investigative agencies which was retracted in his subsequent statement given before the DDIT(Inv) on 09.02.2017, wherein he categorically stated in reply to Q.No.13 that ?the cash does not belong to me or my family or my concern M/s. Ashta Lakshmi Gold nor does it belong to any of my friends from the market." 9. The Ld.CIT(Appeal) erred in not taking into cognizance of the fact that the retraction before DDIT(Inv) was given on 09.02.2017 i.e, much after the statement given before police on 11.01.2017 and 21.01.2017. 10. The Ld.CIT(Appeal) erred in deleting the addition made stating that no enquiries were conducted. The ld.CIT(A) who has coterminous powers to conduct further enquiries before coming to his conclusions instead of deleting the addition for lack of enquiry. 11. The Ld.CIT(Appeal) erred in holding that the assessing officer simply ignored the material produced before him by the assessee and made his own conclusions without bringing any material evidences to show that Sri Neel Sundar had contributed Rs.28.37 crores, except for referring to the Bank CCTV footage and Cell phone

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

recordings, which were never produced before Income tax authorities at any point of time. 12. The Id.CIT(Appeal) erred in of restricting credits which his view were to shown the sources as sales of and the credits received ignoring in SBNs the and nature can therefore be assesses only u/s.68 of the Act.”

“1. The ld.CIT(A) erred in confirming the addition of Rs.20,74,01,000/- which is not sustainable on facts and in law. 2. The ld.CIT(A) erred in not considering the fact that the cash deposited in the bank account of the appellant reflected the business turnover of the appellant and the appellant has offered net profit earned on such turnover in his return of income and paid taxes. 3. The ld.CIT(A) erred in not considering the evidence that the cash deposited in the bank account of the appellant was utilized for purchase of gold bullion by the appellant in the normal course of his business. 4. The ld.CIT(A) erred on facts and in law in granting operational relief of Rs.37,11,34,000 out of cash deposit of Rs.57,85,35,000 and confirming the addition of Rs.20,74,01,000 although the entire cash deposits are of the same genre of business. 5. The ld.CIT(A) erred in law in confirming the AOs findings that the provisions of section 68 are attracted in respect of cash deposits made in the appellant’s bank account. 6. The ld.CIT(A) erred in law in confirming the AOs findings that the provisions of section 68 are attracted in respect of cash deposits made in the appellant’s bank account despite the fact that the AO did not make any inquiries to satisfy himself about the explanation offered by the appellant although making of such inquiries is a condition prerequisite for invoking the provisions of section 68. 7. The ld.CIT(A) erred on facts and in law in ignoring the various judicial pronouncements of High Courts and Supreme Courts submitted by the appellant which showed that the AO could not

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

have invoked the provisions of section 68 considering the facts of the appellant’s case. 8. The ld.CIT(A)’s finding that the AO, in the statement recorded from the appellant u/s 131 on 20.11.2019 discussed the issues raised by the appellant is contrary to the facts on record. 9. The ld.CIT(A)’s finding that the AO, in the statement recorded from the appellant u/s 131 on 20.11.2019 discussed at length the explanation regarding sources of cash as submitted by the appellant in his letter dt.01.11.2017 is not a fact and is based on the wrong appreciation of the contents of the assessment order. 10. The finding of the ld.CIT(A)’s that the requirements of section 68 are met by AO is not based on correct appreciation of the provisions of section 68 of the Act in as much as that the ld.CIT(A) erred in law in concluding that recording of statement u/s 131 from the appellant amounts to conduct of due inquiries contemplated under section 68 of the Act.”

“1. The ld.CIT(A) erred both in law and on facts of the case in allowing relief to the assessee. 2. The ld.CIT(A) erred in granting relief of Rs.37,11,34,000/- in respect of the addition made u/s 68 on the ground that the deposits received from Mr. Neel Sundar stood explained. 3. The Ld.CIT(Appeal) erred in disregarding the fact that acceptance of cash in SBNs and purchase of bullion with such 'ceased legal tender' cannot be treated as a legal business transaction in view of the special circumstances prevalent after announcement of demonetization. 4. The Ld.CIT(Appeal) erred in treating a portion of the credits as explained when the assessee was prevented by RBI norms in accepting cash in SBNs either directly or indirectly after 08.11.2016. 5. The Ld.CIT(Appeal) erred in ignoring the trite principle that a later special law though not so consistent with earlier general law; will prevail over the earlier general law- when the Reserve Bank of India issued Special Law by way of Notifications after demonetization 6

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

barring SBNs as legal tender after 08.11.2016 - the sale advances received not in legal tender cannot be treated as per general law of Income Tax Act. 6. The Ld.CIT(Appeal) erred in ignoring the findings of Central Forensic Science Laboratory that the computer systems claimed to have been used by the assessee for making advance credit entries on 08.11.2016 were not at all opened/used on that date and consequently the credit entries in the books of account are ante- dated to escape the consequences of accepting SBNs after demonetization. 7. The ld.CIT(Appeal) erred in taking into cognizance the letter dated 01.11.2017 claimed to have been filed by the assessee before the assessing officer without calling for a remand report as no such letter had been filed before the assessing officer. 8. The ld.CIT(Appeal) erred in granting relief solely on the basis of the statements given by Mr. Pawan Agarwal before Investigative agencies without appreciating the fact that no material evidence was furnished in support of the claim. 9. The ld.CIT(A) erred in relying on the confession statement given by Mr. Pavan Kumar Agarwal before the police authorities even though such statement is not admissible as evidence. 10. The ld.CIT(A) erred in relying on the statement of Sri Pavan Kumar Agarwal given before Police Authorities on 17.02.2017 that he contributed 37.11 crores out of total cash deposits made in the bank accounts of the assessee, without considering the fact that this averment was different from the statement recorded before the Income Tax authorities. 11. The Ld.CIT(Appeal) erred in deleting the addition made stating that no enquiries were conducted. The ld.CIT(A) who has coterminous powers to conduct further enquiries before coming to his conclusions instead of deleting the addition for lack of enquiry. 12 The Ld.CIT(Appeal) erred in holding that the assessing officer simply ignored the material produced before him by the assessee and made his own conclusions without bringing any material evidences to show that Sri Pavan Agarwal had contributed Rs.37.11 crores, except for referring to the Bank CCTV footage and Cell phone recordings, which were never produced before Income tax authorities at any point of time. 13. The Id.CIT(Appeal) erred in of restricting credits which his view were to shown the sources as sales of and the credits received 7

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

ignoring in SBNs the and nature can therefore be assesses only u/s.68 of the Act.”

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

stated that the said amount was received from 2153 customers on 08.11.2016 as advances after the announcement of demonetization and each customer had paid advance below Rs.2 lakhs for purchase of bullion. On 07.12.2016, he reconfirmed the above statements. Later, the MD of the assessee filed a declaration of Rs.40 crore under PMGKY on 30.12.2016 and paid tax of Rs.1 crore on 13.01.2017. Thereafter, the M.D. filed an affidavit withdrawing the declaration on 16.01.2017 filed under PMGKY. For the A.Y. 2017-18, assessee filed its return of income admitting an income of Rs.1,42,71,390/- after adjustment of brought forward losses of Rs.8,60,150/-. The case was selected for scrutiny and a notice u/s 143(2) of the Act was issued on 14.08.2018. Later, notice u/s 142(1) of the Act were issued from time to time calling for certain information and after considering the information filed, assessment was completed by the AO u/s.143(3) of the Act on 31.12.2019 assessing the total income at Rs.41,57,69,390/- by making an addition of Rs.40,11,50,000/- u/s 68 of the Act. 8. The relevant portion of Assessing Officer’s discussion and finding reads as under :

“3.5.1 Apparent inconsistency even in the second version of cash advance from one customer: The first issue for consideration is the deviation of the assessee in replacing single customer in place of their earlier stance of 2153 customers, who purportedly lent advance of Rs.40.11 crores. In para 15 of the above submissions, the assessee now brings in the concept of 'human possibility' of receiving cash of below Rs.2 lakhs from 2100 persons within three and half hours in their business premises. In fact, the claim of the assessee of 9

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

receiving cash of Rs.40.11 crores and the probability of entering the details of 2153 customers (5200 customers including the customers of M/s MGJPL), printing cash receipt vouchers within three hours from 09.00 PM to 12.00 midnight on 08.11.2016 was questioned in the statement recorded u/s 131 on 01.12.2016 vide Q.No.70. To this, the Director of the assessee company replied as under:

"... It is correct that around 5200 customers had visited this premises on 08.11.2016 from. 09.00 PM onwards for depositing cash advance in Musaddilal Gems and Jewels P Ltd and Vaishnavi-bullion P Ltd. I don't know how we had managed, but it was done".

Though the assessee claimed that the statement given on 08.11.2016 was under duress and the statements given on 20.11.2019 is true, no evidence to substantiate that the assessee / their Director is in receipt of cash from one person was provided with cogent evidences, except referring to the bank footage or some confessional statements of others. When a credit entry is made in the books of an assessee, the burden is on the assessee to prove the sources of such credit to the satisfaction of the Assessing Officer with cogent evidences. In the case on hand, the assessee takes the liberty of changing their stance before the Income Tax authorities as well as before other investigating agencies (will be discussed in the ensuing paragraph 3.5.3) to suit their convenience and when it comes to others, insist on a statement given before other investigating agencies and outside bank CCTV footage as evidences, to prove their innocence. Such double standards cannot come to the rescue of the assessee in discharging the primary obligation cast on them in proving the sources of credit appearing in their books of account.

3.5.2 Acceptance of proposal for cash advances — Legal position — Allied Acts —Special Circumstances after demonetization:

The second submission of the assessee is that there is time gap between 'acceptance of proposal' and 'acceptance of cash'. As per the submissions of the assessee, the proposal of taking cash advance from One customer for sale of gold was accepted by him on 08.11.2016 and the cash was directly deposited by the said Sri Neel Sundar Tharad on 10.11.2016 in the assessee's bank account, and therefore, they acted prudently for legitimate profit on the (ill)advice of their Chartered Accountant.

This claim of the assessee has two components. The first component is that their acceptance of proposal for cash advance against sale of gold was, 10

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

entered in their books on the night of 08.11.2016 itself, (and not after 09.11.2016 against the intention of demonetization announcement): This claim of the assessee has two pronged flaws. As per assessee's own' ad- Mission, the list of 2153 customers was provided by Sri Neel Sundar Tharad and accordingly they entered the advance cash receipts in their books against 2153 customers. Having accepted (even other-wise proved later by the Investigation Wing that the list of customers is a fabricated one) that the list is a bogus one,, the assessee cannot 'Claim that cash advances were entered in their books on the night of-08.11.29164sell and only physical cash was directly deposited by the purported lone customer on 10.11.2016. 'The second flaw is also factual and was proved by the CFSL report that no entries whatsoever were made in the systems impounded from the business premises of the assessee on 08.11.2016. A separate discussion on this-issue of entry of cash advances is made in the ensuing paras (3.5.5).

Now coming to the second component of this claim, that the cash was directly deposited in their bank account by Sri Tharad on 10.11.2016 and therefore the same does not belong to them. It is against this claim of Director, Sri Nitin Gupta, the other Director of M/s MGJPL, Sri Mallesh in his statement recorded u/s 131 (pl. refer to para 2.6 above) averred that he got a call from Sri Nitin Gupta to rush to the bank on 10.11.2016 and oversee the work of depositing the cash in their bank account. Even thereafter, the cash deposited in the bank account was utilized by the assessee company for purchase of bullion through RTGS transfer.

All these enquiries by the Investigation Wing and, the CFSL findings prove, that the assessee had made entries of cash advances of Rs.40.11 crores in their books of account well after 08.11.2016 and also collected cash after 08.11.2016 in demonetized notes (SBNs) directly or indirectly against the prevailing norms after demonetization and deposited the cash in their bank account. These findings give rise to a piquant situation, not from the angle of Income-Tax Act, but from the angle of prevailing norms after demonetization on 08.11.2016 and also from other Allied Acts. The allied Acts which come in to picture in this context are the Indian Sale of Goods Act 1930, the Indian Contracts Act 1872, and the Reserve Bank of India Act 1934. The sale of goods was earlier dealt under the Indian Contracts Act itself, but, for the sake of convenience, it was separated, and Sale of goods Act was brought about. The relevant provisions are as under:

Section 4 of the Sale of Goods Act :

4.Sale and agreement to sell.— 11

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

(1)A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another. (emphasis supplied) (2)A contract of sale may be absolute or conditional. (3)Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to (4)An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred Section 2 of the Sale of Goods Act : 2.Definitions.—In this Act, unless there is anything repugnant in the subject or context, (1). ....... ......... ..... (10)"price" means the money consideration for a sale of goods; .(emphasis supplied)

Section 23 of Indian Contracts Act 1872 :

Section 26 of the Reserve Bank of India Act 1934 :

(1)Subject to the provisions of sub-section (2), every bank note shall be legal tender at any place in India in payment, or on account for the amount expressed therein, and shall be guaranteed by the Central Government.

(2) On recommendation of the Central Board the Central Government may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification any series of bank notes of any 12

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

ease to be legal tender save at such office or agency of the Bank and to such extent 'as may be specified in the notification.. (emphasis supplied).

