SILVER & ART PALACE,JAIPUR vs. ACIT, JAIPUR

ACIT, Central Circle-04, Jaipur …...Respondent Appellant by : Mr. Vinod Gupta, CA. Ld. AR Respondent by : Mrs. Alka Gautam, CIT, Ld. DR Date of hearing : 25/09/2025 Date of pronouncement : 13/10/2025 O R D E R PER BENCH:

These appeals by the assessee are directed against the order of Ld. PCIT & CIT(A) Jaipur-05 dated 26.02.2025, 25.02.2025 & 24.03.2025 passed u/s. 250 & 263 of the Income Tax Act, 1961 respectively (in short ‘the Act’).

& others/JP/2025 Silver & Arts Palace In (2015-16), the assessee has raised the following grounds of appeal:

1. The Ld. CIT (A) has erred in law as well as on the facts of the case in confirming the action of Ld. AO of initiating the assessment proceeding u/s. 153A of the Income Tax Act. The very action taken u/s. 153A of the act is bad in law and without jurisdiction. Hence, the same may kindly be quashed.

2. The Ld. CIT (A) erred in confirming the action of Ld. AO by upholding the addition of Rs. 2,29,690/- on account of alleged unaccounted cash commission. Hence, the addition so upheld is contrary to the fact, law and unjustified, therefore, the addition made is unjustified in full or excessive.

3. The Ld. CIT (A) erred in confirming the action of Ld. AO by upholding the addition of Rs. 25, 64,000/- on account of alleged unaccounted commission. Hence, the addition so upheld is contrary to the fact, law and unjustified, therefore, the addition made is unjustified in full or excessive.

4. That the appellant craves your indulgence to add, amend or alter all or any grounds of appeal before or at the time of hearing. In (2016-17), the assessee has raised the following grounds of appeal:

1. The Ld. CIT (A) has erred in law as well as on the facts of the case in confirming the action of Ld. AO of initiating the assessment proceeding u/s. 153A of the Income Tax Act. The very action taken u/s. 153A of the act is bad in law and without jurisdiction. Hence, the same may kindly be quashed.

2. The Ld. CIT (A) erred in confirming the action of Ld. AO by upholding the addition of Rs. 13,860/- on account of alleged unaccounted cash commission. The addition so upheld is contrary to the fact, law and unjustified, therefore, the addition made is unjustified in full or excessive.

3. The Ld. CIT (A) erred in confirming the action of Ld. AO by upholding the addition of Rs. 19, 78,711/- on account of alleged unaccounted commission. The addition so upheld is contrary to the fact, law and unjustified, therefore, the addition made is unjustified in full or excessive.

4. The Ld. CIT(A) erred in confirming the action of Ld. AO by upholding the addition of Rs. 46,98,564 /- on account of alleged use of unexplained stock in manufacturing & others/JP/2025 Silver & Arts Palace activities. The addition so upheld is contrary to the fact, law, duplicate and unjustified; therefore, the addition made is unjustified in full or excessive.

5. Not prejudicial to above, under the facts and circumstances, the Ld. CIT (A) erred in confirming the action of Ld. AO by making various additions without giving benefit of telescoping and previous years additions. The addition being contrary to the fact, law and unjustified, therefore, the addition made is unjustified in full or excessive.

6. That the appellant craves your indulgence to add, amend or alter all or any grounds of appeal

before or at the time of hearing. In (2017-18), the assessee has raised the following grounds of appeal:

1. The Ld. CIT (A) has erred in law as well as on the facts of the case in confirming the action of Ld. AO of initiating the assessment proceeding u/s. 153A of the Income Tax Act. The very action taken u/s. 153A of the act is bad in law and without jurisdiction. Hence, the same may kindly be quashed.

2. The Ld. CIT (A) erred in confirming the action of Ld. AO by upholding the addition of Rs. 43,280/- on account of alleged unaccounted cash commission. The addition so upheld is contrary to the fact, law and unjustified, therefore, the addition made is unjustified in full or excessive.

3. The Ld. CIT (A) erred in confirming the action of Ld. AO by upholding the addition of Rs. 31, 79,223/- on account of alleged unaccounted commission. The addition so upheld is contrary to the fact, law and unjustified, therefore, the addition made is unjustified in full or excessive.

