ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-4, JAIPUR vs. PAWAN KUMAR JHALANI, JAIPUR

3. In the facts and circumstances of the case and in law, Id. CIT(A) has erred in confirming the action of the Id. AO by sustaining the addition, to the extent of Rs. 11,79,529 in the case of the assessee for the year under consideration. The action of the Id. CIT(A) is illegal, unjustified, arbitrary, and contrary to the facts and evidence on record. Relief may please be granted by deleting the entire addition as sustained by the Id. CIT(A) during the appellate proceedings.

4. The assessee craves the right to add, amend, alter, or withdraw any of the above grounds of cross objection before or at the time of hearing.

3. First, we take up the appeal of the revenue.

4. Succinctly, the fact as culled out from the records is thatthe assessee has filed his original return of income at Rs. 8,77,850/- on 18.10.2019. A search and seizure action u/s 132(1) of the IT Act, 1961 was carried out on 26.09.2018, at the business/residential premises of the assessee Shri Tarachand Soni Prop. M/s Maharaja Jewellers and it was found that the group had been indulging in the business of sale and purchase of bullion on a large scale. Further, during the assessment proceedings it has been noticed that in the case of Shri Pawan Jhalani Prop. M/s Krishnam Jewellers alias P.ftp(PAN-AUUPS5107L), for which no search warrant u/s & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani 132 (1) was issued, but substantial material was available on the record which suggestthat the assessee Pawan Jahalani was involved in unaccounted sale purchase of gold bullion with Shri Tara Chand Soni.

Record reveals that in the search four set of incriminating documents/mobile chatting with the employees of M/s Maharaja Jewellers prop. Shri Tarachand Soni was found & seized/impounded and the same are ; 1. Ledger account of various parties, mentioned period of 2008 instead of 2018 for purchase & sale of gold bullion relevant to the period of August &September, 2018.

2. Copy of Kachi Cash Book of various dates as well as the latest one for the period 27.08.2018 to 25.09.2018.

3. Day wise transactions in rough pages of sale & purchase of gold bullion.

4. Copy of day wise trial balances, in which sauda of purchase & sale of mini gold i.e. 100 gm. Gold made by Shri Tarachand Soni, who earned brokegare income on the transactions(sauda) of mini gold bullion.

Ld. AO after analysis of the above four set of incriminating documents found that ledger accounts as well mobile chats with the following parties have been found & seized vide exhibit-2 of the Annexure-A from the residence of Shri Tarachand Soni, which was downloaded from the mobile of Shri Tarachand Soni and back up has also been taken as per exhibit-3 of Annexure-A to the Panchnama Dated 27.09.2018. The ledger accounts and mobile chats made with various parties found during the course of & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani search/ survey proceedings played an important role in drawing this conclusion.The period mentioned in these ledger accounts are 2008 but after analysis of the same, it has been found that these transactions are pertaining to 2018. To drive home to this contention ld. AO noted for example the date & amount mentioned in the ledger account in the case of KamaljiSujangarh is 05.09.2008 and Rs. 2,90,000 which has been deposited in the bank account number 914020022123392 of Axis Bank of Maharaja Jewellers on 05.09.2018 only. The same is also held in the case of DM Jhotwara and Amit ji Shriram. He also based on the verification and comparison of these ledger account with kachi Cash Book, which has been found & impounded as per exhibit-3 of Annexure-A from office of Maharaja Jewellers that the transaction year pertains to 2018instead of 2008. These purchases & sales of gold bullion transactions can also be analyzed from the table at page 4 of the assessment order that these transactions are related to 2018 instead of 2008. He also noted another example that the date, amount and weight of the gold bullion mentioned in the ledger account of Amitji Shri Ram is 29.08.2008, Rs. 11.09,884 & weight 358.760 gm, and in the Kachi Book, date, amount and weight of the gold bullion has mentioned is as 29.08.2018, Rs. 11,09,884 and weight 358.760 gm. Therefore, ld. AO noted that this clearly established that the transactions & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani made with the above parties are related to 2018 instead of 2008 mentioned in the ledger accounts. He also went on to verify from the Kachi Cash Book that the cash received or paid to/from the various parties by Shri Tarachand Soni, are precisely the same as mentioned in these ledger accounts. These transactions are also verifiable from the rough pages of day wise transactions found and seized/impounded. Therefore, it was established that year 2008 mentioned in these ledger accounts are pertaining to the year 2018 only. Record reveals that the Kachi Cash Book which has been found & impounded as per exhibit-3 & 4 of Annexure-A from office of Maharaja Jewellers, is also written in the following manner by inserting "I" before last two digits of the figure mentioned in this cash book. The figure written as 36000100 is actually Rs. 36,00,000. Ld. AO to drive home to this contention noted in the order the following reasons:-

Figures mentioned in Kachi cash book as on 31.08.2018 is 36000100 Axis on page no. 14 of exhibit 3 of annexure-A impounded from the office of M/s Maharaja Jewellers, is same as amount of Rs. 36,00,000 was deposited in Bank Account No. 917020035732690 of Axis Bank Account of Mis Maharaj Jewellers. Similarly figure mentioned in Kachi cash book as on 04.09.2018 is 35000100 Axis on page no. 11 of the exhibit, is same as amount of Rs. 35,00,000 was deposited in Bank Account No. 917020035732690 of Axis Bank Account of M/s Maharaj Jewellers.

& CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani Ld. AO further, on perusal of the seized material noted that substantial cash transactions entries were recorded in the ledger account and kacchi cashbook maintained by Shri Tara Chand Soni in the name of code P.ftp. During post search investigation chat conversations on mobile of Shri Tarachand Soni with code P.ftp revealed that Shri Tarachand Soni paid cash amounting to Rs 11,79,52,900/- which included transaction entries of Rs 10,19,52,900/- (in ledger account) and of Rs 1,60,00,000/-(in kacchi cashbook)Shri Tarachand Soni was maintaining accounts which were not part of his regular books and hence were reflecting as unaccounted transactions, wherein the ledger account of code 'P.ftp' reflected a total purchase of Rs 10,19,52,900/- and the complete payment was made in cash by Shri Tara Chand Soni. Further, as per the Kachchi books found during the search it has been deduced that Shri Tarachand Soni had paid cash amounting to Rs 1,60,00,000/- to code 'P.ftp. Both the transactions pertained to the period A.Y. 2019-20. The relevant incriminating documents had been seized and Inventoried as per the following description: (i) Annexure -A, Exhibit -02, at page No. 52 to 58 wherein ledger details as well as details of transactions of Rs 10,19,52,900/- was mentioned. The transactions are made during the F.Y. 2018-19, hence, the matter pertains to A.Y. 2019-20. (ii) Annexure - A, exhibit -03 wherein transaction for Rs 1,60,00,000/- was mentioned in the Kachi books of the assessee.

& CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani In the search proceeding when the statement of Shri Tarachand Soni was recorded u/s. 132(4) of the Act, wherein vide answering the question no. 21 & 33 he confirmed the sanctity of the transaction. He did not give any description and not show them reflected in his books of accounts. Therefore, ld. AO concluded that the transactions amounting to Rs. 11,79,52,900/- of the assessee with code “P.ftp” stands out of books transaction and hence not recorded in the regular books of accounts of the assessee. The transactions made with the code given “P.ftp” as per ledger accounts and kachi cash book found and seized as per Exhibit-2 and Exhibit-3 of Annexure-A in the month of June &September 2018 was tabulated as under :

In the post search proceeding enquiries have been made to ascertain the actual name, Proprietary concern and PAN associated with the code ‘P.ftp which was used to record all the unaccounted transactions in kacchi cash book and ledger maintained by Shri Tara Chand Soni, which have been verified and tabulated as under:-