To sum up, the above provisions in relation to the discussion made above in the case of the assessee, every Sale transaction carried on by a trader is a contract of sale governed by the sale of Goods Act, 1930. As per Sec.4(1) of the said Act, the contract of sale was defined to mean 'a contract whereby the seller transfers-or agrees to transfer the property in goods to a buyer; for a price. As can be seen from the said definition, a contract' of sale requires a seller, a buyer, transfer of property in the goods, and a price. ‘Price’ was further defined under section 2(10) of the Sale of Goods Act to mean 'money consideration for a sale of-goods'. Thus, in a contract of sale, payment of price in money is an essential part. The word 'money' has not been defined under the said Act, but the most common definition of 'money' as found from dictionaries is that money means an authorized medium of exchange especially coins or paper currency issued as legal tender by a Government. Hence, in a concluded and valid contract of sale, the 'price' for which the goods have been sold to the buyer has to be understood as money in legal tender only. In India such 'legal tender' status to the paper currency is given by the Central Government in terms of the provisions of Sec.26 of the RBI Act. Under the same section, the Central Government is also empowered to withdraw the 'legal tender' status of the currency notes. Thus, the currency -notes are a mere piece of paper unless the same are recognized by the Government of India as 'legal tender' in terms of Section 26 of the RBI Act.

On the night of 08-11-201.6, the Hon'ble Prime Minister of India while addressing the Nation has announced the decision of the Central. Government to withdraw the legal tender status to the existing series of bank notes of the value of Rs.500 and Rs.1000 w.e.f. 09-11-2016.

Accordingly, a Notification in S.O.No.3407(E) dt. 08-11-2016 was also issued withdrawing the, legal tender status to the bank notes of the value of Rs.500 and Rs.1000 (referred to as specified bank notes or SBNs). However, in the said Notification a facility was granted to the holders of SBNs for the deposit of such SBNs in their account maintained with any bank on or before 30-12-2016 so that the equivalent value of SBNs will be credited to such accounts. The Government has further announced that the SBNs will continue to be legal tender during demonetization period for the limited purpose of making payments at places like petrol bunks, gas agencies, etc. Thus, except where the SBNs were deposited in a bank, or

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

exchanged for goods / services at designated places like petrol bunks etc., in all other cases such SBNs are no longer legal tender w.e.f. 09-11-2016.

Coming to the present issue on hand, as discussed in para 5.3.2, it was proved that the assessee has carried on their trading operations, made cash sales during the demonetization period, paid sales tax (VAT) wherever required, and also reported such sales to the VAT Authorities. As already discussed above, in a concluded and valid Contract of Sale, price for the goods sold shall only be the receipt of money in legal tender. Once the assessee says that he has carried out sales, even during demonetization period, it ha 'to be understood thit he has received the money not in legal tender, because from 09-11-2016 onwards, the SBNs are no longer money but a mere piece of paper as between the seller and the buyer, and do not constitute money in legal tender. Thus, a valid contract of sale during demonetization period and SBNs are mutually exclusive, and the assessee cannot be permitted to club both of them.

The issue can also be tested from another angle. Since the sale of goods is also a contract, the relevant provisions of Indian Contract Act will also apply to such sale. As per the provisions of Sec.23 of the Contract Act, every contract, of which the consideration is 'unlawful', is void. The said section also enumerates various circumstances under which the consideration of a contract is said to be 'unlawful'. Two such circumstances are, (i) the consideration of a contract is of such nature that, if permitted, it would defeat the provisions of any law, or (ii) the Court regards it as immoral or opposed to public policy. Hence, if any one says that he has received price in SBNs as a part of contract of sale, such contract itself is void and non-est in the eyes of law, because the claim of receipt of such price in SBNs as a part of contract of sale, if accepted, would defeat the provisions of Sec.26(2) of RBI Act, 1934 and the Notification in S.O.No.3407(E) dt. 08-11-2016 issued there under, through which the Central Government has withdrawn the legal tender status of SBNs from 09-11-2016 onwards.

As per the said Notification, the only way-out given to the persons holding SBNs as on 09-11-2016 to realize the equivalent value of such SBNs is to deposit the same into his bank account (please see Para 2(iii) and 2(iv) of the Notification). If the SBNs are claimed to have been dealt by the persons who held the SBNs as on 09-11-2016, in a manner other than what was prescribed in the statutory Notification, like exchanging the same with unauthorized persons other than banks, and if such a claim is accepted, it would bring the said statutory Notification, which was issued as a measure to tackle black money, to ridicule and renders nugatory. Also, since the 14

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

'public policy' behind the withdrawal of legal tender status to the SBNs from 09-11¬2016 onwards was explained by the Central Government to be a measure to tackle the black money in the economy, to lower cash circulation which is directly linked to corruption, fake currency etc., any claim of acceptance of SBNs as a part of-contract of sale is opposed to the said 'public policy' as announced by the Central Government and vitiates the whole exercise of demonetization. Hence, for these reasons, the contract of sale if it involves receipt of SBNs as price', is ab-initio void as per the provisions of Sec.23of the Contracts Act, 1872 and thus non-est in the eyes of law. Hence, such SBNs cannot be treated as having arisen out of a contract for sale.

The above discussion takes care of the additional submissions made by the assessee on 24.12.2019 that entire credits in the books are nothing but advance against sales which; were ultimately 'credited to the profit & loss account and that since the character of such sale has already been offered to tax, the question of treating the said credits as unexplained u/s 68 of the Interne Tax Act, 1961 does not arise at all.

In the case on hand, the assessee is claiming that the cash deposits made on 10.11.2016 by others directly in their bank account do not belong to them. Acceptance of this version as such does not help the case of the assessee in view of the discussion made as above on SBNs and other allied Acts. The assessee after receipt of cash deposits purportedly made by others in their bank account on 1-01172-CYI acted on such deposits and made bullion trading. As this trading is not recognized. in the eyes of law, the transaction of sale is ab-initio void. Once the trading transaction carried on by the assessee is treated is void, the immediate fall on the credits in the books of assessee with regard to such void transaction carried out against public policy are to be treated as not relating toles but as mere credits unexplained.

3.5.3 In para 11 of their submissions, the assessee claims that from 09.12.2016 onwards; the assessee has been trying to approach the Income Tax Department to give his factual statement/retract/make,, corrections to his earlier statements recorded on 01st and 7th December, 2016, since those statements are given under undue influence, mental pressure and ill health condition. However, such averments are far from true as discussed in pare 3.5.1. In this connection, reference to the confessional statement of Sri Nitin- Gupta made before CCS, Hyderabad on 17.01.2017 is in place.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

“Further. I would like to inform that all three firms, (i) Musaddilal Gems & Jewels Pvt. Ltd., (2) Vaishnavi Bullion (P) Ltd., and (3) Musaddilal Jewellers Pvt Ltd, are independent of each other doing business separately.

On 08.11.2016 at around 7 PM I was at my office of M/s Musaddilal Gems & Jewels (Pvt) Ltd and M/s Vaishnavi Bullion (Pvt) Ltd, during that time some people called me for purchase of gold& then I have informed them to come to my office and they said that they want to purchase gold from me at that time. I did not have much stock of gold due to which I told that customers to place order by giving advance amount, accordingly those people have place booking by paying the amount and giving the names on which they wanted me to. raise the advance cash receipts. The advance cash receipts were prepared as per the list of names given by them by accepting advance amount. I have received nearly about 40 Crores for Mr Neel Sunder Tharad who is owner of M/s Astha Laxmi Gold and nearly 35- 37 Crores from Mr Pavan Agarwal who is the owner of M/s Balaji Gold, nearly 3-3.5 crores received from Tarun Jain who is a private Individual; nearly about 1.5-2 crores received from Mr Manish Gupta who is owner of Musaddilal & Sons Jewellers, Basheer Bagh, Hyderabad, nearly about 6-7 crores from Mr Sanjay Sarda who is partner of M/s Sanjay & Sunil Associates situated at Secunderabad & some amount received from other customers the names of the customers I don't remember. I have done the above transactions purely as a business transaction and without any intention of any illegal gain from this transaction since my both firms were having Secured and un-secured loans. I thought by doing these legal business transactions I will earn some profit and clear my loans. I requested the customers who have deposited the cash with me on 8-11- 2016 to help me to assist us in depositing the cash in bank by carrying their own cash from our office to our respective banks. Accordingly they came to my office and helped me for depositing the cash in my bank from 10-11- 2016 onwards since 9-11-2016 was bank holiday.

As per the order received from the customers, we have placed the order of gold to various bullion dealers eg:- M/s Asthalaxmi Gold, M/s Sri Balaji Gold, M/s S.K.Impex, M/s Nav-Durga Bullion Co-op.

We transferred all the amount to the bullion dealer by way of RTGS and cheques. Subsequently we have received the gold on various days and accordingly we have given the delivery of gold to the customers by raising the sales invoices against the oath receipts generated. Further, I would like to inform that the total business transactions has been reflected in our books of accounts and we have shown the profit earned and paid the 16

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

necessary advance tax to the Income tax department and VAT, the Commercial tax department. All the amount collected during the business transaction has been deposited in bank transferred to the necessary bullion dealers for purchase of gold and from the remaining amount the secured loan of about 1 crore of SBI and un-secured loans of about 3 crores have been paid and the necessary taxes of income tax department and commercial tax department has already been paid. …………

Therefore I have lastly decided that 'to give my confessional statement in writing and submit at your office and your good-self.

From the above it can be seen that' thought the assessee is claiming that the statements given u/s 131,before the Income Tax authorities on 1st /2nd & 7th December, 2017 are under influence of others, he continued to stick to his version of accepting cash advances 'from customers on 08th December, 2016 (though the number of customers are not specifically mentioned), asked them to assist in depositing the cash into their bank account from their office, etc. Against this confessional statement given on 17.01.2017 before the CCS, Hyderabad the assessee claims that he had decided to retract from the statements given on 1st December 2017 before the IT authorities and make corrections to his earlier statements.

3.5.4 Date of Entry of cash advance receipts in computers and CFSL findings

On the date of survey, as brought out earlier, a statement u/s 131 was recorded from the Director of the assessee-company, Sri Nitin Gupta on 01st / 2nd December, 2016. Of the many issues covered in this statement, the date of entry of cash advance receipts by the assessee in the systems is one of the issue. The relevant questions and replies of the Director on this aspect are reproduced hereunder:

Q 67. Please state in which computer system in this premises the receipt vouchers have been entered and state which employee has entered these details in the computer.

Ans. The receipt vouchers for both these companies were entered in the five computers installed in this premises. I don't remember the name of the employee who entered the details in the tally accounting package installed in these computers.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

The-same version was reiterated by the assessee in a recent statement recorded u/s 131 on 20.11.2019, the relevant portion of which is as under:

"20. To SLIM up, you are confirming that you have received cash advances of Rs.57,75,35,000/- from six customers (against 3100 customers stated in the statement recorded on 01.12.2016) ion the case of MGJPL on 08.11.2016 after 09.00 PM, entered the cash advances in your books on the same day, generated cash receipts on the same day from the systems available in your premises in tally software and issued to all the customers.

Likewise, in the case of M/s VBPL, you have received Rs. 40,11,50,000/- as cash advances from one customer (2100 customers earlier) and followed the Ohm piticedure.as was done in the case of M/s MGJPL?

Ans. Yes. I confirm that in M/s MGJPL, I have received approximately Rs.57 crores from sis customers and Rs.40 crores from one customer in M/s VBPL. Entered the details of cash advances bifurcating all below Rs.2 lakhs in the names of various persons (as provided by six and one customer respectively), started generating cash deposits on 8th No. 2016 to 09th Nov.2016 from the systems available in our premises in Tally software and handed over the receipts to the respective seven customers".

Against this admission, when the findings of CFSL were put before him, the Director the assessee company gave a vague and evasive reply with respect to entry of cash receipt vouchers in the systems. The respective questions and replies are reproduced hereunder:

" 21. As you are aware, as per page -3 of the impounding order, the five systems available (one Compaq CPU — SG 34401L, one assembled PU — Intex, One Lenovo CPU S.No.L9CH015, One Lenovo CPU S.No.L9C3LC60 (belonging to MGJPL) and Lenovo CPU S.No.ES097220256 (belonging to M/s VBPL) in your premises on the date of survey in which you have claimed to have entered the cash advances were impounded by the Department vide impounding order u/s 133A(3)(la) on 02.12.2016. Please confirm.

Ans I exactly do not remember the number and models of the systems. However, certain systems were impounded from our premises when the survey was conducted as per the above impounding order.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

CFSL, dated 01.05.2017, starting from pages 1 to 9 along with covering letter dated 01.05.2017. Please offer your comments?

Ans. From the said report, I have understood that the timings of operation of our systems, which were impounded from our premises, four systems were not operated on 08.11:2016 and one system was operated and closed at 18:45:34 on 08.1.1.2016. In this regard, I would submit that the office of the above said two companies is in the B-Block of the compound. Our residence is in the A-Block of the compound. As you know, today is computer is necessity of life to us and to our children and we are having Systems even in our residence and during that time, lot of shuffling of systems had happened. I may not be aware of the timing of opening and closing of a system.

Ans. I am not a technical expert in operating computer systems. Whatever Was conveyed to me by my staff, I in turn conveyed to the IT authorities on the date of survey. I cannot comment too much on the technicalities involved in computer systems.

Ans. On the inputs given by my staff, I stated <that all -the cash receipts generated on 08th Nov.2016 were in the systems available in the premises on the date of survey, i.e., 01.12.2016. I cannot actually differentiate computers on my own.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

Please offer your comments.

Ans. I do not exactly remember on which computer the cash receipts were entered. However, what was suggested to me by my staff, the same thing was conveyed in reply to question No.67 above.

As could be seen from the above, all the way from 01.12.2016, i.e., the date of survey to 20.11.2019 the assessee is consistently claiming that cash receipt vouchers were entered in Tally software in the systems available in their business premises on 08.11.2016 itself, and when this claim was countered with clinching and scientific evidence (CFSL report), the assessee suddenly gives evasive and vague replies that some other systems are available at his residence, without any basis.

