BIMAL KUNJBIHARI GORAI, HUF,AHMEDABAD vs. THE ITO, WARD-1(2)(1), AHMEDABAD

The brief facts of the case are that the assessee filed his return of income for A.Y. 2017-18 on 22.02.2018 declaring a total income of Rs. 6,05,960/-. The case was selected for scrutiny on account of substantial cash deposits made during the demonetization period. During the assessment proceedings, the Assessing Officer noted that the assessee had deposited cash of Rs. 59,90,000/- in his Bank of Baroda account between 09.11.2016 and 30.12.2016. The assessee submitted that the deposits were made from the cash sales of gold jewellery. On examination of the books and stock records, the Assessing Officer observed that the assessee had made cash sales of 1235 grams of 24-carat gold jewellery over five dates between 02.11.2016 and 08.11.2016 aggregating to Rs. 39,10,250/-. The Assessing Officer noted that these sales arose mainly from an opening stock of 1255.58 grams, of which 1060.69 grams were purchased from a single party, Shri Haridarshan Jewellers, on 03.10.2016, with no payments made towards the purchase up to year-end. The Assessing Bimal Kunjbihari Gorai-HUF vs. ITO Asst.Year –2017-18 - 4– Officer also observed that sales had been recorded to 60 customers over a short period, with all invoices (except one) being below Rs. 2 lakh and without any customer identity particulars. The Assessing Officer was also not satisfied with the stock pattern, the absence of quantitative records, and the filing of the preceding year’s return after demonetization, which showed income under section 44AD of the Act. Considering the explanation unsatisfactory, the Assessing Officer rejected the books of account under section 145(3) and (i) made an addition of Rs. 59,90,000/- as unexplained cash credits under section 68 of the Act (ii) treated the opening stock of Rs. 81,06,351/- as non-genuine and added Rs. 55,10,559/- under section 68 of the Act and (iii) estimated gross profit by adopting a G.P. rate of 26.14% from the preceding year and added Rs. 6,17,750/- to the income of the assessee. The Assessing Officer also initiated penalty proceedings under section 271AAC and applied tax under section 115BBE.

In appeal, the CIT(Appeals) first examined Ground No. 1 relating to rejection of books. After referring to the defects noted by the Assessing Officer absence of quantitative stock register, unverifiable stock valuation, abnormal pattern of sales, and mismatch of GP rate with prior years the CIT(A) upheld the rejection of books under section 145(3) of the Act, by placing reliance on judicial precedents. The ground was dismissed. In respect of Ground No. 2 concerning the addition of Rs. 59,90,000/- under section 68 of the Act, the CIT(A) held that the assessee had failed to substantiate the sale pattern or establish the genuineness of cash sales with Bimal Kunjbihari Gorai-HUF vs. ITO Asst.Year –2017-18 - 5– supporting evidence, nor had he complied with notices during appellate proceedings. The CIT(A) confirmed the addition and dismissed this ground. On Ground No. 3 relating to the addition of Rs. 55,10,559/- as unexplained opening stock, the CIT(A) held that opening stock cannot be considered a “credit” for the purpose of section 68 of the Act and he further observed that once books are rejected, no addition can be made on the basis of the same books. Relying on Indwell Constructions and other judicial pronouncements, the CIT(A) deleted this addition and allowed this ground. Ground No. 4 related to the addition of Rs. 6,17,750/- on estimation of G.P. at 26.14%. The CIT(A) held that once the books were rejected, income had to be estimated on turnover and therefore upheld the addition made by the Assessing Officer. This ground was dismissed. Accordingly, the CIT(Appeals) partly allowed the appeal by deleting the addition relating to opening stock but sustained the rejection of books and the additions made under section 68 as well as the G.P. estimation.

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee in part.

Before us, the ld. counsel for the assessee reiterated the submissions made before the Assessing Officer and CIT(Appeals) and submitted that the Department has not doubted the sales made by the assessee. the assessee had furnished the stock summary before the Tax Department, VAT returns had been furnished by the assessee to substantiate the sales made, the sales had been accepted by the Assessing Officer as being part of turnover, that the assessee had paid for the gold purchased in the next Bimal Kunjbihari Gorai-HUF vs. ITO Asst.Year –2017-18 - 6– year and also argued that details of case sales and cash deposited had been duly submitted before Tax Department. Accordingly, the ld. counsel for the assessee submitted that CIT(Appeals) erred in sustaining the additions.

In response, Ld. DR placed reliance on the observations made by CIT(Appeals) in the appellate order. Ld. DR submitted that that majority of purchases were made from one party namely M/s Hari Darshan, but an FIR had been filed against the said party with respect to a financial fraud committed on Union Bank. As per the said FIR, the said party submitted fabricated stock statements to induce Union Bank to give higher credit to the said party. Therefore, evidently the assessee had not purchased the said bullion from the said party and the purchases as well as the sales were fabricated.