In view of the above facts, AO concluded that cod P.ftp was used for recording transaction in the name of Shri Pawan Jhalani and Shri Pawan Jhalani made unaccounted sales of gold bullions amounting to Rs. 11,79,52,900/- to Sh. Tarachand Soni Prop. M/s Maharaja Jewellers and received the complete payment in cash against this sale. It pertinent to mention here that during the search and post search proceedings Shri Tara Chand Soni admitted undisclosed income as well as other transactions of unaccounted safe/purchases of gold bullion. He also admitted that the & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani above transactions of unaccounted sale/purchases of gold bullion, brokerage income are not recorded in his regular books of accounts. Based on these digital evidences recovered during the post search analysis, satisfaction note was drawn by the ld. AO and forwarded to the relevant jurisdictional assessing officer that was Income Tax Officer, Ward- 1(1), Jaipur. As provisions of section 153C of the Act. Notice uls 153C of the Act was issued on 01.02.2023 for the A.Y. 2019-20. Assessee In response to the notice issued, the assessee filed ITR on 01.03.2023. The case of the assessee then transferred to Central Circle-4, Jaipur as per order u/s. 127 of the Act. As is evident from the record that the assessne, Shri Pawan Jhalani, is an Individual and a gold bullion trader, doing business activity in the name of Krishnam jewellers, during the year under consideration had made unaccounted sale of Gold bullion amounting to Rs.11,79,52,900/- and the payment against which was received in cash. Ld. AO issued notice to the assess and the assessee filed the reply on 23.03.2024 contending thathe is gold bullion trader and doing business activity in the name of Krishnam jewellers, proprietary concern of the assessee. In connection to the unaccounted cash transactions made with Shri Tara Chand Soni, the assessee claimed that he never indulged in such financial transactions with Shri Tara Chand Soni. Thus the assessee & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani completely denied the above discussed transacitons. The party further submitted that although he denied such transactions, still, to avoid litigation and to have peace of mind, he accepted the above transaction as his turover and requested to calculate income at average gross profit rate. Ld. AO considered the reply filed by the assessee and concluded that it is absolutely clear that the assessee has made unaccounted sales of gold bullion to Shri Tara Chand Soni, but since the assessee is not owning up the transactions, it is unclear as to the quantum of unaccounted purchases made by the assessee. No extra expenses have been booked by the assessee from the unaccounted sales with Sh. Tarachand Soni, therefore, the appropriate G.P. rate would be 100% as the entire sale of Rs. 11,79,52,900 remains as net receipt of the assessee, which has remained out of the tax net.Therefore, an amount of Rs. 11,79,52,900 was added to the total income of the assessee for the year under consideration as net receipt from unaccounted sales.

5. The assessee challenged the above finding of the assessing officer before the ld. CIT(A). While dealing with the various grounds of appeal raised by the assessee ld. CIT(A) has disposed off the appeal of the assessee by observing as under :

4.5 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order as well as the comments of remand report for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under:-

4.5.1 On careful going through the assessment order, it is noticed that the assessment order was passed after following the due procedure of provisions of Income tax Act 1961, thus the order is legal and correctly passed by the AO. Thus, the legal ground raised by the appellant is hereby dismissed. 4.5.2 The appellant had also taken ground that the AO had made addition of net receipt from unaccounted sale without producing any evidence and merely based on surmises, conjectures, assumptions and suspicion and the seized document of name of code P.ftp is related to the appellant Pawan Jhalani. The argument and contention of the appellant is not acceptable. The seized material had unearthed that substantial cash transaction entries were recorded in the ledger account and kacchi cashbook maintained by Shri Tara Chand Soni in the name of code P.ftp. the AO had mentioned in the order that during the course of post search proceedings, enquiries have been made to ascertain the actual name, Proprietary concern and PAN associated with the code 'P.ftp' which was used to record all the unaccounted transactions in kacchi cash book and ledger maintained by Shri Tara Chand Soni,which have been verified that the mobile number 96368-87104 was linked with PAN of AAIPJ8817G and landline number 0141-2579907 is related to this appellant i.e. Pawan Jhalani Prop. M/s Krishnam Jewellers. In view of the these facts, it is clear that codeP.ftp was used for recording transactions in the name of Shri Pawan Jhalani and Shri Pawan Jhalani made unaccounted sales of gold bullions amounting to Rs. 11,79,52,900/- to Sh. Tarachand Soni Prop. M/s Maharaja Jewellers as unrecorded sale. Thus the contention of the appellant is not acceptable that the addition was merely based on surmises, conjectures, assumptions and suspicion. The ground of the appellant on this issue is hereby dismissed.

4.5.3 The appellant had also pleaded that no opportunity of cross examination was given. In this regard it is important to mention here that the seized material found during search had unearthed that there were transactions between the appellant and the searched person. Thus, the searched person was the witness of the appellant. Therefore, it was the duty of the appellant to produce him before the department for any counter comment or cross examination. The appellant had 4.5.4 The appellant had also taken a ground that, the AO had issued a show cause notice for making addition of profit earned on unrecorded turnover by applying average last 3 years GP on unaccounted turnover, but without giving any further opportunity, the AO had made addition of whole amount of unrecorded turnover as his profit earned. The appellant had pleaded that this act of AO is not justified. To verify this fact, the final show-cause notice dated 21.03.2024 issued to the assessee during assessment proceedings was as under.

"Final Show Cause Notice dated 21.03.2024 issued by the AO Vide your previous replies to notices u/s 142(1), you have denied undertaking transactions with Sh. Tarachand Soni. However, there is concrete material available on record which shows that you made unaccounted sales transactions with Sh. Tarachand Soni.

(1) Annexure-A, Exhibit -02, at page No. 52 to 58 wherein ledger details as well as details of transactions of Rs 10,19,52,900/- was mentioned. The transactions are made uplo 31/08/2018, hence, the matter pertains to A.Y. 2019-20.

(ii) Annexure -A, exhibit -03 wherein transaction for Rs 1,60,00,000/- was mentioned in the Kachi books of the assessee.

3. In this connection statement of Shri Tarachand Sonl were recorded u/s 132(4) of the Income-tax Act, wherein, in response to question no. 32 & 33, Shri Tarachand Soni has given his confirmation about the sanctity of the transactions & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani and further, the assessee did not give any description nor did he show the same in his regular books of accounts. The stand of the assessee has remained the same during the search as well as post search proceedings Therefore, in conclusion it has been deduced that the transactions amounting to Rs 11,79,52,900/- of the assessee with Sh. Pawan Jhalani stands as an out of books transaction and hence not recorded in the regular books of the assessee.

4. In view of the above facts, it is clear that unaccounted transactions took place between Sh. Tarachand Soni and Sh. Pawan Jhalani, wherein Sh. Pawan Jhalani has made unaccounted sales amounting to Rs. 11,79,52,900/- to Sh. Tarachand Soni, which has remained unaccounted, hence, remained out of the tax net.

The contention of the appellant had found correct. The AO had issued show cause notice for applying the GP of average of last three years to calculate the income earned on unrecorded transaction but ultimately made the addition of whole amount of turnover. During remand report proceedings also, this fact was admitted by the AO that final show cause notice was issued for applying last three average GP but the then AO had applied 100% GP, Considering the above facts and discussion it can be concluded that the action of the AO was not justified for making addition of whole amount of turnover as his income. The ground of appeal on this issue is hereby allowed and an appropriate GP should have been considered by the AO. The appropriate GP calculation on such unrecorded transaction will be discussed in later part of this order. The ground of appeal on this issue is hereby allowed.

4.5.5 The appellant had argued that Shri Tarachand Soni had not given any sanctity of these transactions during statement recorded u/s 132(4). The AO had concluded in assessment order that the statement of Shri Tarachand Soni were recorded u/s 132(4) of the Income-tax Act, wherein, in response to question no. 32 & 33, Shri Tarachand Soni has given his confirmation about the sanctity of the transactions and further, Shri Tara Chand Soni did not give any description nor did he show the same in his regular books of accounts. The appellant had argued that no such statement for admission of sanctity was given by Shri Tarachand & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani Soni in his whole statement including reply of Q no 32 and 33. To verify this fact the statement of Shri Tarachand Soni was gone through and for ready reference the reply of Q no 32 and 33 as scanned as under:

From the above statement in can be concluded that Shri Tarachand Soni had just mentioned in his statement that "he do not remember due to old chať". Thus, the contention of the AO is not correct that the searched person Shri Tarachand Soni had given sanctity for such unrecorded transaction in his statement recorded u/s 132(4). TAA DE & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani 4.5.6 The Appellant had argued based upon various case laws that even if it is considered his unaccounted turnover, a reasonable profit elements should have only to be taxed. The reasonable profit can be GP of average of past three years of his books of accounts. The argument of the appellant have merit. The appellant had also relied upon various case laws on this issue. Further there are many other cases where in case of unrecorded turnover/ sales only GP addition has been sustained. For this reliance is placed on the following cases:-

CIT Vs. President Industries 258 ITR 654 (Guj.) (HC)

The amount of sales could not represent the income of the assessee who had not disclosed the sales. The sales only represented the price received by the seller of the goods; only the realization of the excess over the cost incurred could form part of theprofit included in the consideration for the sales, Since there was no finding to the effect that investment by way of incurring the cost in acquiring the goods, which were sold, had been made by the assessee and that investment was also not disclosed, only the excess over the cost incurred could be treated as profit. Accordingly, only profits embedded in sale proceeds can be taxed.