3.5.5 Reliance on Provisions of 68 of the IT Act:

Finally, the reliance placed by the assessee is on the provisions of section 68 and judicial precedents available in the form of case laws. Referring to the tests applicable for treating a credit u/s 68 as unexplained, The assessee submits that the identity, creditworthiness and genuineness of the transaction of receiving cash from lone customer was proved and therefore the cash credits =in their books cannot be treated as unexplained: .Further, the assessee claims that .proper enquiries should be made by the Department in respect of Sri Neel Sundar Tharad, who purportedly gave cash advance to them; Sri Tharad should be cross-examined before arriving at any conclusion against them; and once they discharged their onus by furnishing necessary evidence against Sri Tharad obviously in the form of confessional statements made before CCS / ED, no addition can be made in their case u/s 68.

The submissions of the assessee and other case laws relied upon can be considered as such, once it is initially proved that the assessee had discharged their onus of proving the three tests applicable for not invoking the provisions of section 68— genuineness of the transaction, identity of the creditor and their creditworthiness. In this context, it is the claim of the assessee that they have given the identity of the creditor by furnishing their address, their creditworthiness / credentials in the field of bullion trading 20

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

are verifiable and the transaction of receiving cash from them as advance towards sale of gold is genuine.

However, it is also equally the case of the said Sri Tharad that he traded in bullion with the assessee on receipt of RTGS and no further. In this context, it is seen that on one hand, the assessee company submits to accept the averments made by their Directors, who constantly went on changing their versions from time to time before various investigating agencies to suit their convenience and feigned to ignorance on occasions when clinching evidences and circumstantial evidences were put beforethem-173inst the submissions made; and on the other hand claims that Sri Tharad confessed before CCS and ED owning up the money in question and therefore, their responsibility of proving the genuineness of the transaction is discharged.

In this process; the assessee company resorted to (i) forgery of documents by furnishing false information in respect of 12 identified customers, (ii) falsification of their accounts by claiming that they entered all the cash receipts in their cash on the night of 08th November, 2016, which was proved otherwise. At the same time, the assessee company accepts that their Directors succumbed to the inducement of other persons and accepted the proposal of cash advances on the ill-advice of their Consultant, the list of customers against whose names the cash receipts were to be generated was to be provided by the alleged lone person, they accepted all the unaccounted cash from Sri Tharad for the purpose of handsome commission offered in the process, etc. Once an entry of credit is made in the books of account, the assessee cannot throw the burden of proof, of proving the sources of such credit on the Assessing Officer or on some other person, referring to some distant statements, and ask for further verification and to conduct enquiries. In this context, the provisions of section 292C are clear and cast the onus of proving the genuineness or otherwise of the books on the assessee only. The provisions of the section read as under :

“Where any books 'of account,- other: documents, money .... is found in the possession or control of any person in the course of survey u/s 133A, it may, in any proceedings under this Act, be presumed — …. (it) that the contents of such books of account and other documents are true.

To apply any case law rendered by Hon’ble Courts to any one's particular case, it is of common knowledge, that the facts in the case relied upon should be identical to the facts of their particular case. Mere reliance on the case laws is of no help. Once the primary burden of proving the genuineness 21

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

of a credit transaction in the books of account of an assessee is not proved and is shrouded by many conjunctions / juxtapositions and surmises / assumptions, the other two conditions though considered as proved should, not come to the rescue of the assessee in treating the said credit as explained. In this connection, the following case laws, which underline that the three ingredients of section 68 should be satisfied together and further cast the initial burden of proving the credits in their books on the assessee are relied upon:

The Apex Court in the landmark case of Kalekhan Mohd Haneef Vs CIT (1963) 50 ITR 01 (SC) and Roshan Di Hatti Vs CIT (1977) (107 ITR (SC) laid down that the onus of proving the source of sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction and creditworthiness, then the AO must conduct an enquiry, and call for more details before invoking sec.68 of the Act. If the assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the revenue to hold that it is the income of the assessee, and there would no further burden on the revenue to show that the income is from any particular source.

With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence that the investment made in the share capital (or any cash credit u/s 68) are genuine borrowings, since the facts are exclusively within the assessee's knowledge".

Similarly in the case of CIT Vs Mohankala (291 ITR 278) (SC), the Apex Court held that:

"A bare reading of the sec.68 of the Income Tax Act, 1961 suggests that (i) there has to be credit of amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during the Previous year, and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer is not satisfactory. It is only then the sum so credited may be' charged to income tax as the income of the assessee of that previous year. The expression "the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in, the books maintained by the assessee. The burden is on the assessee'.-to take the plea that, even if the explanation is not acceptable, the material and attending

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

circumstances available on record do not justify the sum found credited in the books being treated as receipt of income nature."

Further, in the case of CIT Vs C.P. Adam (1976) (105 ITR 465) (Ker.) while dealing with the issue of addition u/s 68, it was held that:

"It is well established that the onus of proving the source of any money received by the assessee is upon him. If liability to pay tax is disputed, it is the responsibility of the assessee to show that the receipt was either not income or income exempted from payment of tax. As pointed out by the Supreme Court in Commissioner of Income Tax Vs Devi Prasad Vishwanath Prasad, (1969) (72 I7R 194), 197(SC):

"Where there is an unexplained cash credit, it is open to the Income Tax Officer to hold that it is the income of the assessee and no further burden lies on the Income Tax Officer to show that income is from any particular source.

“4. What is Stake – Loss to the Exchequer :

Before concluding the assessment, it is pertinent to refer to the quantum of stake involved in the whole exercise carried out by the assessee in bringing cash advances into their books on 08.11.2016. The undoubted fact involved in this whole exercise of the assessee is bringing in unaccounted cash in the form cash advances into their books of account, whether such cash belongs to the assessee or to others. By bringing in, such unaccounted money into books the assessee tried to give the transaction a colour of trading in gold, and caused loss to the exchequer to the extent of taxes on such unaccounted cash.

To sum up, though the assessee made out two versions of sources for the credit of Rs.40.11 crores in their books of account on 08.11.2016, one as received from 2153 persons and the other as received from single person, the assessee failed miserably to prove that the same belong to either the said 2153 persons or one person with cogent evidences. The assessee has indulged in mis-representation/suppression of facts. Therefore, for the reasons discussed above and particularly in para 3.5.1 to 3.5.5 & 4,111e - credits appearing in the books of account of the assessee in the form of cash advances against gold sales on 08.11.2016 aggregating to Rs. 40,11,50,000/- are treated as unexplained credits in the hands of the 23

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

assessee u/s 68 and assessed-as such, @ 60% tax irate as prescribed under provisions of section 115BBE of the IT Act.”

In view of the detailed discussion above and the provisions of section 270A(9), I am satisfied that the assessee has indulged in under-reporting of income in consequence of mis-reporting of income, and accordingly, Penalty proceedings u/s 270A are initiated for mis-reporting of income u/s 270A(9).”

“5.1) On receipt of credible information that the appellant received cash of Rs.40,11,50,000/-on 08.11.2016 and deposited cash of 39.64 crores in Axis Bank Jubilee Hills Branch in A/c No.916020066093266 which was opened on 10.11.2016 and also deposited an amount of Rs.SO lakhs in Bank of Baroda, PBB Branch, Road No.10, Banjara Hills, Hyderabad, during the period of Demonetization in November, 2016, between the period 10.11.2016 to 30.11.2016, the Investigation Wing of Hyderabad carried out Survey operation u/s 133A of the Act in the business premises of the appellant on 01.12.2016. On verification of books of account as on the date of survey it was seen that there was no opening cash balance as on 01.04.2016 and the cash balance as on 07.11.2016 was Rs.5,73,481/-.

5.2) When enquired about the deposits of Rs.40.11 crores, Sri Nitin Gupta Director of the appellant company in course of sworn deposition recorded u/s 131 on the date of survey i.e. 01.12.2016, stated as under:

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

When questioned about the details of such 2153 customers who gave advances on 08.11.2016, the appellant furnished names and addresses of 65 customers. On verification it was found that the customers were from faraway places like Mumbai, Vizag, Krishna District, Trivandrum and Odisha. When enquired in about 12 customers, it had come to light that none of them out of these 12 customers visited the business premises of the appellant and that no such cash advances were given by them for purchase of gold/bullion on 08.11.2016.

5.3) Sri Gupta also claimed that around 2153 customers attended their office in the night of 08.11.2016 after announcement of demonetization and gave advances ranging from Rs.1,89,000/- to 1,72,000/- and that they entered these advances in their systems and generated receipts to all the 2153 customers and this work continued till midnight. When questioned as to how he handled 2153 customers by way of collecting cash on one side, generating receipts and discussing the weightage etc.. Sri Nitin Gupta said that he managed the things with the help of another Director of Musaddilai Gems & Jewels Pvt Ltd, Sri Mallesh and cashier Sri Jeelan Basha. In course of survey, it was found that another sister-concern M/s Musaddilal Gems and Jewels Pvt Ltd also carried business from the same premises and the above findings were Quite similar and since the assessee is making seemingly incomprehensible and dubious claims with regard to the receipt of advances, fabricated KYC forms/declarations, a police complaint was lodged with the Jubilee Hills police Station. Accordingly, an FJR was registered vide No.7552016, dated 07.12.2016 against the Directors of the assessee company. Based on the above F1R registered with Jubilee Hills, Hyderabad, 1nvestigations were carried out further by the police Department and an F1R was registered by the central Crime Station with No.263/2016.

5.4) 1nformation was also gathered in the case of the assessee and others and the same was shared with Enforcement Directorate and the ED registered a case under PMLA-2000 against the assessee and others. 25

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

Further, the computers/CPUs and other hard disks impounded during the course of survey wherein the assessee claimed to have entered the cash receipts for over 2153 customers on the night of 08.11. 2016 were forwarded to central Forensic Scientific Laboratory (CFSL) for analysis by the Investigation Wing.

5.5) Pending 1nvestigation by various agencies, the assessee field an application under Pradhan Mantri Garib Kalyan Yojana 2016 on 30.12.2016 offering Rs. 40.00 crores under the said scheme stating that the above deposit of Rs40.00 crores as their income earned between 10.11.2016 to 18.11.2016 and accordingly filed an affidavit on 30.12.2016 and paid Rs.1 crore on 13.01.2017. However, the appellant filed another later dated 16.01.2017 retracting from the above affidavit which is reproduced, as under:

..... By our affidavit, we have informed you that we are going to get covered under the "Prime Minister Garib Kalyan Yojana [PMGKY] since we were given strong assurance that such a course of action will protect us from criminal prosecution and PMLA enquiry investigation

Sincerely believing the same, we have submitted that the affidavit to get covered under the scheme and in that context we have started that the money belong to us.

Even after nearly one month, we are subjected to enquiry and interrogation by the police and Enforcement Department authorities.

We have disclosed the benefit in our books of accounts and we have paid the self assessment tax thereon.

It is only under pressure and misrepresentation by police / ED / IT we have submitted to get covered under the scheme.

All our directors are under threat of arrest and their petition for Anticipatory Bail are pending.

Hence, we hereby withdraw our affidavit dated 30.12.2016 and hence our request for getting covered under the scheme is hereby withdrawn / rescinded"

5.6. Against the police FIR, the appellant along with other companies approached the Hon'ble High Court of Telangana seeking anticipatory ball 26

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

in relation to Crime No.263/2016. The Hon'ble High court vide their common order in CRLP Nos.124, 125, 132, 155 and 157 of 2017, dated 30.01.2017 dismissed tile anticipatory bail. Subsequently, the appellant was arrested on 31.01.2017 along with Sri Kailash Chand gupta father of Sri Nikhil Gupta, brother of the appellant. …………………..

“7.3 Coming to the amounts mobilized by Sri Neel Sunder Tharad, Proprietor of M/s Ashtalakshmi Jewellers, he had in fact confessed in his statement dated 21.01.2017 before the ACP that he mobilized Rs.28 crores from the following persons. Amount in INR SI. Name of the party from whom amounts mobilized No. by Neel Sunder Tharad 1 P. Satyanarayana & Sons, Rep by Prakash Agarwal, • 2,50,00,000.

2 PSS Jewellers, Old City, Rep. by Jithin Agarwal 2,25,00,000 3 Tibarumal Jewelers, Jubilee Hills, Rep. by 2,25,00,000 Praveen Agarwal, 4 Sri Kalpatharu Jewelers, Pot Market, Rep. 2,25,00,000 by Himanshu Bapna, 5 Premraj Shantilal Jewelers, Pot Market, Rep. 1,50,00,000 by Ashok Kumar Jain, 6 Saibaba Jewelers, Pot Market, Sec'bad, rep 1,50,00,000 by Susheel Jain @ Ramu Jain 7 Ashoka Jewelers, Ameerpet, Rep. by Amit 1,75,00,000 Kumar Jain, 8 Kamya Jewelers, Ameerpet, Rep. by Arun 1,50,00,000 Kumar Jain, 9 Venus Jewelers, Chikkadpally, Rep. T. 1,00,00,000 Ram Praveen, 10 Tirumala Jewelers, Abids, Hyderabad, Rep. 1,00,00;000 Amit Agarwal, 11 Balaji Jewelers, Abids, Hyderabad 2,00,00,000 12 A.P.Furnitures, Nampally, Hyderabad 3,00,00,000 13 Own Funds of Neel Sunder Tharad 5,50,00,000 28,00,00,000 12,00,00,000 Others (Names not provided by Neel Sunder) . Total 40,00,00,000

In the same statement i.e. 21.01.2017 Sri Neel Sunder has admitted that balance amount of Rs.12 crores was contributed by Sri Nitin Gupta. This gives credence because as could be seen from the above table, when Sri Neel Sunder can recognize Rs.28 crores, how could he forget the names who have contributed Rs.12 crores, as mentioned in the above table? This clearly 27

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

goes to show that the appellant himself has mobilized Rs.12 crores and that is the reason Sri Neel Sunder has not mentioned the names who contributed Rs.12 crores.