7. The Ld. CIT(A) erred in confirming the action of Ld. AO by upholding the addition of Rs. 76,46,418/- on account of alleged use of unexplained stock in manufacturing activities. The addition so upheld is contrary to the fact, law, duplicate and unjustified; therefore, the addition made is unjustified in full or excessive.

4. Not prejudicial to above, under the facts and circumstances, the Ld. CIT(A) erred in confirming the action of Ld.AO by making various additions without giving benefit of telescoping current and previous years additions against application. The addition being contrary to the fact, law and unjustified, therefore, the addition made is unjustified in full or excessive.

5. That the appellant craves your indulgence to add, amend or alter all or any grounds of appeal before or at the time of hearing.

& others/JP/2025 Silver & Arts Palace In (2018-19), the assessee has raised the following grounds of appeal:

1. The Ld. CIT (A) has erred in law as well as on the facts of the case in confirming the action of Ld. AO of initiating the assessment proceeding u/s. 153A of the Income Tax Act. The very action taken u/s. 153A of the act is bad in law and without jurisdiction. Hence, the same may kindly be quashed.

2. The Ld. CIT (A) erred in confirming the action of Ld. AO by upholding the addition of Rs. 23,98,700/- on account of alleged unaccounted cash commission. The addition so upheld is contrary to the fact, law and unjustified, therefore, the addition made is unjustified in full or excessive.

3. The Ld. CIT(A) erred in confirming the action of Ld.AO by upholding the addition of Rs. 4,67,715/- on account of alleged use of unexplained stock in manufacturing activities. The addition so upheld is contrary to the fact, law, duplicate and unjustified; therefore, the addition made is unjustified in full or excessive.

4. The Ld. CIT (A) erred in confirming the action of Ld. AO by upholding the addition of Rs. 2, 50,000/- on account of alleged expenses in cash. The addition so upheld is contrary to the fact, law and unjustified, therefore, the addition made is unjustified in full or excessive.

5. Not prejudicial to above, under the facts and circumstances, the Ld. CIT(A) erred in confirming the action of Ld. AO by making various additions without giving benefit of telescoping of current and previous years additions against application. The addition being contrary to the fact, law and unjustified, therefore, the addition made is unjustified in full or excessive.

6. That the appellant craves your indulgence to add, amend or alter all or any grounds of appeal before or at the time of hearing. In (2019-20), the assessee has raised the following grounds of appeal:

1. The Ld. CIT (A) has erred in law as well as on the facts of the case in confirming the action of Ld.AO of initiating the assessment proceeding u/s. 153A of the Income Tax Act. The very action taken u/s. 153A of the act is bad in law and without jurisdiction. Hence, the same may kindly be quashed.

2. The Ld. CIT (A) erred in confirming the action of Ld.AO by upholding the addition of Rs. 80, 44,567/- on account of alleged unaccounted cash commission. The addition so & others/JP/2025 Silver & Arts Palace upheld is contrary to the fact, law and unjustified, therefore, the addition made is unjustified in full or excessive.

3. The Ld. CIT(A) erred in confirming the action of Ld. AO by upholding the addition of Rs. 93,95,905/- on account of alleged use of unexplained stock in manufacturing activities. The addition so upheld is contrary to the fact, law, duplicate and unjustified; therefore, the addition made is unjustified in full or excessive.

4. The Ld. CIT (A) erred in confirming the action of Ld. AO by upholding the addition of Rs. 50,000/- on account of alleged expenses in cash. The addition so upheld is contrary to the fact, law and unjustified, therefore, the addition made is unjustified in full or excessive.

6. That the appellant craves your indulgence to add, amend or alter all or any grounds of appeal

before or at the time of hearing. In (2021-22), the assessee has raised the following grounds of appeal:

1. The Ld. CIT (A) has erred in law as well as on the facts of the case in confirming the action of Ld.AO of initiating the assessment proceeding u/s. 153A of the Income Tax Act. The very action taken u/s. 153A of the act is bad in law and without jurisdiction. Hence, the same may kindly be quashed.