Abhishek Corporation Vs. DCIT 63 TTJ 651 (Ahd.) (Trib.)

Only net profit rate can be applied on unaccounted sales/receipts. AO not justified in making further addition as the undisclosed income offered by assessee covers such amount.

Mohan Sadhani Vs. CIT 304 ITR 52 (MP)

Held that entire sale proceeds cannot be added to income, only NP rate to be adopted.

CIT Vs. Balchand Ajit Kumar 263 ITR 610 (MP)

In a search, it was found that there were credit sales which were not reflected in the books of account. It is held that the total sale could not be regarded as the profit of the assessee. The net profit rate had to be adopted and once it was adopted it could not be said that there was perversity of approach.

Agrawal Motors Vs ACIT 68 ITD 407 (Jab)

& CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani Addition can be made only of G.P/N.P. on suppressed sales and not entire sale price itself made only of G.P/N.P. on suppre NCOME TAX DEPARTMEN

ITO V. Gurubachan Singh J. Juneja 216 ITR 99 (AT) (Ahd-trib) (TM) It was held that value of the cash sales can't be added to the total income as there was no material on record that assessee made investment to make unaccounted sales. Gross profit rate should be applied to the unaccounted sales. This decision is approved by Hon'ble Gujarat High Court reported in 302 ITR 63.

4.5.7 it is not disputed that the said seized document was found and seized from the business premise of Shri Tarachand Sonl. Provisions of section 132(4A) lays down that it may reasonably be presumed that when the said document was found in possession and control of the person, the same are belonging to the person and the contents on this document are true and pertaining to the person. The onus is cast upon the searched person Shri Tarachand Soni as well as the appellant Shri Pawan Jhalani to explain the document and transactions mentioned therein with supportingevidences which substantiates version that the said documents did not pertain to or the transactions mentioned therein are not executed by him. The assessee has not discharged the onus casted upon him as well as did not bring anything on record to controvert that the sales transaction inferred from the sald document is incorrect. It is a fact, that every paper has its own nature and significance. It is a very simple fact, that if anybody is asked about the papers/documents found in his possession, it may be any bill, it may be any receipt of payment estimates, it can be a hand written list of business receipt party name. In the instant case, during the course of search the above document in code name P.ftp' was found and seized from the business premises of the appellant. As per the provisions of section 132 (4A) of the Income Tax Act, 1961, it is very clear that: "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, it may 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; and (ii) that the contents of such books of account and other documents are true. The appellant was aware about the transactions mentioned in the above document. It was the duty of the appellant to disclose the exact transaction mentioned on this paper found from his business premises. In view of the above discussion, I hold that the transaction written on these pages are of unaccounted sale.

4.5.8 It is important to note here that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani only represented the price received by the seller of the goods for the acquisition of which it has already Incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring cost in acquiring goods which have been sold have been made by the assessee and that has also not been disclosed. In the absence of such finding of fact the question whether entire sum of undisclosed sale proceeds can be treated income of the relevant assessment year answers by itself in negative. The record goes to show that there is no finding nor any material has been referred about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales. The entire sale could not have been added as income of the assessee for the assessment year in question but only to the extent the estimated profits embedded in the sales for which the gross profit rate was adopted entailing addition of income on the suppressed amount of sales.

4.5.9 Further, the AO had made addition for whole amount of sale amount mentioned in these pages. To be fair and justified, the profit portion earned by the appellant should have been taxed. I find that the same represents sales out of books for which addition can be made only for the profit instead of entire sales. There is no material on the record to suggest that the assessee made any investment outside books of accounts to make alleged unaccounted sales in respect of the aforesaid appellate order. The various cases relied upon by the appellant also supports his case.

4.5.10 The appellant had shown gross profit average of past 3 year at 0.56% but these past 3 assessment years was never under scrutiny and there is no evidences that the department had verified Its books in any of previous years and had approved the GP rate with books of accounts. Further these transactions was unrecorded thus the exact GP of books cannot be a base to calculate the real profiť element. It is a general trend that in the business of bullion, wherever there are unrecorded sales transaction in cash there is a margin of minimum of 1%. Thus, considering the above facts and transactions, 1% GP on such unrecorded sales is treated as income earned by the appellant which comes to Rs 11,79,529/- (1% of unrecorded turnover of Rs 11,79,52,900). Accordingly the addition to the extent of Rs 11,79,529/- is hereby confirmed and the balance is deleted. Thus, the addition made by the AO is hereby upheld to the extent of Rs 11,79,529/-, Grounds of appeal on these issues are hereby partly allowed.

5. The last Ground of Appeal is that the appellant cr further amend grounds of appeal on or before hearing. The appellant has not added or altered, amend or & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani withdraw any of the above mentioned grounds of appeal

. Accordingly, such mention by the appellant in its ground is treated as general in nature, no needing any specific adjudication and is accordingly treated as disposed off.

6. In the result, the appeal is treated as partly allowed.

6. Feeling dissatisfied with the above finding so recorded in the order of the ld. CIT(A), the revenue has preferred the present appeal, and the assessee has filed the cross objection on that appeal so filed by the revenue. Before us both the parties supported the orders as favorable to them.

II. Search and seizure action under Section 132(1) of the Income-tax Act, 1961 ("the Act") was conducted on 26.09.2018 on a third party, Shri Tarachand Soni, proprietor of M/s Maharaja Jewellers. During the said search, certain loose papers, including a ledger account and a 'kacchi cashbook', were found and seized. These documents contained certain jottings and entries against a code name 'P.ftp'.

III. Based on these seized documents, it was alleged that the code 'P.ftp' pertained to the assessee, Shri Pawan Kumar Jhalani. It was further alleged that the entries recorded therein represented unaccounted sales of gold bullion made by the assessee to Shri Tarachand Soni, aggregating to a sum of Rs. 11,79,52,900.

IV. Based on the aforementioned seized documents, ld. AO of the searched person, Shri Tarachand Soni, recorded a satisfaction note, and proceedings under Section 153C of the Act were initiated against the assessee.

V. Assessee, throughout the assessment proceedings, vehemently denied any connection with the code 'P.ftp' or having undertaken any such alleged unaccounted transactions with Shri Tarachand Soni. Notwithstanding the & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani assessee's complete denial, ld. AO proceeded to frame the assessment under Section 153C r.w.s. 143(3) of the Act vide order dated 30.03.2024.

VI. In a stark departure from his own Show-Cause Notice dated 21.03.2024, which proposed to tax the profit element by applying an average Gross Profit (GP) rate 0.56%, the ld. AO added the entire alleged sales turnover of Rs. 11,79,52,900 to the assessee's income, treating it as a 100% net receipt from unaccounted sales. VII. Aggrieved by impugned Assessment Order, assessee preferred an appeal before the ld. CIT(A) which was partly decided in favour of assessee, vide order dated 08.04.2025. ld. CIT(A) correctly appreciated the settled position of law and held that the ld. AO's action of adding the entire turnover as income was wholly unjustified and legally untenable. It was further observed by ld. CIT(A) that only the profit element embedded in such sales could be brought to tax.

VIII. While granting substantial relief, ld. CIT(A) proceeded to estimate the profit element by applying an ad-hoc Gross Profit (GP) rate of 1% on the alleged unaccounted turnover. Consequently, addition of Rs. 11,79,529 (being 1% of Rs. 11,79,52,900) was sustained, and the balance addition of Rs. 11,67,73,371 was deleted.