7.4) Further, in his confessional statement recorded by the Assistant Director, Enforcement Directorate on 26.12.2016, Sri Neel Sunder in page 2 of his statement confirmed that Sri Nitin Gupta has transferred an amount of Rs.28.37 crores to M/s Ashtalakshmi Gold from 11.11.2016 to 19.11.2016.

Transfers to the account of M/s Ashtalakshmi Gold as appearing the Bank Statement of Vaishnavi Bullion Pvt Ltd with AXIS Bank Account No:916020066093266 Date Cheque No Amount 11-11-2016 140852 4,72,95,000 11-11-2016 140851 4,73,40,000 12-11-2016 140855 6,15,60,000 12-11-2016 140853 3,15,30,000 15-11-2016 140860 1,54,25,000 17-11-2016 140862 3,00,00,000 140866 18-11-2016 3,09,70,000 18-11-2016 140865 1,54,25,000 19-11-2016 140867 42,25,000 TOTAL 28,37,70,000

“7.5 On consideration of the explanation of the appellant, material placed before me and the assessment order, the following points emerge:

(a) The appellant gave a statement on 01.12.2016 during the course of survey that the amount to the extent of Rs.40,14,98,000/-crores was received from 2153 customers.

(b) The appellant filed application under PMGKY Scheme on 30.12.2016 along with affidavit disclosing Rs:40.00 crores as his income and paid Rs.1 crore on 13.01.2017.

(c) Subsequently, the affidavit under PMGKY was withdrawn on 16.01.2017.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

(d) appellant filed explanation as to sources of cash on 01.11.2017 retracting from the earlier statement.

(e) The above sequence of events clearly show that the appellant has not been truthful and inconsistent with his statements and conduct during the survey and also during the assessment proceedings. Accordingly, much reliance cannot be placed on the same. (f) In view of the above, the conclusion have to be drawn from the material available on record and also the corroborative material on record / gathered during the course of search.

(g) The statements given by Sri Neel Sunder before the Police Authorities arid ED have not been contradicted by the AO. The Assessing Officer simply ignored the same.

(h) The AO has not conducted any enquiry with the parties whose details have been given by Sri.Neel Sunder.

(i) The facts relating to the Authorization given by the appellant to Sri Neel Sunder and his concerns to deposit the amount in the bank account of the appellant were not examined nor contradicted.

(j) The deposits of cash in the appellant's bank account by third parties as authorized under RBI guidelines has not been disputed/contradicted by the AO.

(k) The Assessing Officer simply ignored the material produced by him by the appellant and made his own conclusions contrary to claims of the appellant without bringing any material on record basing mainly on probabilities 'and earlier statements of Sri Nitin Gupta, Managing Director of the appellant company which were already retracted.

(l) In view of the factual position as brought out above, it is held that deposits in the bank account to the extent of Rs.28.37 crores, as received from Sri Neel Sunder stands explained and the addition to this extent is deleted.”

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

ld.CIT(A) has granted part relief to the assessee, against which the Revenue is now before us.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

admitted by the assessee that the assessee owned the entire amount of Rs. 40 crores.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

events between 27.10.2016 to 09.11.2016 had occurred (Page 142 of the paper book.). The CFSL Report further shows that the system was shut down on 08.11.2016 at 18:45:34 and it was again logged on 09.11.2016 at 09:20:32. Thus, it was clear that no receipts were issued by the assessee either on 08.11.2016 or on 09.11.2016. The above said information was confronted to the assessee during the assessment proceedings by Assessing Officer, however, the assessee had tried to shift his liability to Mr. Neel Sunder during the course of assessment. The AO after examining the record had concluded that undoubtedly, 2153 customers, who paid the advances were duly reflected in the books of the assessee as on 08.11.2016 which fact has not been disputed by the assessee. It was also not disputed that the amount of Rs. 40 crores were deposited in the bank account of the assessee. It was the contention of the ld. DR that merely because the money was deposited with the help of wife of Neel Sunder or by Neel Sunder, the assessee was not discharged from proving the entries under section 68 of the Act. Further, it was the contention of the ld. DR that the assessee had utilized the said amount of Rs. 40 crores for purchasing the Gold from Ashtalaxmi Gold and Impex Gold. It was submitted that the reliance of the ld.CIT(A) on the statement of Mr. Neel Sunder recorded by the police during the course of investigation cannot override the admission made by the assessee during the course of survey, which is further supported by the assessee’s own books of accounts and / or will nor relieve the assessee from the onus casted on it u/s 68 of the Act. It was further submitted by the ld. DR that the revenue had also recorded the 32

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

statement of Neel Sunder on 07.12.2016 whereby said Neel Sunder had confirmed the original statement of the M.D. of the assessee. It was submitted by the ld.DR that the statement recorded by the police u/s. 161 Cr.P.C can not be used for any other purpose except to confront the witness during the course of trial u/s 162 Cr.P.C. However, the confession statement recorded by the police u/s 26 of the Evidence Act while Mr. Neel Sunder was in police custody has no binding effect in the eyes of law. The ld.DR had submitted that there is an admission of liability by the assessee and further, there is no retraction of the statement recorded on 01.12.2016 / 07.12.2016 in the eyes of law. It was also submitted that the assessee, for the first time on 01.11.2017 had submitted a letter along with the confessional statements of Mr. Nitin Gupta, Pavan Agarwal and Mr. Neel Sunder in the office of the Assessing Officer. However, he had not disclosed who had delivered the said letter in the office of the Assessing Officer.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

said Neel Sunder for an amount of Rs.28 crores. Vide our separate order, we have disposed of the application filed by Mr. Neel Sunder for impleading him as a party to the present proceedings.

8.1) However, Sri Neel Sunder had submitted before the Police on 21.01.2017 that only Rs.28.37 crores was contributed by him and the balance amount of Rs.11.63 crores was contributed by Nitin Gupta himself. The basis for Neel Sunder's statement was that Sri Vaishnavi Bullion has carried out RTGS transfers of Rs.28.37 crores to its concern Ashtalakshmi Gold, wherein, he is a partner. After receipt of the amount through RTGS, it placed orders for gold bullion from the following parties:

1) DP Gold Pvt. Ltd. 2) SK Impex 3) Capsgold Pvt Ltd 4) SMC Comtrade Ltd 5) Bhagyalaxmi Gems & Jewellers Ltd 6) Sri Durga Jewellers

It was submitted by Sri Neel Sunder that SK Impex and SMC Comtrade Ltd delivered the gold through M/s Brinks Arya Agency and that he personally visited the remaining firms, collected gold and handed over major part of the gold. to Nitin Gupta and the remaining gold to Sri Seeram

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

Mallesh and other persons, as instructed by Nitin Gupta. The same fact was also proved by way of ledger account balances in the books of the appellant.

8.2. On the other hand, Nitin Gupta in his confessional Statement dated 20.12.2017 argued that that it had no role in procuring the gold from the above concerns by Sri Neel Sunder. Moreover, Sri Nitin Gupta 'had denied of receiving back the gold bullion from Neel Sunder for handing over the same to any of the customers. The appellant submitted that it had placed orders amounting to Rs.6,21,40,000/- from SK Impex and on receipt of the gold, the same was handed' over to Neel Sunder. Thus, both the parties are at loggerheads in accepting the total deposit of Rs.40 crores so also the delivery of gold to each other. The appellant further submitted that in the process of deposits in entire transactions, there are corroborative evidences to show that the amounts were brought to the bank by the concerned parties and the employees of the Appellant assisted them in depositing into the account. In view of the above, the circumstantial evidence forms the basis to arrive at the conclusion about the contribution of the above parties.

9.0 I have gone through the facts of. the case and the submissions of the appellant, along with the paper book submissions submitted in course of appellate proceedings. I have also gone through the confessional statements given by the appellant before various investigative agencies and after considering the same, the issue is decided as under :

(a) The appellant's claim regarding mobilization of amount other than Sri Neel Sunder is not backed by any evidence. No evidence is produced by the appellant to support its claim.

(b) No confirmation from any of the parties is field by the appellant. The onus in respect of the claim is clearly on the appellant, which has not been discharged.

(c) Mere claims not backed by any evidence has no value in the eyes of law.

(d) The statement of Sri Neel Sunder is clear that balance money is given to him by the appellant for depositing in the bank account.

In view of the factual and legal position as above, the addition to the extent of Rs.11.63 crores in the hands of the appellant is confirmed. The grounds raised are disposed off with above direction.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

10.0) The appellant raised contention against the application of provisions of Section 68 for making addition by the AO. The appellant contends that the AO without satisfying the requirements of Section 68, made the addition. The appellant contends that the explanation as to source of cash deposits given by the appellant was not even considered by the AO before making the addition. The appellant's detailed contentions in this regard are as under: …………

“10.1. I have considered the assessment order, submissions of the appellant and the material placed before me. The contention of the appellant is that the explanation as to sources for cash deposits in the bank account submitted vide letter dated 01.11.2017 has not been considered by the AO. It is seen that the AO discussed at length the statement recorded from the appellant u/s 131 on 20.11.2019, wherein, the appellant was examined at length on the very same issues. The explanation of the appellant dated 01.11.2017 forms part of the replies given during the statement recorded on 20.11.2019. The explanation given is on similar lines which has been considered by the AO. The AO discussed the statement and the explanation given at length in his assessment order. In view of the above, it cannot be said that requirements of Section 68 are not met. The explanation basically containing the reliance on statements given by Neel Sunder of M/s Ashtalakshmi Jewellers before the Police Authorities, Enforcement Directorate Authorities have been dealt with in the assessment order by the AO. In view of the factual position as above, the contention of appellant that explanation is not considered by the AO is not correct and the argument is liable to be rejected. Accordingly, the ground raised is rejected.”

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

That the assessee made the statement on 01.12.2016 and 07.12.2016 thereby admitting to having deposited the amount of Rs.40 crore with the bank after having advanced from 2153 customers have retracted the statement and for the purpose of retraction, the ld. AR had drawn our attention to the letter dt.01.11.2016 addressed to the officer of the CCS and copy of which was delivered in the office of the Assessing Officer. In the said confessional statement, it was submitted that the admission was made by the Assessing Officer on 01.12.2016 and 07.12.2016 on account of pressure from these persons. It was submitted that only eight persons had given the list of customers, including Mr. Neel Sunder and Pavan Kumar, and the said persons have also acknowledged in their statements recorded before the police that they have given the amount to the assessee and they have also given the list of the persons to the assessee. It was submitted that the statement of these persons was recorded by the police as well as E.D. and therefore, the action on the part of the ld.CIT(A) was correct in deleting the addition of Rs.28 crore as the said amount does not belong to the assessee, instead, it belongs to Mr. Neel Sunder. Secondly, it was submitted by the ld. AR for the assessee that the entire sale of Rs.40 crore was disclosed in the profit and loss account of the assessee and the Revenue has accepted the profit declared by the assessee. Once the Revenue had accepted the profit, then Revenue cannot make the addition on account of advance given by these 2153 persons. It was submitted that the assessee had proved the ingredients of section 68 of the Act and 37

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

therefore, no addition can be made in the hands of the assessee. It was the contention of the assessee that the Assessing Officer was duty bound to examine Shri Neel Sunder for the purpose of coming to the conclusion whether he had deposited Rs.28 crore in the bank or not since the above said aspect has been examined by the ld.CIT(A) therefore, the action on the part of the ld.CIT(A) in deleting the addition was in accordance with the law.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

did not show presence of crowd at the premises of assessee. Even the hard disk of neighbors security cameras were removed and taken by the family members of the assessee . XI. CFSL report of computers proves, no receipt/ advance receipts were issued from 5 computers impounded on the date of survey om 8- 9/11/2016. XII. Assessee’s statement was recorded on 18/11/2019 by the Assessing Officer, wherein he had changed his earlier version and of receiving cash from one person, instead thereof , he had stated the cash was received from Neel Sunder. XIII. He had also submitted that he had given the confession statement before the police on 17/1/2017, copy of which was also delivered through the employee after 11 months. No proof of such delivery of confessional statement was provided by the assessee.

Retraction by the Director of the assessee :

... By our affidavit we have informed you that we are going to get covered under the "Prime Minister Garth Kalyan Yojana" (PMGKY),since we were given strong assurance that such a course of action will protect us from criminal prosecution and PMLA enquiry / investigation.

Sincerely, believing the same, we have submitted that the affidavit to get covered under the scheme, and in that context we have stated that the money belong to us. 39

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

Even after nearly one month, we are subjected to enquiry and interrogation by the Police and Enforcement Department authorities.

We have disclosed the benefit in our books of accounts and we have paid the self assessment tax thereon. It is only under pressure and misrepresentation by Police / ED/ IT we have submitted to get covered under the scheme.....

All our directors are under threat of arrest and their petition for Anticipatory Bail are pending. Hence we hereby withdraw our affidavit dated 30.12.2016 and hence our request for getting covered under the scheme is-hereby withdrawn / rescinded"

"Further, I would like to inform that all three firms, (i) Musaddilal Gems & Jewels Pvt. Ltd., (2) Vaishnavi Bullion (P) Ltd., and (3) Musaddilal Jewellers Pvt Ltd, are independent of each other doing business separately.