In view of the above facts, the arguments advanced by both sides, and the material placed on record, we find no merit in the appeal of the assessee. The Assessing Officer had rejected the books of account under section 145(3) of the Act after identifying multiple discrepancies, including the absence of quantitative stock records, unverifiable stock valuation, abnormal sales pattern during the demonetisation period, and a sudden spike in cash sales recorded to 60 retail customers—almost all below Rs. 2,00,000/- without any details of identity, PAN, or address. These findings were affirmed by the CIT(Appeals), who relied on binding judicial precedents including Kachwala Gems v. JCIT (2007) 288 ITR 10 (SC), Awadhesh Pratap Singh Abdul Rehman & Bros. v. CIT (1994) 210 ITR 406 (All), Bastiram Narayandas v. CIT (1994) 210 ITR 438 (Bom), Bimal Kunjbihari Gorai-HUF vs. ITO Asst.Year –2017-18 - 7– and G. Raja Gopala Rao v. DCIT (ITA No. 293/Vizag/2016, ITAT Visakhapatnam), wherein rejection of books was upheld when stock registers were not maintained, quantitative records were unreliable, or the accounts failed to reflect a true and correct state of affairs. The assessee has not produced any fresh material to rebut these findings or to demonstrate that the defects noted by the tax authorities were unfounded. Accordingly, the rejection of books stands confirmed.

With respect to the addition of Rs. 59,90,000/- under section 68, we observe that the assessee has failed to substantiate the explanation that the cash deposits represented genuine jewellery sales. The Assessing Officer had clearly demonstrated that the pattern of alleged sales was inconsistent with past trading behaviour, lacked supporting documentation, and was uncorroborated by purchase history. This conclusion is materially strengthened by the FIR placed on record by the learned Departmental Representative, concerning M/s Hari Darshan Jewellers—the very party from whom the assessee claimed to have purchased 70% of its stock prior to demonetisation. The FIR reveals that M/s Hari Darshan Jewellers, operated by Shri Kaushik Vrajlal Patadia and family, was involved in a large-scale banking fraud of over Rs. 10.36 crores, which included the use of fabricated stock statements, diversion of funds, disappearance of stock, and complete absence of genuine business activity. The FIR records that only 25% of the declared stock was ever found during inspection, and the remaining stock was non-existent and removed from the premises. These findings establish a pattern of systematic fabrication of stock and Bimal Kunjbihari Gorai-HUF vs. ITO Asst.Year –2017-18 - 8– transactions, which directly undermines the assessee’s claim of having purchased genuine stock from the said party. In light of this FIR and the admitted fact that no payment was ever made by the assessee to M/s Hari Darshan Jewellers for the alleged bulk purchase during this year, the explanation that such stock was available for sale becomes wholly untenable. The assessee has failed to demonstrate with any reliable evidence that the purchases were genuine, that the stock existed, or that the alleged jewellery sales actually took place. The assesse’s explanation is not only unsatisfactory but is rendered implausible by the external corroborative evidence contained in the FIR against the supplier.

Regarding the addition on account of opening stock of Rs. 81,06,351/-, we find that the Assessing Officer had treated a portion thereof as non-genuine based on the finding that the opening stock figure was inflated to justify the sudden surge of alleged cash sales. The CIT(Appeals) granted partial relief solely on the legal principle that section 68 does not apply to opening stock. However, even after deleting the addition on technical grounds, the core factual defects—absence of stock records, unverifiable purchases, and the fabricated nature of transactions with M/s Hari Darshan Jewellers—remain uncontroverted. The assessee has failed to demonstrate that the opening stock figure was genuine or supported by credible inventory records. In any event, the deletion of this addition does not alter the substantive correctness of the remaining additions made by the Assessing Officer, which are independently sustainable.

As regards the assessee’s submission that sales were accepted as part of turnover and VAT returns were filed, we note that mere reflection of figures in VAT returns or books does not establish the genuineness of transactions when the underlying stock itself is unverifiable or sourced from a party engaged in large-scale financial fraud. The Hon’ble Supreme Court in Durga Prasad More v. CIT (1971) 82 ITR 540 (SC) held that taxing authorities are entitled to look beyond the facade of documents to examine the real nature of transactions. In the present case, the existence of the stock itself is doubted, the sales are unverified, and the pattern of transactions indicates manipulation designed to justify cash deposits during demonetization.

In view of the above facts, the categorical findings of the Assessing Officer and the CIT(Appeals), and the corroborative evidence arising from the FIR indicating large-scale fabrication of stock and manipulation of transactions by M/s Hari Darshan Jewellers, we hold that the assessee has failed to discharge the onus cast upon him under the Act. The explanations furnished are neither supported by reliable evidence nor credible in light of surrounding circumstances. All grounds raised by the assessee are devoid of merit and stand dismissed.

Accordingly, the appeal of the assessee is dismissed. This Order pronounced in Open Court on 10/12/2025