IX. The Department, being aggrieved by the deletion of the addition, has filed the present appeal before the Hon'ble Tribunal.

X. The assessee, while supporting the ultimate relief granted, is aggrieved by the additions sustained by the ld. CIT(A) to the tune of Rs.11,79,529, being 1% of alleged unrecorded turnover. The assessee is therefore filed the present Cross- Objection to contest the additions upheld by the ld. CIT(A). WRITTEN SUBMISSION DEPARTMENT’S GROUND OF APPEAL

DEPARTMENT’S RESTRICTION OF THE ADDITION OF RS. 11,79,52,900 GROUND NO. 1: TO RS.11,79,529 ON ACCOUNT OF ALLEGED UNACCOUNTED SALES

1. SUBMISSION 1.1. In relation to the relief granted by the ld. CIT(A), it is respectfully submitted that the assessee had made detailed submissions before the ld. CIT(A), which have been duly reproduced in the appellate order at pages 5 to 19 (para 4.1). These submissions form an integral part of the appellate order and may kindly be taken into consideration.

& CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani 1.2. The ld. CIT(A), after a detailed appreciation of facts, the material on record, the remand report, and judicial precedents, rightly deleted the substantive addition of Rs. 11,67,73,371 (Rs. 11,79,52,900 less Rs. 11,79,529) from page 22 of CIT(A) Order para 4.5 onwards, by holding and concluding as under:

1.2.i. At page 23, para 4.5.4 of the CIT(A) order noted that the AO’s final addition of the entire Rs. 11.79 crore without confronting the assessee was a clear breach of natural justice. The AO’s show-cause had only proposed taxing the GP margin; thus, suddenly taxing 100% of sales “travels beyond the show cause notice”. At page 24, the ld. CIT(A) specifically held as under:

The contention of the appellant had found correct. The AO had issued show cause notice for applying the GP of average of last three years to calculate the income earned on unrecorded transaction but ultimately made the addition of whole amount of turnover. During remand report proceedings also, this fact was admitted by the AO that final show cause notice was issued for applying last three average GP but the then AO had applied 100% GP. Considering the above facts and discussion it can be concluded that the action of the AO was not justified for making addition of whole amount of turnover as his income. The ground of appeal on this issue is hereby allowed and an appropriate GP should have been considered by the AO...

[Emphasis Supplied] 1.2.ii. Accordingly, the ld. CIT(A) has rightly held that the AO’s final action of taxing the entire turnover of Rs. 11.79 crore was in breach of natural justice. Even during remand proceedings, this factual position was admitted by the AO. The ld. CIT(A) thus rightly concluded that the action of the AO was unjustified, and only a reasonable GP rate could have been applied.

1.2.iii. At page 25, para 4.5.5, the ld. CIT(A) correctly noted that the AO’s observation—that Shri Tarachand Soni had given "sanctity" to the alleged unrecorded transactions in his statement under section 132(4)—was factually incorrect.

After reviewing the actual replies to questions No. 32 and 33, the ld. CIT(A) recorded categorically that no such admission was ever made; instead, Shri Soni stated clearly that "he does not remember due to old chat". Hence, the AO’s conclusion was contrary to the evidence on record.

1.2.iv. At page 26, para 4.5.6, the ld. CIT(A) rightly accepted the assessee’s argument that even if the turnover in question is considered unaccounted, only the profit element embedded therein can be brought to tax.

1.2.v. During appellate proceedings, assessee relied upon following judicial precedents which were not controverted / rebutted by lower authorities. The same are reproduced for ready reference (page 17 onwards of CIT(A) order): SRN CASE NAME WITH CITATION RATIO LAID It is settled law that in cases of unaccounted Naval Kishore Soni Vs ACIT sales, only the profit component embedded 1 1257 & 1258/JP/2019(Jaipur therein can be subjected to tax, and not the ITAT) entire sale consideration.

The ITAT Jaipur Bench held explicitly that in no circumstances could the entire sales ITO Vs Nikhil Garg amount be taxed as income. Only the profit 2 ITAT, dated component embedded within such February 14, 2022 unaccounted sales should be treated as taxable income under the Income-tax Act, 1961.

Accepting the alternative contention raised by the assessee, it was held that in cases Shri Nirmal Kumar Kedia Vs DCIT involving unaccounted sales, only Gross 3 ITA 124 to 126/JP/2019 & 286 to Profit (GP) on such sales can be estimated 288/JP/2019(Jaipur ITAT) and added as income. Entire unaccounted receipts/sales cannot be held as taxable income.

It was held that in cases of unexplained sales discovered through seized loose papers, the appropriate approach is to determine the profit earned based on the MGV Jain Jewellers (P.) Ltd. Vs ITO gross profit margin earned by the assessee 4 (DELHI) OF 2017, January 10, in its regular course of business. Entire 2022 (Delhi ITAT 'E' Bench) sales consideration cannot be added as unexplained income under Section 69A. Only profit embedded in such sales is taxable.

The ITAT Ahmedabad Bench reiterated that the entire sales made outside the books of accounts cannot be added to taxable Arvindbhai Jewellers Pvt Ltd Vs DCIT income. Only the profit element embedded 5 & 1624/AHD/2012 in such sales should be considered as (Ahmedabad ITAT 'D' Bench) unaccounted income and taxed accordingly. The Tribunal upheld the FAA's decision of estimating profit at 18 percent as reasonable.

1.2.vi. The ld. CIT(A) noted that the appellant relied on consistent judicial precedents supporting this principle. Further while supporting his findings, ld. CIT(A) relied upon following precedents cited were as follows (page 26 onwards of CIT(A) order):

Ratio laid down S.No. Case Name and Citation In cases of unaccounted sales or on-money receipts, the entire amount cannot be treated as undisclosed income. Only the profit element (gross profit / net profit margin) embedded in such unrecorded transactions is taxable, Abhishek Corporation v. DCIT unless the Revenue establishes with evidence that 1. [1999] 63 TTJ 651 (ITAT unexplained investments were made. Ahmedabad)

In block assessments, only undisclosed income unearthed by search can be taxed. Additions based on estimates, assumptions, DVO valuations, or deemed income provisions (like s. 69D) are not sustainable. Moreover, only Agrawal Motors v. ACIT the profit element of unrecorded sales/accessories is [1999] 68 ITD 407 (ITAT 2. taxable, not the entire sales value Jabalpur) / [2000] 66 TTJ 130

Where unrecorded/undisclosed sales are found, the entire sales turnover cannot be treated as income of the CIT v. Balchand Ajit Kumar assessee. Only the net profit element embedded in such [2003] 263 ITR 610 / [2004] 135 3. sales can be taxed. Taxman 180 (MP High Court)

CIT v. President Industries When undisclosed sales are detected, the entire sale 4. [2002] 258 ITR 654 / [2002] 124 proceeds cannot be treated as incomeof the assessee.

& CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani Ratio laid down S.No. Case Name and Citation Taxman 654 (Gujarat High Court) Sales represent both cost and profit; therefore, unless the Department proves that the assessee made unexplained investments in acquiring the goods sold, only the profit component of such sales is taxable.

The Gujarat High Court held that undisclosed sales are evidence of suppressed turnover, but not of suppressed profits in full.

Thus, the profit rate (reasonable NP/GP percentage) should be applied to the undisclosed sales, instead of treating the full sales receipts as income. The entire sales proceeds cannot be treated as the profit/income of the assessee.