On 08.11.2016 at around 7 PM I was at my office of M/s Musaddilal Gems & Jewels (Pvt) Ltd and M/s Vaishnavi Bullion (Pvt) Ltd, during that time some people called me for purchase of gold& then I have informed them to come to my office and they said that they want to purchase gold from me at that time. I did not have much stock of gold due to which I told that customers to place order by giving advance amount, accordingly those people have place booking by paying the amount and giving the names on which they wanted me to. raise the advance cash receipts. The advance cash receipts were prepared as per the list of names given by them by accepting advance amount. I have received nearly about 40 Crores for Mr Neel Sunder Tharad who is owner of M/s Astha Laxmi Gold and nearly 35- 37 Crores from Mr Pavan Agarwal who is the owner of M/s Balaji Gold, 40

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

nearly 3-3.5 crores received from Tarun Jain who is a private Individual; nearly about 1.5-2 crores received from Mr Manish Gupta who is owner of Musaddilal & Sons Jewellers, Basheer Bagh, Hyderabad, nearly about 6-7 crores from Mr Sanjay Sarda who is partner of M/s Sanjay & Sunil Associates situated at Secunderabad & some amount received from other customers the names of the customers I don't remember.

I have done the above transactions purely as a business transaction and without any intention of any illegal gain from this transaction since my both firms were having Secured and un-secured loans. I thought by doing these legal business transactions I will earn some profit and clear my loans. I requested the customers who have deposited the cash with me on 8-11- 2016 to help me to assist us in depositing the cash in bank by carrying their own cash from our office to our respective banks. Accordingly they came to my office and helped me for depositing the cash in my bank from 10-11- 2016 onwards since 9-11-2016 was bank holiday.

As per the order received from the customers, we have placed the order of gold to various bullion dealers eg:- M/s Asthalaxmi Gold, M/s Sri Balaji Gold, M/s S.K.Impex, M/s Nav-Durga Bullion Co-op.

We transferred all the amount to the bullion dealer by way of RTGS and cheques. Subsequently we have received the gold on various days and accordingly we have given the delivery of gold to the customers by raising the sales invoices against the oath receipts generated. Further, I would like to inform that the total business transactions has been reflected in our books of accounts and we have shown the profit earned and paid the necessary advance tax to the Income tax department and VAT, the Commercial tax department. All the amount collected during the business transaction has been deposited in bank transferred to the necessary bullion dealers for purchase of gold and from the remaining amount the secured loan of about 1 crore of SBI and un-secured loans of about 3 crores have been paid and the necessary taxes of income tax department and commercial tax department has already been paid. …………

Therefore, I have lastly decided that 'to give my confessional statement in writing and submit at your office and your good self.”

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

“4. I am showing you the statements given by you and recorded u/s 131 in the case of M/s Musaddilal Gems & Jewels Pvt Ltd., on 01.12.2016 (concluded on 02.12.2016) and 07.12.2016. Please go through them and offer your comments? Ans Yes. I have gone through the statements. The same are recorded as per my version and the facts stated therein are NOT true to the best of my knowledge and belief 5. Could you please explain the reason in mentioning that the facts stated therein are not true to your best of knowledge? Ans. The reason for that is that I have given the statements on 02.12.2016 and 07.12.2016 under the pressure of people who have actually given me the money, as they have given me a confirmation that they will take care of the matter, when the time comes. Further, on 09.12.2016 and various dates going forward, I have requested the Department to please give me the copy of the statements which I have given on the above dates, which were not given to me. Then, in the Police Department, ED and later on to the IT Department I have submitted my true statement, attested copy of the same shall be there on the records. If needed, I shall submit the same. 6. Could you please state in brief what was the crux of the true statement stated as above? Ans. The money after demonetization announcement was received from seven people, namely Mr.Pavan Agarwal from M/s Balaji Gold, Mr Neel Sunder Tharid of M/s Asta Lakshmi Gold, Mr. Sanjay Sarda private individual, Mr. Tharun Jain a private individual, Mr. Maneesh Gupta of M/s Musaddilal & Sons Jewellers, Basheerbagh, Mr. Prakash Agarwal of M/s P. Satyanarayana Jewellers and Mr. Aditya Sarogi a private individual. 15. What prevented you from stating the above version on the dates of giving statement to IT authorities, i.e., on the date of survey, i.e., 01.12.2016 and 07.12.2016 ? Ans : The pressure from the above seven people to me and my family has prevented me from giving true statement on the date of survey and before.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

Q.13 Please state what is the total amount of sales (including Quantity) made by you on 08.11.2016 and 09.11.2016 ? Ans: The total sales of gold and silver made on 08.11.2016 and 09.11.2016 is Rs.5.82 crore and the details of the same are as under :

S.No. Description of the Quantity Amount metal (Rs. In crores) 1 Pure Gold 18.8 Kgs Rs.5.79 Cr 2 Silver 3 Gold Ornaments 96 grams Rs.0.03 Cr 4 Silver articles Total Rs.5.82 Cr.

Q.14 Please state what is the total amount of sales (including Quantity) made by you from 10.11.2016 to 03.12.2016 ? Ans: The total sales of gold and silver made during the period from 10.11.2016 to 03.12.2016 is Rs.47.98 Cr and the details of the same are as under :

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

S.No. Description of the Quantity Amount metal (Rs. In crores) 1 Pure Gold 152.5 Kgs Rs.46.91 Cr 2 Silver 52.3 Kgs Rs.0.22 Cr. 3 Gold Ornaments 2.93 Kgs Rs.0.85 Cr 4 Silver articles Total Rs.47.98 Cr.

Q.15 Please state what is the total amount of sales made by you to M/s. Vaishnavi Bullion Pvt. Ltd. during the period from 01.04.2016 to 07.11.2016 and from 08.11.2016 to till date and also produce copies of sales invoices and ledger account copy of M/s. Vaishnavi Bullion Pvt. Ltd ? Ans. During the period 01.04.2016 to 07.11.2016 no sales were made by us to M/s. Vaishnavi Bullion Pvt. Ltd during the period from 08.11.2016 to till date, the total sales made to M/s. Vaishnavi Bullion Pvt. Ltd is at Rs.28.37 Cr. (Quantity of pure gold : 91.131 Kgs). I submit herewith the ledger account of the party along with copies of sales invoices.

Q.16. Please state how did you deliver the metal to M/s. Vaishnavi Bullion Pvt. Ltd and also state the names of the persons to whom you have delivered the metal ? Ans: I delivered the metal to M/s. Vaishnavi Bullion Pvt. Ltd at the office of BRINKS VAULT, SEQUEL and M/s DP Bullion (Vendor), after taking delivery from them. On two occasions i.e. on 11.11.2016 and 15.11.2016, I delivered the metal to Sri S. Mallesh, employee of M/s. M/s. Vaishnavi Bullion Pvt. Ltd. On other dates i.e. 12.11.2016, 14.11.2016, 17.11.2016, 18.11.2016 and 22.11.2016, I delivered the metal to the employees of M/s. Vaishnavi Bullion Pvt. Ltd, but I do not remember their names at the time of delivery. I take only confirmation from Sri Nitin Gupta, Director of M/s. Vaishnavi Bullion Pvt. Ltd over phone for delivering the metal to their employees.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

had filed a Writ Petition bearing No.43777 / 2016 challenging the registration of FIR before the Hon’ble High Court. The said writ petition was disposed of on 21.12.2016 with a direction to the assessee to appear and cooperate with the police authorities. Immediately prior to the disposal of the Writ Petition, the statement of assessee Mr. Nitin Gupta was recorded by the Enforce Department on 20.12.2016. After the dismissal of the said Writ Petiton, assessee had filed an application for anticipatory bail before the Hon’ble High Court. Meanwhile, police had recorded the confession of Mr. Neel Sunder on 21.01.2017. The Hon’ble High Court had dismissed the bail application of Mr. Nitin Gupta was arrested on 31.01.2017.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

addressed by the Assessing Officer in his order. Thus, in our view, the assessee has failed to establish any plausible reason for taking a contrary stand, while giving the statement on 20.11.2019. In our view, the statement initially recorded on 01.12.2016 coupled with the statement dt. 07.12.2016 and affidavit dt.30.12.2016 clearly shows that the assessee had admitted the income of Rs.40 crore and further agreed to pay the tax on the said amount. Needless to say that the assessee in furtherance of the affidavit dt.30.12.2016 had also deposited an amount of Rs.1 crore with the Revenue in the main case of assessee and Rs 4 crore in the Musaddilal in ITA No.560/Hyd/2020.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

conclusive proof of the matters admitted, yet admissions in the absence of rebuttal may conclude an issue.

Effect of Letter dt.17.01.2017.

3.5.3 In para 11 of their submissions, the assessee claims that from 09.12.2016 onwards; the assessee has been trying to approach the Income Tax Department to give his factual statement/retract/make,, corrections to his earlier statements recorded on 01st and 7th December, 2016, since those statements are given under undue influence, mental pressure and ill health condition. However, such averments are far from true as discussed in pare 3.5.1. In this connection, reference to the confessional statement of Sri Nitin- Gupta made before CCS, Hyderabad on 17.01.2017 is in place. 49

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

“Further. I would like to inform that all three firms, (i) Musaddilal Gems & Jewels Pvt. Ltd., (2) Vaishnavi Bullion (P) Ltd., and (3) Musaddilal Jewellers Pvt Ltd, are independent of each other doing business separately.

On 08.11.2016 at around 7 PM I was at my office of M/s Musaddilal Gems & Jewels (Pvt) Ltd and M/s Vaishnavi Bullion (Pvt) Ltd, during that time some people called me for purchase of gold& then I have informed them to come to my office and they said that they want to purchase gold from me at that time. I did not have much stock of gold due to which I told that customers to place order by giving advance amount, accordingly those people have place booking by paying the amount and giving the names on which they wanted me to. raise the advance cash receipts. The advance cash receipts were prepared as per the list of names given by them by accepting advance amount. I have received nearly about 40 Crores for Mr Neel Sunder Tharad who is owner of M/s Astha Laxmi Gold and nearly 35- 37 Crores from Mr Pavan Agarwal who is the owner of M/s Balaji Gold, nearly 3-3.5 crores received from Tarun Jain who is a private Individual; nearly about 1.5-2 crores received from Mr Manish Gupta who is owner of Musaddilal & Sons Jewellers, Basheer Bagh, Hyderabad, nearly about 6-7 crores from Mr Sanjay Sarda who is partner of M/s Sanjay & Sunil Associates situated at Secunderabad & some amount received from other customers the names of the customers I don't remember.

I have done the above transactions purely as a business transaction and without any intention of any illegal gain from this transaction since my both firms were having Secured and un-secured loans. I thought by doing these legal business transactions I will earn some profit and clear my loans. I requested the customers who have deposited the cash with me on 8-11- 2016 to help me to assist us in depositing the cash in bank by carrying their own cash from our office to our respective banks. Accordingly they came to my office and helped me for depositing the cash in my bank from 10-11- 2016 onwards since 9-11-2016 was bank holiday.

As per the order received from the customers, we have placed the order of gold to various bullion dealers eg:- M/s Asthalaxmi Gold, M/s Sri Balaji Gold, M/s S.K.Impex, M/s Nav-Durga Bullion Co-op.

We transferred all the amount to the bullion dealer by way of RTGS and cheques. Subsequently we have received the gold on various days and accordingly we have given the delivery of gold to the customers by raising the sales invoices against the oath receipts generated. Further, I would like 50

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

to inform that the total business transactions has been reflected in our books of accounts and we have shown the profit earned and paid the necessary advance tax to the Income tax department and VAT, the Commercial tax department. All the amount collected during the business transaction has been deposited in bank transferred to the necessary bullion dealers for purchase of gold and from the remaining amount the secured loan of about 1 crore of SBI and un-secured loans of about 3 crores have been paid and the necessary taxes of income tax department and commercial tax department has already been paid. …………

Therefore I have lastly decided that 'to give my confessional statement in writing and submit at your office and your good-self.

From the above it can be seen that' thought the assessee is claiming that the statements given u/s 131,before the Income Tax authorities on 1st /2nd & 7th December, 2017 are under influence of others, he continued to stick to his version of accepting cash advances 'from customers on 08th December, 2016 (though the number of customers are not specifically mentioned), asked them to assist in depositing the cash into their bank account from their office, etc. Against this confessional statement given on 17.01.2017 before the CCS, Hyderabad the assessee claims that he had decided to retract from the statements given on 1st December 2017 before the IT authorities and make corrections to his earlier statements.

“4.2. However, later vide letter dated' 01-11- 2017(Annexure-7), ,Sri Nitin Gupta retracted the statement given and submitted the true facts to the Assessing Officer. The same, in brief, are as under:

f) After the demonetization was announced, the Appellant saw a business opportunity. His CA also assured him that there is nothing illegal in generating cash receipts below Rs.2 lakhs, i.e. below the threshold limit requiring KYC of the customers.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

g) The fact was Sri Neel Sunder Tharad, Proprietor of Ashtalakshmi Gold contacted the Appellant after the announcement of demonetization and put forth the idea of sale of bullion,. He is the person who provided with names for generating the cash receipts. This fact is confirmed by way of corroborative evidence in the form of the statement given by Pawan Agarwal, Managing Partner of M/s Balaji Gold Jewellers before the police authorities (Annexure-8), at para 2 of page 3 of the statement, which is reproduced as under.