2. The Ld. CIT (A) has erred in law as well as on the facts of the case in confirming the order passed u/s. 153A without quoting the DIN in the body of assessment order so passed. The order so passed without generation of DIN is bad in law being against the statutory provisions/requirements. Hence, the same may kindly be quashed.

3. The Ld. CIT (A) erred in confirming the action of Ld. AO by confirming the addition of Rs. 95, 07,903/- on account of alleged excess stock out of business profit. The addition so upheld is contrary to the fact, law, and unjustified; therefore, the addition made is unjustified in full or excessive.

4. The Ld. CIT(A) erred in confirming the action of Ld. AO by upholding the addition of Rs. 20,00,000/- on account of alleged unaccounted cash commission. The addition so upheld is contrary to the fact, law and unjustified, therefore, the addition made is unjustified in full or excessive.

5. The Ld. CIT(A) erred in confirming the action of Ld. AO by upholding the addition of Rs. 8,87,104/- by applying GP rate of 30.90% on account of alleged mismatch of sales. The addition being contrary to the facts, contradictory, without considering the submission in right perspective, multiple times, against the law and unjustified, therefore, the addition made is unjustified in full or excessive.

6. The Ld. CIT(A) erred in confirming the action of Ld. AO by confirming the addition of Rs. 31,37,508/- on account of alleged use of unexplained stock in manufacturing activities. The addition so allowed is contrary to the fact, law, duplicate and unjustified, therefore, the addition made is unjustified in full or excessive.

1. The Ld. PCIT has erred in law as well as on the facts of the case by invoking jurisdiction, u/s. 263 of the Act, and directing to revise the order passed by Ld. AO u/s. 143(3) of the Income Tax Act, dated 29.04.2022 for A.Y. 2018-19. The Ld. PCIT has further erred by holding that the order passed, u/s. 143(3) of the Act, is bad in law and erroneous. Hence, the same may kindly be quashed.

2. The Ld. PCIT has erred in law as well as on the facts of the case in invoking section 263 of the Act without considering the explanations provided by the appellant and documentary evidences available with the Ld. AO. The said action is contrary to the facts and material available on record. Hence, the order u/s. 263 of the Act deserves to be quashed.

& others/JP/2025 Silver & Arts Palace 3. The Ld. PCIT has erred in law as well as on the facts of the case in directing the Ld. AO to revise the order passed u/s. 143(3) by invoking section 263 of the Act and tax the additions at special rate of tax u/s. 115BBE of the Act instead of normal rates. The said direction is unjustified, illegal and hence, the order deserves to be quashed.

1. The Ld. PCIT has erred in law as well as on the facts of the case by invoking jurisdiction, u/s. 263 of the Act, and directing to revise the order passed by Ld. AO u/s. 143(3) of the Income Tax Act, dated 06.05.2022 for A.Y. 2019-20. The Ld. PCIT has further erred by holding that the order passed, u/s. 143(3) of the Act, is bad in law and erroneous. Hence, the same may kindly be quashed.

2. The Ld. PCIT has erred in law as well as on the facts of the case in invoking section 263 of the Act without considering the explanations provided by the appellant and documentary evidences available with the Ld. AO. The said action is contrary to the facts and material available on record. Hence, the order u/s. 263 of the Act deserves to be quashed.

3. The Ld. PCIT has erred in law as well as on the facts of the case in directing the Ld. AO to revise the order passed u/s. 143(3) by invoking section 263 of the Act and tax the additions at special rate of tax u/s. 115BBE of the Act instead of normal rates. The said direction is unjustified, illegal and hence, the order deserves to be quashed.

4. That the appellant craves your indulgence to add, amend or alter all or any grounds of appeal before or at the time of hearing. A.Y. 2015-16