Only the net profit rate on such unrecorded/undisclosed Man Mohan Sadani v. CIT sales is to be applied for determining taxable income. [2008] 304 ITR 52 (MP High 5. Court) The Madhya Pradesh High Court held that the Tribunal had misapplied earlier precedents; in fact, both CIT v. Balchand Ajit Kumar [2003] 263 ITR 610 (MP) and CIT v. President Industries [2002] 258 ITR 654 (Guj.) clearly laid down that only the profit embedded in sales is taxable. Where unaccounted sales are found in seized documents, the entire sales turnover cannot be taxed as income. Commissioner of Income-tax v. Since the purchases were fully vouched and made from Gurubachhan Singh J. Juneja reputed companies, there was no evidence of unexplained 6. [2008] 171 Taxman 406 (Gujarat) investment. / [2008] 302 ITR 63 (Gujarat) / [2008] 215 CTR 509 (Gujarat) Accordingly, only the gross profit element on such unrecorded sales can be brought to tax, not the entire sales amount. Where a builder is found to have received on-money on sale of properties, the entire on-money cannot be treated as income. Jay Builders v. Assistant Commissioner of Income-tax, Only the profit element embedded in such on-money is Circle 6(2) taxable. 7. [2013] 33 taxmann.com 62 (Gujarat) / [2013] 215 Taxman 50 In this case, the Tribunal accepted the assessee’s (Gujarat) (Mag.) contention substantially and sustained an addition of 15% of the on-money receipts.

Since the assessee’s main contention (that only profit & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani Ratio laid down S.No. Case Name and Citation portion is taxable) was accepted, the High Court held that no further question of law arose and dismissed the appeal 1.2.vii. This approach of the ld. CIT(A) aligns with settled judicial principles. Although the rate adopted by the ld. CIT(A), i.e., 1%, is disputed and dealt with in a separate ground infra, accordingly findings regarding application of GP margin are well-reasoned, legally sound, and warrant no interference.

2. PRAYER 2.1. In view of above submission, the findings of the ld. CIT(A) are factual, reasoned, and based on proper appreciation of the record to the extent favours to assessee. The ld. CIT(A) correctly held that the assessment cannot extend beyond the scope of the show-cause notice, and that only the profit element embedded in unrecorded sales is taxable, not the entire sales turnover. The deletion made by the ld. CIT(A) is cogently reasoned and supported by consistent judicial precedents. Hence, the departmental appeal is devoid of merit and deserves to be dismissed. WRITTEN SUBMISSION ASSESSEE’S GROUNDS OF APPEAL

ASSESSEE’S INVALID ASSUMPTION OF JURISDICTION UNDER GROUND NO.

1. SECTION 153C AND MECHANICAL SATISFACTION AND 2: NOTE

1.2. The ld. AO of the searched person, DCIT Central Circle-4, Jaipur, recorded a satisfaction note on 05.08.2022 (CLC 01-02) and forwarded the matter to the jurisdictional AO, ITO Ward-1(1), Jaipur. The jurisdictional AO thereafter prepared another satisfaction note dated 27.12.2022 (CLC 03-04).

& CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani 1.3. Both satisfaction notes are verbatim identical, reflecting mechanical reproduction and absence of any independent application of mind.

1.4. Relying on these satisfaction notes, proceedings under Section 153C were initiated against the assessee, Shri Pawan Kumar Jhalani, culminating in the impugned assessment order and disputed additions, which are the subject matter of the present appeal.

2. SUBMISSION 2.1. At the outset, it is humbly submitted that the entire proceedings initiated under Section 153C are void ab initio, being bad in law and without jurisdiction. The ld. CIT(A) erred in upholding the same by failing to appreciate two fundamental jurisdictional defects:  the absence of any valid "incriminating material" belonging to the assessee, and  the mechanical recording of satisfaction notes without any independent application of mind.

3.2. An incriminating document is one that reveals undisclosed income or transactions not recorded in the regular books of accounts. In the present case, the seized documents fail this test which is discussed in detailsinfra.

3.3. DOCUMENTS ARE DUMB AND UNCORROBORATED: 3.3.i. The materials relied upon by the department are loose sheets, a "kachhi cash book," and mobile chats found at the premises of a third party, Shri Tarachand Soni. 3.3.ii. These documents do not bear the assessee's name or signature; instead, they contain a vague code name, "P.ftp". Such jottings, which are not self-evident, are considered "dumb documents" and cannot, by themselves, form the basis for an addition without strong corroborative evidence. 3.4. THIRD-PARTY STATEMENT DOES NOT INCRIMINATE: 3.4.i. The evidentiary value of these documents is further nullified by the statement of Shri Tarachand Soni himself. The ld. AO alleged that Shri Soni confirmed the sanctity of the transactions.

& CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani 3.4.ii. However, the ld. CIT(A), at page 26 of order, correctly observed that Shri Tarachand Soni, in his statement, merely replied that he could not remember the details because the chat was old. Thus, a statement of non-recollection is not a confirmation and does not incriminate the assessee.

4. MECHANICAL AND NON-APPLICATION OF MIND IN RECORDING SATISFACTION NOTES 4.1. The law mandates a strict two-stage process for a valid initiation of proceedings under Section 153C. This involves two distinct satisfaction notes, with the second one requiring an independent application of mind by the assessee’s jurisdictional Assessing Officer. This crucial requirement has been blatantly violated as discussed in detail infra.

4.2. VERBATIM REPRODUCTION OF NOTES: 4.2.i. The satisfaction note dated 27.12.2022 (CLC 3-4), recorded by the assessee's AO (ITO, Ward-1(1), Jaipur), is a verbatim, "copy-paste" reproduction of the note dated 05.08.2022 (CLC 1-2), recorded by the searched person’s AO (DCIT, Central Circle-4, Jaipur).

4.2.ii. A side-by-side comparison reveals that the entire factual narration, from the details of the search to the amounts involved and the description of the seized annexures, is identical.

4.2.iii. This mechanical exercise clearly demonstrates a complete failure by the assessee's AO to apply his mind independently to the material. 4.3. JURISDICTIONAL DEFECT IS FATAL: 4.3.i. The requirement of recording satisfaction is not a mere procedural formality but a substantive, jurisdictional pre-condition. An independent application of mind is essential to protect the assessee from frivolous proceedings. This issue is no longer res integra and has been settled by the highest court of the land.

4.3.ii. Reliance is placed on the binding precedent of the Hon'ble Supreme Court in the case of ITO vs. Canyon Financial Services Ltd. [2018] 91 taxmann.com 252 (SC) (CLC 5-6) dismissed the revenue's Special Leave Petition against a High Court ruling which held that where satisfaction notes were "identically worded carbon copy in which no reasons were recorded," the proceedings under Section 153C could not be initiated.

& CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani 4.3.iii. The facts of the present case are identical to the facts in Canyon Financial Services, and thus, the law laid down is squarely applicable. Therefore, the proceedings initiated against the assessee are vitiated by a fatal jurisdictional defect and must be quashed at the threshold.

5. In light of the foregoing submissions and the judicial precedents cited, it is humbly contended that the very assumption of jurisdiction under Section 153C is fundamentally flawed and legally unsustainable. Since these are not mere procedural irregularities but substantive defects that go to the root of the matter, the entire proceedings are non-est in law and void ab initio. It is, therefore, prayed that the Hon'ble Tribunal be pleased to quash the proceedings and delete the entire addition sustained by the ld. CIT(A).

ASSESSEE’S ERRONEOUS SUSTAINING OF ADDITION OF RS. GROUND NO.3 11,79,529 BY CIT(A)

1. BREIF FACTS 1.1. During the assessment proceedings initiated under Section 153C, the ld. AO made an addition of Rs. 11,79,52,900 by treating the entire alleged turnover as undisclosed income of the assessee.

1.2. The ld. CIT(A), while partly granting relief, restricted this addition by applying an arbitrary Gross Profit (GP) rate of 1% to the alleged turnover, thereby sustaining an addition of Rs. 11,79,529.

1.3. This partial addition by ld. CIT(A) is challenged by the assessee on the grounds of being arbitrary, excessive, and lacking any substantive evidentiary support or justification. 2. SUBMISSION 2.1. Without prejudice to above submission in Ground 1-2, the impugned addition of Rs. 11,79,529 sustained by the ld. CIT(A) is entirely unsustainable on the merits of the case.

2.2. The addition is based on uncorroborated third-party documents, defies the settled principles of income computation, and is predicated on an arbitrary estimation of profit discusses in detialed submission infra.

3.1. It is a settled legal principle that an Assessing Officer derives jurisdiction to estimate profits or vary declared results only after rejecting the assessee's books of account by invoking Section 145(3) of the Act. Without meeting this condition, any addition made is without legal authority.