"Accordingly, Mr. Nitin Gupta along with his younger brother Nikhil Seeram Mallesh with the assistance of their staff and others tasted generating fake and fabricated advance cash payment receipts on names of fictitious persons. Myself and Neel Sunder and some others al ed them by furnishing the names and details of some fictitious persons and assisted them in preparing the fake receipts. During the next 5-6 days, we have generated about 5200 such fake receipts amounting to Rs.100 cr. All the receipts were prepared for the amount less than 2 lakhs to avoid Income Tax, KYC and other future complications."

4.3 Part of the cash of Rs.40 Cr was deposited by Sri Neel Sunder Tharad and his wife Smt. Nisha Gupta, directly and part was deposited with the help of the staff of the Appellant. 'The initial statement given to the Investigation Wing was given under intense pressure from Sri Neel Sunder to protect his interests (Incidentally he is related to him as well). However, when the investigations were taken up. by the Police and Enforcement Directorate, the appellant was advised to come out clean and state the facts before the authorities. Accordingly, the MD of the Appellant furnished the facts to the AO and retracted the statements given on 01¬12-2016 and 07-12-2016, which in 'any case was not accepted by the Department as true and correct.”

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

and Pawan Agarwal cannot be considered to be retraction in the eyes of law.

i. Said letter dt.17.01.2017 was not addressed either to the assessing officer or to the Investigation wing of the revenue.

ii. No retraction was made by the assessee from the earlier statements given to Revenue.

iii. In the statement /confession given to police it was admitted that “ I have received nearly about 40 Crores for Mr Neel Sunder Tharad, who is owner of M/s Astha Laxmi Gold”.

iv. It is not the case of the assessee that he had not received Rs.40 crore in old currency notes. Assessee changed his version whereas in earlier statements and documents, it was admitted that he had received Rs.40 crore from 2153 customers, wherein in letter dt.17.01.2017, he alleged that it was given by Mr. Neel Sunder.

v. The assessee had admitted to have prepared the cash receipt advances after receiving the amount.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

vi. No reasons were assigned by the assessee to retract the earlier statements after one year from the original statements.

vii. Mr. Neel sunder was arrested by the police on 11.01.2017 and his confessional statement was also recorded by the police on 17.01.2017 without getting his statement recorded under section 164 of Cr.PC.

viii. The assessee had not filled any receipts issued by it in favour of seven persons as alleged by him in subsequent statement dated 20/11/2019.

ix. It is not the case of the assessee that at the time of recording of statement during survey, seven person including Neel sunder were present and had pressurized the assessee to admit the income/ transactions.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

dt.17.01.2017 was after thought, motivated and against earlier conduct of assessee whereby he had accepted the income of Rs.40 Crore in the earlier statements, affidavit in PMGKY – 2016 and subsequent deposit of part of tax amount of Rs. 1 crore. Further it is not the stand alone statement of the assessee admitting the income at the time of survey rather in the present case the revenue is having other incriminating evidence in the form of 2135 invoices, CFSL evidence of computers, statements of neighbour, statements of other persons denying the purchase of bullion and recovery of KYC documents of 65 customers. In light of the above, the Assessing Officer was right in rejecting the reliance placed by assessee on letter dt.17.01.2017.

Whether the ld.CIT(A) was right in deleting the addition of Rs.28 crore on the basis of statement of Mr. Neel Sunder Tharad recorded by Enforcement Directorate dt.26.12.2016 ?

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

has not made any inquiry from the parties whose details have been given by Neel Sunder. Thirdly, Mr. Neel Sunder was authorized to deposit in the bank account of the appellant was not contradicted. Fourthly, the deposit of cash by the third party in the account of the assessee has not been disputed by the Assessing Officer.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

“Q.60 Please provide the mobile number, address proof, identity proof and KYC documents of 5200 customers at the time of receipt of advance and at the point of sale.

Ans: We have collected the declarations / letters from around 65 customers, which is submitted. The KYC documents etc were not collected from the customers.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

Q.61. It is seen from the declarations / letters submitted by you that there is no mention to whom it was addressed. How do you claim that these declarations / letters were given to you. Ans: On many of the declarations, the sale invoice number is mentioned in pencil, which can be verified.”

40.1. For the purpose of Section 68 of the Act, it is the onus of the assessee to explain the entries made in the books of accounts. In the present case, assessee being a company, as per proviso to section 68, any unexplained amount credited in the books of the assessee shall be deemed to be the assessee was not satisfactory and was against the preponderance of probability and evidence on record, hence, the Assessing Officer had rightly made the assessment in the hands of assessee on the

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

basis of the credit entries made in the books of accounts which were duly supported by the deposit of SBNs in the bank account.

“Q.20 To sum up, you are confirming that you have received cash advances of Rs.57,75,35,000/- from six customers (against 3100 customers stated earlier in the statement recorded on 01.12.2016) in the case of M/s. MGJPL on 08.11.2016 after 09.00 pm, entered the cash advances in your books on the same day, generated cash receipts on the same day from the systems available in your premises in tally software and issued to all the customers.

Likewise, in the case of M/s. VBPL, you have received Rs.40,11,50,000/- as cash advances from one customer (2100 customers earlier) and followed the same procedure as was done in the case of M/s MGJPL ?

Ans : Yes. I confirm that M.s, MGJPL, I have received approximately Rs.57 crores from six customers and Rs.40 crores from the one customer in M/s VBPL entered the details of cash advances bifurcating all below Rs.2 lakhs in the name of various persons (as provided by six and one customer respectively), started generating cash receipts on 08.11.2016 to 09.11.2016 from the systems available in our premises in Tally software and handed over the receipts to the respective seven customers.”

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

the assessee had not disputed the book entries with respect to 2153 customers of rupees more than 40 Crore. Though, the assessee orally sought to explain the transaction by saying that instead of receiving cash advances from 2153 customers the said amount was provided by one Mr. Neel Sunder on 08.11.2016 and invoices were issued in the names supplied by Mr. Nitin Gupta. Thus, the assessee sought to contradict the books of accounts with the oral statement. In our view, the entries in the books of accounts maintained by the assessee during the course of his business are required to be accepted as per section 34 of the Evidence Act. For the ready reference, we are reproducing below section 34 of the Indian Evidence Act which provides as under :

“34. 1[Entries in books of account including those maintained in an electronic form] when relevant.—1[Entries in books of accounts including those maintained in an electronic form], regularly kept in the course of business, are relevant whenever they refer to a matter into which the Court has to inquire, but such statements shall not alone be sufficient evidence to charge any person with liability.”

“1)] Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 13216[or survey under section 133A], it may, in any proceeding under this Act, be presumed— (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

(ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.] 17[(2) Where any books of account, other documents or assets have been delivered to the requisitioning officer in accordance with the provisions of section 132A, then, the provisions of sub-section (1) shall apply as if such books of account, other documents or assets which had been taken into custody from the person referred to in clause (a) or clause (b) or clause (c), as the case may be, of sub-section (1) of section 132A, had been found in the possession or control of that person in the course of a search under section 132.]”

“92. Exclusion of evidence of oral agreement.—When the terms of any such contract, grant or other disposition of property, or any matter required by law to be reduced to the form of a document, have been proved according to the last section, no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument or their representatives in interest, for the purpose of contradicting, varying, adding to, or subtracting from, its terms: Proviso (1) .—Any fact may be proved which would invalidate any document, or which would entitle any person to any decree or order relating thereto; such as fraud, intimidation, illegality, want of due execution, want of capacity in any contracting party, 1[want or failure] of consideration, or mistake in fact or law: (1).—Any fact may be proved which would invalidate any document, or which would entitle any person to any decree or order relating thereto; such as fraud, intimidation, illegality, want of due execution, want of capacity in any contracting party, 3[want or failure] of consideration, or mistake in fact or law\:" Proviso (2).—The existence of any separate oral agreement as to any matter on which a document is silent, and which is not 61

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

inconsistent with its terms, may be proved. In considering whether or not this proviso applies, the Court shall have regard to the degree of formality of the document: Proviso (3).—The existence of any separate oral agreement, constituting a condition precedent to the attaching of any obligation under any such contract, grant or disposition of property, may be proved: Proviso (4).—The existence of any distinct subsequent oral agreement to rescind or modify any such contract, grant or disposition of property, may be proved, except in cases in which such contract, grant or disposition of property is by law required to be in writing, or has been registered according to the law in force for the time being as to the registration of documents: Proviso (5).—Any usage or custom by which incidents not expressly mentioned in any contract are usually annexed to contracts of that description, may be proved: Provided that the annexing of such incident would not be repugnant to, or inconsistent with, the express terms of the contract: Proviso (6).—Any fact may be proved which shows in what manner the language of a document is related to existing facts.”

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

during the course of survey, the assessee had provided the documents pertaining to 65 customers which were seized from his premises at the time of survey, however, only 12 customers were traceable and they have denied to have transacted with the assessee either on 08.11.2016 or 09.11.2016 or thereafter. No explanation had been given by the assessee with respect to providing the documents pertaining to 65 customers at the time of survey. In our view, the law is fairly settled where any books of accounts were found in possession of assessee during the course of survey / search, then such books of accounts were duly executed and maintained by the assessee. In the present case, the entries of 2153 customers were found in the books of accounts along with the corresponding invoices along with pencil remarks were found. Besides that the assessee had provided the KYC documents of 65 customers. The above said events clearly show that the assessee had failed to explain the entries in the books of accounts and no explanation was given for possessing the invoices of 2153 customers and their KYC documents.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

assessee were duly corroborated with the entries in the books of accounts and subsequent conduct of availing the PMGKY Scheme, 2016 and deposit of the initial amount, then the question of examining the said Neel Sunder after recording the statement by the police / E.D. does not arise. In fact, as mentioned hereinabove, the Revenue had also examined said Neel Sunder on 07.12.2016, who had duly supported the initial version of the assessee made on 02.12.2016. In view of the above, we are of the opinion that the ld.CIT(A) had wrongly concluded that the statement of Neel Sunder was not contradicted by the Assessing Officer. In our view, there was no occasion for contradicting the statement given by the third party before the police / E.D. for the purpose of contradicting the evidence already collected by the Revenue during the course of survey. The statement of the assessee’s director was duly corroborated by the other clinching evidence in the form of books of accounts, invoices, KYC documents, CFSL Report and therefore, no further corroboration or contradiction were required.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

“To your specific enquiries about Mr. Nitin Gupta and Nikhil Gupta, I state that they are the cousins of my wife Nisha Gupta. They are running business in the name and style of M/s. Musaddilal Jewellers Private Limited. I am doing Gold business with M/s. Musaddilal Jewellers Private Limited since May, 2016. To your enquiries about the cash deposits made by me and my wife in the bank account of M/s. Vaishnavi Bullion Private Limited at Axis Bank, Jubliee Hills, Hyderabad on 10.11.2016 onwards, I state that after the announcement of demonetization of old currency notes of Rs.500/- and Rs.1000/- by the Government of India on 08.11.2016, Mr. Nitin Gupta called me and requested to deposit cash in their company’s account as they are facing employee shortage and promised that I will be given Gold bullion business. Mr. Nitin Gupta told that he will handover authorized letter on behalf of M/s. Vaishnavi Bullion Private Limited authorizing my wife Smt. Nisha Gupta to deposit cash in their bank accounts. On 10.11.2016 Mr. Nitin Gupta called me and asked to come to his office located at Shanti Kiran, Road No.2, Banjara Hills, Hyderabad. My wife and I went there and n has given some cash and told that authority letter and some more cash will be sent directly to the bank. We took the cash and went to Axis Bank, Jubilee Hills, Hyderabad. Later, Shri Seera Mallesh of M/s. Vaishnavi Bullion Private Limited came with some more cash and authorization letter to deposit cash. Some more persons belonging to M/s. Vaishnavi Bullion Private Limited or Mr. Nitin Gupta came with cash to the bank and handed over the same to us. We have deposited the cash in the bank account of M/s. Vaishnavi Bullion Private Limited as instructed by Mr. Nitin Gupta. Either my wife or myself has made cash deposits till 17.11.2016. Of these cash deposits made by me or my wife in the bank account of M/s. Vaishnavi Bullion Private Limited, Mr. Nitin Gupta transferred an amount of Rs.28.37 crore to M/s. Ashtalakshmi Gold from 11.11.2016 to 19.11.2016. For this cash transfers, I have made a sale of 91 Kg of Gold Bullion to M/s. Vaishnavi Bullion Private Limited during 11.11.2016 to 22.11.2016.

To your specific enquiries about the delivery of Gold Bullion to M/s. Vaishnavi Bullion Private Limited, I state that Mr. Nitin Gupta, after purchase of gold bullion asked me to give the names of intended buyers of gold bullion as gold bullion is having a much demand of after demonitisation as I am involved ……………………………… for showing the buyers. Later, the persons of Mr. Nitin Gupta contacted intended buyers and sold the gold. However, the persons concerned of intended buyers along with Shri Seera Mallesh used to take delivery of gold bullion outside the premises of M/s. Brinks India Private Limited, from where I took gold 65

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

delivery. I also took gold delivery form M/s. DP Gold Private Limited and also from the premises of M/s. Sequel Logistics, Basheerbagh, Hyderabad. However, the gold is delivered to the persons of Mr. Nitin Gupta and persons concerned of intended buyers outside the premises of M/s. Brinks India Private Limited.