3.2. The assessee has consistently maintained complete books of accounts with all subsidiary records, including quantitative and financial details, supported by proper vouchers. These accounts were also audited under Section 44AB of the Act, and the tax auditor made no adverse remarks.

3.3. Such records, maintained in the ordinary course of business, have a strong / binding evidentiary value under Section 145 of the Income Tax Act and Section 28 of The Bharatiya Sakshya Adhiniyam, 2023. 3.4. Notably, the ld. AO / CIT(A) has not pointed out a single defect in the books of account anywhere in the assessment order. Consequently, he has not invoked his power under Section 145(3) to reject them. By failing to do so, the AO implicitly accepted the correctness and reliability of the books produced.

3.5. Therefore, since the jurisdictional pre-condition of rejecting the books of account under Section 145(3) was not fulfilled, the ld. AO had no legal authority to disregard the declared trading results. The entire addition, having been made without jurisdiction, is legally untenable and deserves to be deleted in its entirety.

4.2. No corroborative evidence in the form of undisclosed assets, unaccounted investments, excess cash, or stock discrepancies was found from the assessee. The assessee’s regular books of account, which are duly audited, were never rejected under Section 145(3) of the Act.

& CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani 4.3. The ld. AO heavily relied on the assertion that Shri Tarachand Soni confirmed the transactions in his statement recorded u/s 132(4). This assertion is factually incorrect and categorically noted by the ld. CIT(A) himself, in his appellate order page 26, gave a clear finding on this issue, stating: "From the above statement in can be concluded that Shri Tarachand Soni had just mentioned in his statement that 'he do not remember due to old chat'. Thus, the contention of the AO is not correct that the searched person Shri Tarachand Soni had given sanctity for such unrecorded transaction..." 4.4. Thus, a statement of non-recollection can never be construed as a confirmation that incriminates the assessee.

5. ENTIRE TURNOVER CANNOT BE TAXED AS INCOME:

5.1. The original addition of Rs. 11,79,52,900 made by the ld. AO, which treated the entire alleged sale proceeds as income, was contrary to the fundamental principles of taxation. It is a trite law that in the case of a trading business, turnover is not income. Income or profit is the net result of sales minus the corresponding cost of goods sold. The ld. CIT(A) correctly accepted this principle.

5.2. In unrecorded trading transactions, the source of funds for the purchase is the receipt from the sale itself. Reliance is placed on following judicial precedents 5.1.i. Very recently this Hon’ble Bench in the case of Kaizen Enterprises (P.) Ltd. v. ACIT [2025] 172 taxmann.com 621 (Jaipur - Trib.) (CLC18-28) held that “5. To appreciate the provisions mentioned (supra) in its right perspective and spirit, we deem it fit discussand rely on judicial pronouncement of Hon'ble Apex Court as under: "[1978] 115ITR 524 (SC) Brij Bhushan Lal Parduman Kumar v. CIT(CLC 7-13) The authority making a best judgment assessment must make an honest and fair estimate of the income ofthe assessee and though arbitrariness cannot be avoided in such estimate the same must not be capriciousbut should have a reasonable nexus to the available material and the circumstances of the case. From the tender documents that were made available to the contractor and the terms and conditions of the"Lump Sum Contracts", two or three aspects emerged very clearly. In the first place, the contractorbecame aware that certain specified stores/materials would be supplied to him by the department at fixedrates for being used in the works to be undertaken by him for which he had not to pay from his pocketand it was on that footing that he submitted his tender quoting a particular figure for the entire work;secondly, such stores/material so supplied by the M.E.S. department had to be used, fixed or & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani incorporatedby the contractor in the works undertaken by him and the surplus, if any, that would remain after thecompletion of the work was to be returned to the department; thirdly, since for accounting purposes theinitial supply was debited to the contractor at the specified fixed rates, credit for the balance of thestores/materials so returned was also given at the same rates, some adjustment being made in respect ofthe wear and tear of such stores/material but in regard to the stores/material out of such supply as wasactually used, fixed or incorporated into the works, no accounting was done vis-a-vis the contractpayment that is made to the contractor. In other words, in substance and in reality, such stores/materialalways remained the property of the department and the contractor had merely the custody of it and hefixed or incorporated the same into the works. It seemed clear that in such circumstances and havingregard to the terms and conditions on which such supply of stores/materials was made there was not evena theoretical possibility of any element of profit being involved in the turnover represented by the cost ofsuch stores/material. It was conceivable that when the contractor himself purchased materials in the openmarket and supplies the same to the department by using, fixing or incorporating the same in the works,as in the case of materials other than those specified in Schedule "B", some profit element would beembedded in the turnover represented by the cost of such material but when stores/material was suppliedby the Government department at fixed rates for being used, fixed or incorporated in the work on termsindicated above, there would be no element of profit involved in the turnover represented by the cost ofsuch material. It is true that, ordinarily, when a works contract is put through or completed by acontractor the income or profits derived by the contractor from such contract is determined on the valueof the contract as a whole and cannot be determined by considering several items that go to form suchvalue of the contract but in our view where certain stores/material is supplied at fixed rates by thedepartment to the contractor solely for being used or fixed or incorporated in the works undertaken onterms and conditions mentioned above, the real total value of the entire contract would be the valueminus the cost of such stores/material so supplied. Therefore, since no element of profit was involved inthe turnover represented by the cost of stores/material supplied by the M.E.S. to the assessee-firm, theincome or profits derived by the assessee firm from such contracts would have to be determined on thebasis of the value of the contracts represented by the cash payments received by the assessee-firms fromthe M.E.S. department exclusive of the cost of the material/stores received for being used, fixed orincorporated in the works undertaken by them". 7. ….It was the claim of the assessee that the surrender made in the assessment year under consideration was a gross revenue figure and not the net undisclosed income and thus there is a scope for allowing expenditure incurred to earn the undisclosed gross revenue. Therefore, in our considered opinion a lump sum addition of Rs. 10 Lacs can be applied to cover all the possibilities of revenue leakage as well as to satisfy the claim of the assessee about the expenditure incurred. Once it is settled that the amount surrendered is a gross undisclosed income, there can't be a full amount addition and only the element of profit can be added into the same.

& CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani 5.1.ii. Hon’ble Jaipur ITAT in the case of Nawal Kishore Soni vs ACIT, (ITA 07/JP/2018) (CLC 38-86) has held unequivocally that the source is explained by the nature of the transaction and only the profit element is taxable. The Hon’ble Bench observed: “35. …The gold purchased in period of demonetization was towards agreed sale to persons on receiving amount therefor from those persons. Thus the source of payment to Ram Kumar Soni for purchase of gold is out of amount received from its sales and so it is to be treated as properly explained. It is only profit on sale of said purchased gold which is income of assessee which was undisclosed income of assessee and the same could only be subjected to tax. It is settled law that in case of unaccounted sales only profit therefrom could only be taxed as income of assessee.” 5.1.iii. M/s Murlidhar Deendayal, Vs. ITO (CLC 29-37) “9. In respect of undisclosed sales only profit can be added when purchases are recorded but sales is undisclosed. For this purpose, reliance is placed on the following judicial pronouncements: (i) CIT v/s President Industries (2000) 158 CTR 372 (Guj) (ii) Bansal Rice Mills v/s ITO (2001)72 TTJ 1 (Chd) (TM).

5.3. This principle squarely applies here. To tax the entire sale receipt of Rs.11.79 Crores without allowing the corresponding purchase cost is legally and factually untenable.

6.2. The estimation of Gross Profit (GP) at a rate of 1% is legally and factually unsustainable, being based on pure conjecture rather than any material on record. The foundation of the 1% GP rate adopted by the ld. CIT(A) is legally untenable. The sole justification provided by the ld. CIT(A) for his estimation is that "It is a general trend that in the business of bullion, wherever there are unrecorded sales transaction in cash there is a margin of minimum of 1%.". 6.3. It is a settled principle of law that a tax liability cannot be created or sustained based on a "general trend" or the personal surmise of an authority. An & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani addition must be based on tangible evidence and material on record, both of which are completely absent in this case. 6.4. MOST RELIABLE BASIS IS THE ASSESSEE'S OWN BOOKS: 6.4.i. The authorities below failed to appreciate that the most scientific and reliable basis for estimating profit is the assessee's own audited books of account, which were not rejected. 6.4.ii. It is pertinent to note that the assessee’s books of account were duly audited and were never rejected by the ld. AO under Section 145(3) of the Act. The trading results reflected therein, therefore, constitute the most credible benchmark for any estimation.