To your enquiries about the buyers to whom I have handed over the Gold Bullion on behalf of M/s. Vaishnavi Bullion Private Limited or Shri Nitin Gupta, I state that as required by Shri Nitin Gupta, I have given the details of intended buyers whom I know from my past business experience. Shri Nitin Gupta or his persons contacted them directly. I have not interfered with their business. I have delivered the Gold bullion to the persons who were sent by Shri Nitin Gupta through his employee Shri Seera Mallesh and others and Shri Nitin Gupta used to confirm over the phone about the delivery. To your specific enquiries about the details of intended buyers which are provided by me to Shri Nitin Gupta, I state that I remember some of the names which I have provided to Shri Nitin Gupta and they are M/s. Sree Kalpataru Jewellers Private Limited, Pot Market, Secunderabad, M/s. Tibarmal Ranivas Gems, Jewels and Pearls, Jublihills, Hyderabad, M/s. Premraj Shantilal Jain Jewelers, Pot Market, Secunderabad, M/s. Sai Baba Jewellers, Pot Market, Secunderabad, M/s. N. Nemichand Jewellers, Pot Market, Secunderabad, M/s. Kamya Vaniya Private Limited, Lal Bangla, Ameerpet.”

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

Sunder had allegedly admitted to have mobilized the funds from 12 persons. The ld.CIT(A) in para 7.3 of his order mentioned as under :

“7.3 Coming to the amounts mobilized by Sri Neel Sunder Tharad, Proprietor of M/s Ashtalakshmi Jewellers, he had in fact confessed in his statement dated 21.01.2017 before the ACP that he mobilized Rs.28 crores from the following persons.

Amount in INR SI. Name of the party from whom amounts mobilized No. by Neel Sunder Tharad 1 P. Satyanarayana & Sons, Rep by Prakash Agarwal, • 2,50,00,000.

2 PSS Jewellers, Old City, Rep. by Jithin Agarwal 2,25,00,000 3 Tibarumal Jewelers, Jubilee Hills, Rep. by 2,25,00,000 Praveen Agarwal, 4 Sri Kalpatharu Jewelers, Pot Market, Rep. 2,25,00,000 by Himanshu Bapna, 5 Premraj Shantilal Jewelers, Pot Market, Rep. 1,50,00,000 by Ashok Kumar Jain, 6 Saibaba Jewelers, Pot Market, Sec'bad, rep 1,50,00,000 by Susheel Jain @ Ramu Jain 7 Ashoka Jewelers, Ameerpet, Rep. by Amit 1,75,00,000 Kumar Jain, 8 Kamya Jewelers, Ameerpet, Rep. by Arun 1,50,00,000 Kumar Jain, 9 Venus Jewelers, Chikkadpally, Rep. T. 1,00,00,000 Ram Praveen, 10 Tirumala Jewelers, Abids, Hyderabad, Rep. 1,00,00;000 Amit Agarwal, 11 Balaji Jewelers, Abids, Hyderabad 2,00,00,000 12 A.P.Furnitures, Nampally, Hyderabad 3,00,00,000 13 Own Funds of Neel Sunder Tharad 5,50,00,000 28,00,00,000 Others (Names not provided by Neel Sunder) 12,00,00,000 . Total 40,00,00,000

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

“26. Confession by accused while in custody of police not to be proved against him.—No confession made by any person whilst he is in the custody of a police officer, unless it be made in the immediate presence of a Magistrate1, shall be proved as against such person.—No confession made by any person whilst he is in the custody of a police officer, unless it be made in the immediate presence of a Magistrate2, shall be proved as against such person." 2[Explanation.—In this section “Magistrate” does not include the head of a village discharging magisterial functions in the Presidency of Fort St. George 3[***] or elsewhere, unless such headman is a Magistrate exercising the powers of a Magistrate under the Code of Criminal Procedure, 1882 (10 of 1882)4].”

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

“Now coming to the second component of this claim, that the cash was directly deposited in their bank account by Sri Tharad on 10.11.2016 and therefore the same does not belong to them. It is against this claim of Director, Sri Nitin Gupta, the other Director of M/s MGJPL, Sri Mallesh in his statement recorded u/s 131 (pl. refer to para 2.6 above) averred that he got a call from Sri Nitin Gupta to rush to the bank on 10.11.2016 and oversee the work of depositing the cash in their bank account. Even thereafter, the cash deposited in the bank account was utilized by the assessee company for purchase of bullion through RTGS transfer. All these enquiries by the Investigation Wing and, the CFSL findings prove, that the assessee had made entries of cash advances of Rs.40.11 crores in 69

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

their books of account well after 08.11.2016 and also collected cash after 08.11.2016 in demonetized notes (SBNs) directly or indirectly against the prevailing norms after demonetization and deposited the cash in their bank account. These findings give rise to a piquant situation, not from the angle of Income-Tax Act, but from the angle of prevailing norms after demonetization on 08.11.2016 and also from other Allied Acts. The allied Acts which come in to picture in this context are the Indian Sale of Goods……………………….”

Q.18. It is observed that the cash received on 08.11.2016 is deposited into the new account which is opened on 10.11.2016 in the Axis Bank, Jubilee Hills Branch. Please state the reason why a new account was opened for depositing the cash. Ans: We were having an account in Bank of Baroda, PBB Hyderabad Branch. We have opened new account in Axis Bank, Jubilee Hills Branch as Bank of Baroda did not accept the cash deposit about Rs.40 Crores. Axis Bank also did not accept the cash deposit at once. Hence, we have made the cash deposits in a staggered manner between 10.11.2016 to 17.11.2016.

Q.19. It is observed from the statement of Axis Bank account of M/s. Vaishnavi Bullion Pvt. Ltd., there is a credit entry of Rs.1.98 Cr from M/s. Musaddilal Gems and Jewellers Pvt. Ltd on 16.11.2016 and on the same day Rs.2 Crore was transferred to M/s. Musaddilal Jewellers Pvt. Ltd. Please explain the nature of transactions.

Ans: The amount received of Rs.1.98 Cr was out of the trade receivables from M/s. Musaddilal Gems & Jewellers Pvt. Ltd and the amount paid of Rs.2 crore to M/s. Musaddilal Jewellers Pvt. Ltd was towards the trade payables. Q.20 A perusal of the letters of customers submitted by you shows that it mentions the name, address of the customers. However, the amount of

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

advance received from them is left blank. Please offer your comments as to why the amount is left blank.

Ans: Most of these letters contain the sale invoice numbers on it. Since the item has finally been delivered to all the customers and the cash receipts have been issued, therefore, the amount was not mentioned in the letters.

Q.47. Please refer the answer to question No.22 wherein you have stated that there are only 3 employees in this company. Please go through all the advance receipt vouchers spiral bounded and confirm whether you have signed any of the vouchers or not.

Ans: There are not only 3 employees, there are were around 10 total employees on the day of 08.11.2016. However, I don’t remember their names. As far as I remember, I have not accepted any cash on that day and therefore, I remember that I have not signed any voucher.

Q.58. Where did you keep Rs.90 Crore on 08.11.2016 night. Ans. In this office premises.

Q.59. When did you deposit this Rs.90 crore in the bank. Ans: After 09.11.2016 for a period of 4-5 days I have deposited this amount in the bank.

“To your specific enquiries, I state that Mr. Neel Sunder Tharad and his family members visited Axis Bank Limited, Film Nagar along with my office staff of Shri S. Mallesh etc. for depositing of money in the account of M/s. Vaishnavi Bullion Pvt. Ltd during the period between 10.01.2016 and 30.11.2016. I state that the said account was opened on 10.11.2016. M/s. Vaishnavi Bullion Pvt. Ltd already have one more bank account at Bank of 71

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

Baroda, Banjara Hills, Hyderabad and in the said account also we have deposited an amount of Rs.50 lakhs on 10.11.2016 and they did not agree to take more cash deposits. Further, Shri Pavan Agarwal of M/s. Sri Balaji Gold or his persons along with my persons visited in SBI, IFB, Punjagutta, Hyderabad during the period from 10.11.2016 to 21.11.2016 for depositing cash in the account of M/s. Musaddilal Gems and Jewels Pvt. Ltd. Similarly, the other persons who gave advances also visited SBI, IFB, Punjagutta, Hyderabad, at the time of depositing the amounts as we have not counted the full currency at the time of taking from them and requested them to present at the time of deposit of amounts at banks. Accordingly, persons concerned of who gave advances appeared at banks and attended to the job banking formalities of depositing cash.

To your specific enquiries about deposits of amount by Smt. Nisha Tharad, W/o. Mr. Neel Sunder, I state that Smt. Nisha is my first cousin and she deposited amount in Axis Bank account of M/s. Vaishnavi Bullion Pvt. Ltd based on the authorization letter given by us to deposit the same in our bank account.”

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

Sunder. Apart from the admissibility or otherwise of the confession of Mr. Neel Sunder, another fact that stares at the face of the assessee is that, as per version of the assessee, Mr. Neel Sunder has arranged the customers, money and bullion and made delivery to the customers. This version of the ass is incongruous and against human preponderance, as why Mr. Neel Sunder will approach the assessee to route his clients’ transaction through the assessee. In that way Mr. Neel Sunder could have completed the entire transaction right from procuring to selling the gold to customers and retained the profit himself. It is also not the case of the assessee that Mr. Neel Sunder did not have the bank account in the same Axis Bank where the money was allegedly deposited by him in the account of the assessee. There is no explanation for the redundant routing of the transactions with the assessee if we have to believe Mr. Neel Sunder. This shows that the statement of Mr. Neel Sunder’s statement attributes redundancy to the role of the assessee, which we find difficult to believe.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

other of ld.CIT(A) deleting the addition of Rs. 28 crore was without any merit.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

sale of bullion and therefore, by implication, the cash deposited belongs to the Appellant. 6.5. It is submitted that there cannot be a more illogical and preposterous reasoning and conclusion than the above. Without going into a serious discussion about the various provisions of Sale of Goods Act or Indian Contracts Act, suffice to emphasis two points on this issue. a) Firstly, when an agreement is considered void or voidable because of reasons mentioned in the Indian Contract Act, it only means that the parties to the agreement cannot resort to legal action to enforce -such an agreement. It essentially means, that the right to repudiate an agreement rests with the parties to the agreement alone. If in this process, there has been any violation of law, then the concerned agency which administers that particular law will have to step in and take appropriate action. In the instant case, Income Tax Department is not the Government Agency to declare the sale as void. Hence, the entire argument of the AO on this ground has no legs to stand. b) Secondly, the taxability or otherwise must be decided as per the provisions of Income Tax Act. It is totally irrational on the' part of the AO to conclude that because the sale is rendered void, the advance amounts received should be taxed in the hands of the seller as unexplained credits. It may not be out of place to mention here that under the Income-tax Act, even incomes earned illegally are subjected to tax. 6.6. At page 40 (last para) of the assessment order, the AO referring to the notification relating to demonetization states: "As per the said Notification, the only way-out given to the persons holding SBNs as on 09-11-2016 to realize the equivalent value of such SBNs is to deposit the same into his bank account (please see para 2(iii) and 2(iv) of the Notification). If the SBNs are claimed to have been dealt by the persons who held the SBNs as on 09-11-2016, in a manner other than what was prescribed in the statutory Notification, like exchanging the same with unauthorized persons other than banks, and if such a claim is accepted, it would bring the said statutory Notification, which was issued as a measure to tackle black money,-to ridicule and renders it nugatory." By quoting from the Notification, the AO concludes that by accepting SBNs after 9-11-2016, the assessee company has violated the provisions of the Notification and therefore, the sale transaction is void. He further states than entry in the books of account relating to a void transaction is not valid and therefore, the amounts credited in the bank account will be treated as unexplained.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

6.7. The above conclusions drawn by the AO are absurd. It is a fact that with effect from 09-11-2016, the SBNs were not legal tender. It means that SBNs shall not be accepted in cash (except in the cases mentioned in the Notification) and the same needs to be deposited in banks. The AO while quoting from the Notification, failed to appreciate the contents of para 2(v) of the same Notification (Gazette Notification No.S.0.3407 (E)-RBI) (Annexure-10) which reads as under: (y) the equivalent value of specified bank notes tendered may be credited to a third party account, provided specific authorization therefor accorded _by the third party is presented to the bank, following standard banking procedure and on production of valid proof of identity of the person actually-tendering" 6.8. The above para of the Notification makes it abundantly clear that there is no ban on a person depositing SBNs in a third-party account after following due procedure prescribed by the banks. Specific Authorisation (Annexure-11) by VBPL was given to. Nisha Gupta to deposit the cash. In the instant case, deposit of cash by a third party viz., Sri Neil Sunder Tharad and Smt. Nisha Gupta in the Appellant's bank account was as per the above para of the Notification and there is absolutely no illegality, involved. It is for the Income-tax Department to conduct inquiries and determine whether the SBNs represent accounted or unaccounted income and who are the true owners of such SBNs, merely stating that the SBNs were received beyond 09-11-2016 therefore the cash is unexplained,' doesn't prove anything, which is not disputed by the Appellant that the cash was deposited beyond 09-11-2016 only. In fact, the deposit of SBNs into the bank accounts was permitted from 10-11-2016 only. In this case, the entire thrust of the argument of the AO was that transactions in SBNs after demonetization notification is illegal and be has not taken cognizance of the evidence i.e. bank transfers to bullion traders. It is submitted that there was nothing illegal in the deposit of SBNs by third parties in the bank account as already discussed in para 6.7 above. Even assuming that, though legally not correct, the transactions are illegal, as opined by the AO, the income needs to be taxed, as the Income tax Act does not differentiate between legal and illegal incomes. Kind attention of the CIT(A) is invited to the following judgments which support this contention.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

with the legal submissions of the assessee, some admitted facts are required to be understood which read as under :

I. The assessee had no / negligible “stock-in-trade” of gold / diamonds as on 08.11.2016. II. No orders were placed on 8/11/2016 for purchasing the gold III. Cash advance receipts were issued in the name of 2135 persons on 08.11.2016 and 09.11.2016 after the announcement of demonetization . IV. Cash was deposited by the assessee / his employees / authorized persons in the bank account in seven branches for Rs.39.64 crore between 10.11.2016 to 30.11.2016. V. There was no authorization in favour of Mr. Neel Sunder/ Ashtalaxmi to deposit the cash in the bank account . VI. Gold was purchased by the assessee from seller after sending the money through banking channel.(RTGS/Cheques). VII. Bullion was delivered by the assessee to its customers.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

available with the assessee and the assessee had only placed order for purchase of gold after depositing the amount in its bank account between 10.11.2016 to 30.11.2016. Further, in the absence of availability of gold with the assessee, it is difficult to infer that there is a sale agreement between the assessee and the anonymous buyers. The essential terms of agreement of sale are missing like the quantity of gold, rate, time of delivery etc. Hence, in the absence of requisite details, it is difficult to conclude a valid subsisting agreement of the sale of gold came into existence on or before 08.11.2016 between assessee and the anonymous buyers.

a. Firstly, when an agreement is considered void or voidable because of reasons mentioned in the Indian Contract Act, 78

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

it only means that the parties to the agreement cannot resort to legal action to enforce such an agreement. b. The taxability or otherwise must be decided as per the provisions of Income Tax Act. It is totally irrational on the part of the AO to conclude that because the sale is rendered void, the advance amounts received should be taxed in the hands of the seller as unexplained credits. c. The AO while quoting from the Notification, failed to appreciate the contents of para 2(v) of the same Notification (Gazette Notification No.S.0.3407 (E)-RBI) (Annexure-10) which reads as under: “the equivalent value of specified bank notes tendered may be credited the equivalent value of specified bank notes tendered may be credited ,to a third party account, provided specific authorization therefor accorded by the third party is presented to the bank, following standard banking procedure and on production of valid proof of identity of the person actually- tendering".

d. Even assuming that though legally not correct, the transactions are illegal, as opined by the AO, the income needs to be taxed, as the Income tax Act does not differentiate between legal and illegal incomes. Kind attention of the CIT(A) is invited to the following judgments which support this contention.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

As mentioned hereinabove, agreement of sale requires the meeting of mind and also requires an offer and acceptance by two parties. Once neither sale quantities were unidentifiable / traceable, then it is difficult to assume that any agreements came in existence. In the absence of any agreement, then question of void or voidable agreement did not arise. Hence, we hold that no sale of gold was effected on 08.11.2016.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

November, 2016 to the designated Regional Office of the Reserve Bank of India (hereinafter referred to as the Reserve Bank) in the format specified by it. (2) Immediately after forwarding the return referred to in sub-paragraph (1), the specified bank notes shall be remitted to the linked or nearest currency chest, or the branch or office of the Reserve Bank, for credit to their accounts. 2. The specified bank notes held by a person other than a banking company referred to in sub-paragraph (1) of paragraph 1 or Government Treasury may be exchanged at any Issue Office of the Reserve Bank or any branch of bank referred to in sub-paragraph (1) of paragraph 1 for a period up to and including the 30th December, 2016, subject to the following conditions, namely:—

(i) 1a[***]

(ii) 2[***]

(iii) there shall not be any limit on the quantity or value of the specified bank notes to be credited to the account maintained with the bank by a person, where the specified bank notes are tendered; however, where compliance with extant Know Your Customer (KYC) norms is not complete in an account, the maximum value of specified bank notes as may be deposited shall be Rs.50,000:

2a[Provided that the deposit up to the amount of Rs.5000 shall be made directly into such account and the rest of the amount, if any, shall be subject to such conditions as the Reserve Bank of India may specify:

Provided further that the deposit of an amount exceeding Rs.5000 shall be made only once per account until 30th December, 2016;]

2aa[(iiia) there shall not be any limit on the quantity or value of the specified bank notes that are tendered for payment and deposit under the Taxation and Investment Regime for the Pradhan Mantri Garib Kalyan Yojana, 2016;]

(iv) the equivalent value of specified bank notes tendered may be credited to an account maintained by the tenderer at any

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

bank in accordance with standard banking procedure and on production of valid proof of Identity;

(v) the equivalent value of specified bank notes tendered may be credited to a third party account, provided specific authorisation therefor accorded by the third party is presented to the bank, following standard banking procedure and on production of valid proof of identity of the person actually tendering;

3[(vi) cash withdrawal from a bank account over the counter shall be such as may be specified by the Reserve Bank of India from time to time:

Provided that cash withdrawal from a current account shall be such as may be specified by the Reserve Bank of India from time to time:

Provided further that the withdrawal limit provided for current accounts shall also be applicable to the traders registered with the Agricultural Produce Market Committee (APMC) markets and mandis.]

(vii) there shall be no restriction on the use of any non-cash method of operating the account of a person including cheques, demand drafts, credit or debit cards, mobile wallets and electronic fund transfer mechanisms or the like;

4[(viii) cash withdrawal from an ATM shall be such as may be specified by the Reserve Bank of India from time to time.]

(ix) any person who is unable to ……………………..

5[(x) the limits for cash withdrawal by farmers ……………………

(xi) for wedding expenses a maximum of Rs. 2,50,000 …………………….]

5a[(xii) deposit of specified bank ………………………………:

Provided that the linked currency chest to District Co- operative Central Banks shall give the exchange value for

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

verified specified bank notes only and subject to usual checks relating to identification of fake Indian currency notes.] 3. (1) …………………………………. (2) ………………………………….. (3) …………………………………….

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

computers in between 08.11.2016 and 09.11.2016. As no receipts were issued on 08.11.2016 and 09.11.2016, however the receipts were recovered from the premises of the assessee, which clearly shows that the said receipts were issued / printed after demonetization notification and more particularly, after 09.11.2016. In view of the above, the acceptance of SBNs after 08.11.2016 was contrary to the RBI notification and no sale of gold could occur on such prohibited SBNs.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

understandable how the bank permitted the deposit of huge amounts in the newly opened account, on the date of its opening itself. The concerned agency must look into the role of the bank employees in this regard. When the assessee itself cannot deposit more than Rs.50,000/- as per notification, then how a third party can be authorized to deposit more than the specified limits in the bank account of the assessee. The disability of the assessee would entail the disability of its delegate / agent.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

“12. When did you receive the names of the parties in whose name the cash receipts have to be generate' and when did you generate the cash receipts? Ans: On 8th night I have received the names on which the cash receipts have to be generated. The cash receipts were generated starting from night of 08.11.2016 to 09.11.2016 13. When did the generation of cash receipts came to an end? Ans: I could not remember the exact time of completion of generation of receipts. But I can say that the work was started on 8th night and completed on 09.1.2016. Please refer to answer 4 of your statement recorded on 07 12.2016 wherein it was replied by you that cash receipts were issued to all the customers on receipt of advances on 08.11.2016 Please confirm the same? Ans. After generation of cash receipts on 8th and 9th of Nov.2016 simultaneously the cash receipts were issued to the respective seven customers. 20. To sum up, you are confirming that you have received cash advances of Rs.57,75,35,000/- from six customers (against 3100 customers stated earlier m the statement recorded on 01 12 2016) in the case of M/s MGJPL on 08.11.2016 after 09.00 PM, entered the cash advances. In your books on the same day, generated cash receipts on the same day from the systems available in your premises in tally software and issued to all the customers. Likewise, in the case of M/s VBPL, you have received Rs.40,11,50,000/- as cash advances from one customer (2100 customers earlier) and followed the same procedure as was done in the case of M/s MGJPL? Ans. Yes. I confirm that in M/s MGJPL, I have received approximately Rs. 57 crores from six customers and Rs.40 crores from one customer in M/s VBPL. Entered the details of cash advances bifurcating all below Rs.2 lakhs in the name of various persons (as provided by six and one customer respectively) started generating cash receipts on 8th Nov. 2016 to 09th Nov. 2016, from the systems available in our premises in Tally software and handed over the receipts to the respective seven customers. 20. As you are aware, as per page -3 of the impounding order, the five systems available (one Compaq CPU SG 34401L, one assembled PU - Intex, One Lenovo CPU S.No.LQCH015, One Lenovo CPU S.No.L9C3LC60 (belonging to MGJPL) and Lenovo CPU S.No.ES0Q7220256 (belonging to M/s VBPL) in your premises on the date of survey in which you have claimed to have entered the

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

cash advances were impounded by the Department vide impounding .order We 133A(3)(ia) on 02.12.2016. Please confirm. Ans. I exactly do not remember the number and models of the systems. However, certain systems were impounded from our premises when the survey was conducted as per the above impounding order. 21. The above impounded CPUs were sent to Central Forensic Science Laboratory and a report was obtained. I am showing you the findings of CFSL, dated 01.05.2017, starting from pages 1 to 9 along with covering letter dated 01.05.2017. Please offer your comments? Ans. From the said report, I have understood that the timings of operation of our systems, which were impounded from our premises, four systems were not operated on 08.11.2016 and one system was operated and closed at 18:45:34 on 08.11.2016. In this regard, I would submit that the office of the above said two 'companies is in the B-Block of the compound. Our residence is in the A- Block of the compound. As you know, today is computer is necessity of life to us and to our children and we are having systems even in our residence and during that time, lot of shuffling of systems had happened. I may not be aware of the timing of opening and closing of a system.”

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

mention that much water had flown on this count. Recently Hon’ble Supreme court was faced with identical situation and had repelled the argument of the assessee in the case of Apex Laboratories (P.) Ltd. [2022] 135 taxmann.com 286 (SC) as under :-

“22. This Court is of the opinion that such a narrow interpretation of Explanation 1 to section 37(1) defeats the purpose for which it was inserted, i.e., to disallow an assessee from claiming a tax benefit for its participation in an illegal activity. Though the memorandum to the Finance Bill, 1998 elucidated the ambit of Explanation 1 to include "protection money, extortion, hafta, bribes, etc.", yet, ipso facto, by no means is the embargo envisaged restricted to those examples. It is but logical that when acceptance of freebies is punishable by the MCI (the range of penalties and sanction extending to ban imposed on the medical practitioner), pharmaceutical companies cannot be granted the tax benefit for providing such freebies, and thereby (actively and with full knowledge) enabling the commission of the act which attracts such opprobrium. …………………

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

partnership is entered into with respect to the privilege/business under the said licence, contrary to the prohibition contained in the relevant excise enactment, is an agreement prohibited by law. The object of such an agreement must be held to be of such a nature that if permitted it would defeat the provisions of the excise law within the meaning of Section 23 of the Contract Act. Such an agreement is declared by Section 23 to be unlawful and void. The question is whether such an unlawful or void partnership can be treated as a genuine partnership within the meaning of Section 185(1) and whether registration can be granted to such a partnership under the provisions of the Income-tax Act and the Rules made thereunder. We think not. When the law prohibits the entering into a particular partnership agreement, there can be in law no partnership agreement of that nature. The question of such an agreement being genuine cannot, therefore, arise. It is also a known principle that what cannot be done directly, cannot be achieved indirectly. As was said in Fox v. Bishop of Chester [1824] 2 BFC 635 Jagir Singh v. Raubir Singh [1999] 2 SCR 282 that it is a : "Well-known principle of law that the provisions of an Act of Parliament shall not be evaded by shift or contrivance" And that "To carry out effectually the object of a Statute, it must be construed as to defeat all attempts to do, or avoid doing, in an indirect or circuitous manner that which it has prohibited or enjoined" This Court, in an appeal arising from an action for specific performance, in G.T. Girish v. Y. Subba Raju 2022 SCC Online SC 60, held that giving the relief would imply doing something prohibited by law (bar against conveyance, for a specific period) - it had the effect of defeating the provisions of the law. It was held that : "Taking the agreement as it is, it necessarily would be in the teeth of the obligation in law of the first Respondent to put up the construction. The agreement to sell involved clearly terms which are impliedly prohibited by law in that the first Defendant was thereunder to deliver title to the site and prevented from acting upon the clear obligation under law. This is a clear case at any rate wherein enforcing the agreement unambiguously results in defeating the dictate of the law. The 'sublime' object of the law, the very soul of it stood sacrificed at the altar of the bargain which appears to be a real estate transaction. It would, in other words, in allowing the agreement to fructify, even at the end of ten-year period of non-alienation, be a case of an agreement, which completely defeats the law for the reasons already mentioned.

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

ITA No.560/Hyd/2020 and ITA 59/Hyd/2021 (Musaddilal Gems and Jewels Private Ltd)

Order pronounced in the Open Court on 28th day of November, 2022.

Sd/- Sd/- (RAMA KANTA PANDA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, dated 28th November, 2022. TYNM/sps

ITA Nos.560 & 561/Hyd/2020 and ITA 58 & 59/Hyd/2021

Copy to: S.No Addresses 1 Vaishnavi Bullion Private Limited, 8-2-120/88 & 89/MB, Shanti Kiran, Opp. KBR Park, Banjara Hills, Hyderabad – 500034. 2 M/s.Musaddilal Gems and Jewels Private Limited, 8-2- 120/88 & 89/MB Shanthikiran, Opp. KBR Park, Banjara Hills, Hyderabad – 500 034. 3 The Asst. Commissioner of Income Tax, Central Circle – 3(1), Hyderabad. 4 The Commissioner of Income Tax (Appeals) – 11, Hyderabad. 5 Pr. CIT (Central), Hyderabad. 6 DR, ITAT Hyderabad Benches 7 Guard File

By Order