6.4.iii. The assessee’s own financial records, which form part of the assessment record, clearly demonstrate: The GP rate for the AY 2019-20 was 0.51%. Whereas, the average GP rate for the preceding three years was 0.56%, a fact noted by the ld. CIT(A) himself in his order. 6.4.iv. The ld. CIT(A) arbitrarily disregarded this concrete factual data in favor of his own unsubstantiated "trend." When the assessee's consistent and audited GP rate is approximately half of the estimated rate, the adoption of 1% is rendered demonstrably excessive and punitive.

7. In view of the above, it is respectfully submitted that the addition of Rs. 11,79,529, sustained by applying an arbitrary and excessive GP rate of 1%, is legally unsustainable and merits complete deletion; without prejudice, if this Hon’ble Tribunal determines that an estimation is warranted, it is submitted that the same cannot exceed the historical average GP rate of 0.56% as per the assessee’s own audited and accepted books of accounts. 9. In addition to the above written submission, the ld. AR appearing on behalf of the assessee submitted so far as to the estimation of profit submitted that ; & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani Respectfully, in continuation and furtherance to our earlier submissions, and in compliance with the directions of the Hon'ble Bench during the course of hearing 23.09.2025, we hereby submit the computation of average Gross Profit Ratio (GPR) and Net Profit Ratio (NPR) for the Financial Years 2016-17, 2017-18, and 2018-19.

The computation, clearly reflecting the required particulars, is presented hereunder in tabular form:

Average (3 Particulars FY 2016-17 FY 2017-18 FY 2018-19 Years) in % Turnover 48,60,22,015 76,18,97,911 45,95,50,426 - Gross Profit 32,96,088.07 39,12,548.71 23,33,627.17 - Net Profit 27,49,310.53 29,80,643.27 11,18,890.00 - Gross Profit Ratio 0.68% 0.51% 0.51% 0.56% Net Profit Ratio 0.57% 0.39% 0.24% 0.40%

The computation explicitly demonstrates that the average Gross Profit Ratio and Net Profit Ratio are reasonably consistent, reflecting genuine and acceptable business results.

Thus, the average Gross Profit rate of 0.56%, as demonstrated above, clearly indicates that the ad hoc rate of 1% adopted by the ld. CIT(A) is excessive and without any reasonable basis. Therefore, the addition made at the ad hoc rate of 1% deserves to be deleted, and if the Hon'ble Bench determines that any addition is warranted, it must be restricted to the demonstrated average Gross Profit rate of 0.56%.

The above submission may kindly be taken on record and considered favorably while adjudicating the matter under consideration. A copies of the final accounts related to Financial Years 2016-17, 2017-18, and 2018-19 is enclosed for ready reference.

S. No. Particulars Page No. Satisfaction Note dated 05.08.2022 by DCIT, Central Circle, Jaipur, 1. 1-2 being the Assessing Officer of the searched person. Satisfaction Note dated 27.12.2022 by Income Tax Officer, Ward 1(1), 2. Jaipur, for initiating proceedings under Section 153C of the Income- 3-4 tax Act, being the Assessing Officer of the assessee. Copy of the order of Hon’ble Supreme Court in the case of ITO v. 3. 5-6 Canyon Financial Services Ltd. [2018] 91 taxmann.com 252 (SC) / & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani [2018] 254 Taxman 124 (SC) Copy of the order of Hon’ble Supreme Court in the case of Brij 4. Bhushan Lal Parduman Kumar v. Commissioner of Income-tax, 7-13 (1978) 115 ITR 524 (SC) Copy of the order of Hon’ble High Court in the case of Commissioner 5. of Income-tax–II v. Leo Formulations P. Ltd., (2014) 48 taxmann.com 14-17 328 (Guj); (2014) 225 Taxman 386 (Guj); (2014) 363 ITR 322 (Guj) Copy of the order of Hon’ble ITAT in the case of Kaizen Enterprises P. 6. 18-28 Ltd. v. ACIT, (2025) 172 taxmann.com 621 (Jaipur - Trib.) Copy of the order of Hon’ble ITAT in the case of Murlidhar Deendayal 7. 29-37 v. Income Tax Officer, Ward 12, Ajmer, Copy of the order of Hon’ble ITAT in the case of Nawal Kishore Soni 8. 38-86 v. ACIT [ITA No. 07/JP/2018, ITAT Jaipur]

The brief facts related to the dispute are that the assessee Shri Pawan Kumar Jhalani, is an individual engaged in the business of trading in gold bullion under the proprietorship concern M/s Krishnam Jewellers for the year under consideration the assessee filed his return of income on & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani 18.10.2019, declaring a total income of Rs. 8,77,850. As there was search and seizure action under Section 132(1) of the Act on 26.09.2018 on a third party, Shri Tarachand Soni, proprietor of M/s Maharaja Jewellers. While that search, certain loose papers, including a ledger account and a 'kacchi cashbook', were found and seized. These documents contained certain jottings and entries against a code name 'P.ftp'. In the search or post search enquiries reveals that the code 'P.ftp' pertained to the assessee, Shri Pawan Kumar Jhalani and thereby the entries recorded therein represented unaccounted sales of gold bullion made by the assessee to Shri Tarachand Soni, aggregating to a sum of Rs. 11,79,52,900. In the light of these facts and seized documents the ld. AO of the searched person i.e. Shri Tarachand Soni, recorded a satisfaction note, and proceedings under Section 153C of the Act were initiated against the assessee. In that proceeding the assessee denied any connection with the code 'P.ftp' or having undertaken any such alleged unaccounted transactions with Shri Tarachand Soni. Notwithstanding the assessee's complete denial, ld. AO proceeded to frame the assessment under Section 153C r.w.s. 143(3) of the Act vide order dated 30.03.2024. Record reveals that while issuing the show cause notice dated 21.03.2024, which proposed to tax the profit element by applying an & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani average Gross Profit (GP) rate 0.56%, the ld. AO added the entire alleged sales turnover of Rs. 11,79,52,900 to the assessee's income, treating it as a 100% net receipt from unaccounted sales. When the matter challenged before the ld. CIT(A) he after considering the detailed submission and contentions raised accepted the plea of the assessee that only the profit element embedded in such sales could be brought to tax. While doing so ld. CIT(A) proceeded to estimate the profit element by applying an ad-hoc Gross Profit (GP) rate of 1% on the alleged unaccounted turnover. Consequently, addition of Rs. 11,79,529 (being 1% of Rs. 11,79,52,900) was sustained, and the balance addition of Rs. 11,67,73,371 was deleted by ld. CIT(A). The revenue challenged that finding in the present appeal and in the cross objection filed by the assessee vide which profit estimate rate challenged by the assessee. As is evident from the record that the assessee has challenged the assessment order before the ld. CIT(A). While considering the appeal of the assessee the ld. CIT(A) also considered the evidences and contention and thereby deemed to call for the remand report of the ld. AO and while disposing the appeal of the assessee he has considered the remand report of as given by the ld. AO. As is evident from the record that the apple of discord is based on the ledger account and kacchi cashbook maintained by & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani Shri Tara Chand Soni in the name of code P.ftp as found in search proceeding. The AO had mentioned in the order that during the course of post search proceedings, enquiries have been made to ascertain the actual name, Proprietary concern and PAN associated with the code 'P.ftp' which was used to record all the unaccounted transactions in kacchi cash book and ledger maintained by Shri Tara Chand Soni, which have been verified that the mobile number 96368-87104 was linked with PAN of AAIPJ8817G and landline number 0141-2579907 is related to this appellant i.e. Pawan Jhalani Prop. M/s Krishnam Jewellers. In view of these facts, ld. AO believed that code P.ftp was used for recording transactions in the name of Shri Pawan Jhalani and Shri Pawan Jhalani made unaccounted sales of gold bullions amounting to Rs. 11,79,52,900/- to Shri Tarachand Soni Prop. M/s Maharaja Jewellers as unrecorded sale. Record reveals that the assessee had taken a ground before the ld. CIT(A) that, the AO had issued a show cause notice for making addition of profit earned on unrecorded turnover by applying average last 3 years GP on unaccounted turnover, but without giving any further opportunity, the ld. AO had made addition of whole amount of unrecorded turnover as his income based on the chat conversations on mobile of Shri Tarachand Soni with Shri P.ftp revealed that Shri Tarachand Soni paid cash amounting to & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani Rs 11,79,52,900/-which included transaction of Rs 10,19,52,900/- and of Rs 1,60,00,000/- which was maintained by him and was not part of his regular books and hence were reflecting as unaccounted transactions, wherein the ledger account of Shri Pawan Jhalani reflected a total transaction of Rs 11,79,52,900/- out of this an amount of Rs 10,19,52,900/- was paid by cash. Further, as per the Kachchi books found during the search it has been deduced that Shri Tarachand Soni had received cash amounting to Rs 1,60,00,000/- from Shri Pawan Jhalani, Both the transactions pertained to the period A.Y. 2019-20 and were inventorised as Annexure-A, Exhibit - 02, at page No. 52 to 58 wherein ledger details as well as details of transactions of Rs 10,19,52,900/- was mentioned. The transactions are made uplo 31/08/2018, hence, it pertains to A.Y. 2019-20 and Annexure -A, exhibit -03 wherein transaction for Rs 1,60,00,000/- was mentioned in the Kachi books of the assessee. For this statement of Shri Tarachand Sonl was recorded u/s 132(4) of the Act, wherein, in response to question no. 32 & 33, Shri Tarachand Soni has given his confirmation about the sanctity of the transactions and further, the assessee did not give any description, nor did he show the same in his regular books of accounts and therefore, it has been concluded that the transactions amounting to Rs 11,79,52,900/- of the & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani assessee with Shri Pawan Jhalani were out of books transaction and hence not recorded in the regular books of the assessee. As regards the reliance of the statement of Shri Tarachand Soni it was noted and confirmed by the ld. CIT(A) that Shri Tarachand Soni had just mentioned in his statement that "he do not remember due to old chať". Thus, the contention of the AO is not correct that the searched person Shri Tarachand Soni had given sanctity for such unrecorded transaction in his statement recorded u/s 132(4). Thus, considering that aspect of the matter and considering the judicial precedent cited before the ld. CIT(A) he has considered the plea of the assessee that even if it is considered his unaccounted turnover, a reasonable profit element should have only to be taxed. The reasonable profit can be GP of average of past three years of his books of accounts. The argument of the appellant has merit and therefore, the same is required to be accepted. This view get supported from the decision of CIT Vs. President Industries 258 ITR 654 (Guj.) (HC), Abhishek Corporation Vs. DCIT 63 TTJ 651 (Ahd.) (Trib.), Mohan Sadhani Vs. CIT 304 ITR 52 (MP), CIT Vs. Balchand Ajit Kumar 263 ITR 610 (MP), Agrawal Motors Vs ACIT 68 ITD 407 (Jab), ITO V. Gurubachan Singh J. Juneja 216 ITR 99 (AT) (Ahd-trib) (TM).

& CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani Thus, because the said seized document was found and seized from the business premise of Shri Tarachand Sonl. Provisions of section 132(4A) lays down that it may reasonably be presumed that when the said document was found in possession and control of the person, the same are belonging to the person and the contents on this document are true and pertaining to the person in the case of the searched person based on that document it was presumed to have accepted that turnover for the purpose of the business and there cannot be a valid reason to take the different view on the same seized material. No search or survey proceeding conducted at the business premises of the assessee it was also accepted fact that in the past year the assessee is found to be engaged in that business of gold and therefore, since both the parties have accepted based on the evidence that it was there business turnover which was not recorded in the books of accounts of the assessee as well. Provision of section 292C lays down a presumption that “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, it may 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; and (ii) that the contents & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani of such books of account and other documents are true.” Thus, when in the case of Shri Tarachand Soni he has offered the income based on that turnover as income only and no gold was found in physical shows that the assessee to have sold the goods which was in subsequent sell by Shri Tarachand Soni. Here it is also important to note that merely the assessee has not recorded the sales and/or purchases in their books of account merely on that count that amount the assessee cannot be hold liable to pay the income tax and what ultimately the income of the assessee is liable to be taxed. This view is also confirmed by our Rajasthan High Court while dealing with the case of Clarity Gold P. Ltd. Vs. PCIT, Central Circle, Jaipur [ 102 taxmann.com 421]. Be that it may, so the assessee ultimately is liable to pay the tax on the income that is liable to be taxed and in that the ld. CIT(A) rightly uphold the profit in the case of the assessee and we do not find any infirmity in that finding so recorded after considering all the records and remand report of the ld. AO and thereby the solitary ground raised by the revenue stands dismissed.

12. Now we take up the cross objection filed by the assessee wherein vide ground no. 3 the assessee on its merits of the dispute challenges the addition of Rs.11,79,529 in the case of the assessee for the year under & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani consideration sustained by the ld. CIT(A) as 1 % of the alleged sales. Apropos to this ground of appeal the relevant finding of the ld. CIT(A) reads as follows: 4.5.10 The appellant had shown gross profit average of past 3 year at 0.56% but these past 3 assessment years was never under scrutiny and there is no evidences that the department had verified Its books in any of previous years and had approved the GP rate with books of accounts. Further these transactions was unrecorded thus the exact GP of books cannot be a base to calculate the real profiť element. It is a general trend that in the business of bullion, wherever there are unrecorded sales transaction in cash there is a margin of minimum of 1%. Thus, considering the above facts and transactions, 1% GP on such unrecorded sales is treated as income earned by the appellant which comes to Rs 11,79,529/- (1% of unrecorded turnover of Rs 11,79,52,900). Accordingly the addition to the extent of Rs 11,79,529/- is hereby confirmed and the balance is deleted. Thus, the addition made by the AO is hereby upheld to the extent of Rs 11,79,529/-, Grounds of appeal on these issues are hereby partly allowed.

Record also reveals as recorded in the order of the ld. CIT(A) that ;

4.5.4 The appellant had also taken ground that, the AO had issued a show cause notice for making addition of profit earned on unrecorded turnover by applying average last 3 years GP on unaccounted turnover, but without giving any further opportunity, the AO had made addition of whole amount of unrecorded turnover as his profit earned. The appellant had pleaded that this act of AO is not justified.

Thus, as is evident from the above facts as recorded in the order that we see no reason or basis given by the ld. CIT(A) rejecting the view already taken by the ld. AO to estimate the profit of this unrecorded sales considering the last 3 years profit for which the comparison of last year reads as under; & CO No. 25/JP/2025 ACIT vs. Pawan Kumar Jhalani Average (3 Particulars FY 2016-17 FY 2017-18 FY 2018-19 Years) in % Turnover 48,60,22,015 76,18,97,911 45,95,50,426 - Gross Profit 32,96,088.07 39,12,548.71 23,33,627.17 - Net Profit 27,49,310.53 29,80,643.27 11,18,890.00 - Gross Profit Ratio 0.68% 0.51% 0.51% 0.56% Net Profit Ratio 0.57% 0.39% 0.24% 0.40% Ld. CIT(A) rejected the plea of the assessee that for all these years the revenue has not passed the order accepting that profit declared and therefore, the plea was not accepted. But when the above all these years the assessee complied the law and filed the audit report and declared the gross profit and for which this being the guiding aid we direct the ld. AO to restrict the addition for this unaccounted turnover income attributable to the income of the assessee @ 0.56 % based on the average gross profit declared in the last three years and thereby the grounds of cross objection filed by the assessee is allowed to that extent and thereby ground no. 3 raised by the assessee is partly allowed.

Since we have considered the cross-objection ground based on the merits of the dispute, ground no. 1 & 2 raised on technical issues becomes academic and are not required to be discussed.

In the result, the appeal of the revenue in stands dismissed, and the cross-objection No. 25/JP/2025 of the assessee is Partly allowed.