2. The brief facts of the case are that the assessee is a partnership firm engaged in the business of precious and semi-precious stones, Jewellery, textile and handicraft items etc. The assessee filed his return of income under section 139 of the Act on 27.09.2015, declaring total income at Rs. 29,30,41,583/-. A search action under section 132 of the Act was carried out on 19.01.2021 on the assessee group and its associated concerns. Assessee was also searched & others/JP/2025 Silver & Arts Palace under section 132 of the Act. Accordingly, notice under section 153A of the Act was issued and in response to this notice, assessee filed return under section 153A on 13.01.2022 declaring total income of Rs. 29,30,41,583/-. During the search operation at the premises of the assessee, digital data was found which was claimed to contain details of unaccounted commission paid, in cash, by the assessee. It was stated by the AO, in his assessment order, that the digital sheets contain details of commission paid by the assessee in cash to various tour and travel companies which has not been accounted for in the books, hence addition for the same was made by the AO. The addition made for the current year is Rs. 2, 26,690. Further, the AO also made addition of Rs. 25, 64,000/- on the basis of sheet recovered from digital data which was claimed to contain details of commission made to various persons which was, in view of the Ld. AO, also not routed through books of the assessee. During assessment proceedings, the assessee furnished the submissions before the AO. However, AO was not satisfied with the reply of the assessee and accordingly made the addition of Rs. 27, 93,690/- (2, 29,690/- + 25, 64,000/-). The assessee being aggrieved with this order preferred an appeal before the Ld. CIT (A), who in turn upheld the addition made by the AO. The assessee, being further aggrieved with this order of the Ld. CIT (A), preferred the present appeal before us.

4. The AO and the Ld. CIT(A) held that the seized digital sheet contains company wise report having date of sale, name of the guide, amount of sale, rate/amount of commission with the phrase ‘paid’ mentioned therein. Further, the amount cash commission of Rs. 22969/- mentioned in the seized sheet is suppressed by one zero. Accordingly, by multiplying the amount of Rs. 22969/- by 10, the resultant amount comes to Rs. 2,29,690/- which was paid to various tour and travel companies without routing them through books of accounts. On the other hand, AR of the assessee denied the allegation that the seized sheet contains out of books commission payment and submitted that all the commission, which has been paid during normal course of business, are duly accounted for in books of account of the assessee. The AR of the assessee also highlighted before us the deficiencies in the seized digital sheet and submitted that the seized page neither contain name of the appellant nor having reference for any payment, rate of commission or amount of commission. The AR also stated that assessee pays commission on an annual basis/periodically as business recommendation charges/commission to various tour/travel companies which are duly recorded in its books of accounts. Moreover, the AR also emphasised that the alleged commission does not even relate to the year under consideration. Hence, no addition can be made on the basis of such rough sheet.

& others/JP/2025 Silver & Arts Palace 5. The DR of the Revenue relied on the orders of the lower authorities.

by the assessee is allowed and the order of the AO and Ld. CIT (A) is quashed. The AO is directed to delete the addition of Rs. 2, 29,690/- made in the case of the assessee.

7. We rely on the following judgment as they are applicable in the present ground of appeal:  ITAT, Jaipur in the case of Rameshwar Lal Vyas Vs. DCIT, Central Circle, Ajmer [ITA No. 1257/JPR/2024] vide order dated 24.07.2025 held as under:

& others/JP/2025 Silver & Arts Palace “We have gone through the orders and submission/ argument of the AR of the assessee, at the outset; we already stated earlier that addition made on the basis of statement u/s. 133A of the Act is not maintainable. Further, without going into the other submission of the AR of the assessee, on perusal of the report of the DVO, as submitted before us by the AR of the assessee, we find that the DVO has not determined any investment for the year under consideration i.e. F.Y. 2016-17 which clearly suggest that, even as per the DVO, no investment was made by the assessee, in construction of any property, during the year under consideration. Hence, since the investment is not at all related to the year under consideration, there is no question to make addition therein u/s. 69 of the Act as unexplained investment since the very foundation of invoking section 69 of the Act in the current case is absent. Hence, in the absence of any investment during the current year, the addition of Rs. 35, 24,891/- made in this regard is found to be not sustainable. Thus, the same is deleted…”  ITAT, Chandigarh in the case of Tara Health Foods Ltd. Vs DCIT, vide order dated 18.06.2025 held as under: 8. We have duly considered the rival contentions and gone through the record. A perusal of the record would indicate that except a loose paper, no other corroborative material was found by the Revenue at the time of search. No doubt, it is a computerized sheet which does not have any signature of any person, but it has not been demonstrated by the assessee that narrations available on this page have actually been acted upon by the parties. The other connected party is M/s Meuz Hest India Pvt. Ltd. from whom assessee has been purchasing the machinery and it has made purchases of machinery having value of Rs.1.07 Cr in last four years. Thus, company has categorically denied any such transaction with it. It is not discernable whether it was a loan or it was some payment in connection with some transaction. The Department has carried out a search & seizure operation upon the assessee, therefore, it could easily discover the connection of this loose paper with any transaction, either unexplained investment in the machinery or anything else, but it could not collect any corroborative material from the assessee. The DDIT (Investigation) has called for the information from M/s Meuz Hest Process Tech (P) Ltd. But that concern has specifically denied of any such transaction with it. It is also pertinent to note that Department presume existence of loan and repayment of loan in cash in the hands of M/s Meuz Hest Process Tech (P) Ltd. but CIT (Appeals) has deleted levy of penalty u/s 271D and 271E of the Income Tax Act. The orders of the CIT (Appeals) have been upheld by the ITAT Mumbai Bench, whose copies are available on page No. 50 of the case law Paper Book. Therefore, we are of the view that in the absence of any corroborative material, it is difficult to draw an inference that any cash was transmitted by the assessee to alleged M/s Meuz Hest Process Tech (P) Ltd. and it has received back  ITAT, Mumbai in the case of Mahesh Narain Joglekar Vs DCIT, CC-4 vide order dated 27.02.2025 held as under: “18. We have heard both the parties and gone through the material referred to and the finding of the AO. From the bare perusal of the seized documents which have been scanned at page 23 and also list mentioned by the ld. AO in page 22, it is seen that the name mentioned as ‘S.M. Joglekar‟ with and with contact number. Nowhere this name or contact number pertain to the assessee because assessee is Mahesh N Joglekar and nowhere it has been brought on record whether S.M. Joglekar is the same as Mahesh N Joglekar. Further, there is a reference of some name Ramesh Gala, which also has no connection with the assessee. It is not the case here that this document is found or seized from the possession of the assessee, albeit from different person subjected to search, therefore for acquiring jurisdiction to assess u/s 153C, AO has to correlate that the seized ledger/document where name written is ‘S.M. Joglekar‟, pertains to assessee or it is some alias name of assessee. If the ld. AO is drawing some adverse inference based on these seized documents, at least he should have verified whether it actually pertains to the assessee or not? Because neither assessee’s name is Ramesh Gala nor S.M. Joglekar. Even in para 5.19 of the AO, telephone diary seized also show alphabet “J”“J/ 71/SJ” where the name of assessee is not there. Once there is no name mentioned of the assessee in the seized documents then, it cannot be said that it is an incriminating material to rope in any addition in the name of the assessee. … 20. On this ground alone the additions made in A.Yrs 2012-13 to 2018-19 which is based on same seized documents wherein name of the assessee is not mentioned is deleted.”

8. Now, we proceed to address Ground No. 3 raised against the addition of Rs. 25,64,000/- made on account of unexplained/unaccounted cash commission expenditure made to various persons. During the course of action under section 132 of the Act, at the premises of the assessee, certain digital data was seized. It is the contention of the AO that the said material contains details of commission paid in cash by the assessee to various persons. The current & others/JP/2025 Silver & Arts Palace addition of Rs. 25, 64,000/- has been made on the basis of a single seized digital sheet. During the assessment proceedings, the assessee submitted that the said sheet does not relate to any payment and is mere a rough working. However, the Ld. AO did not find the submission of the assessee satisfactory and made the addition. The ld. CIT (A) also confirmed the addition made by the AO.

9. Before us, the DR appearing for the revenue, strongly supported the order of the lower authorities and submitted that the addition so made deserves to be upheld.

& others/JP/2025 Silver & Arts Palace 11. We have gone through the assessment order, order of the Ld. CIT (A) and submissions made by the assessee and heard the contention of both the parties. In the present case, the addition has been made by the AO based on the basis of a single sheet seized during the search proceedings. After going through the said seized sheet, the first issue arises for our adjudication is whether the seized sheet itself is sufficient to prove that the assessee has made payment of commission in cash. In this regard, we have perused the sheet and noted that the sheet is a single loose sheet on which certain figures, names, abbreviation etc. are mentioned. The Ld. AO emphasised that the sheet contains details of commission paid to various person; however on perusal of the sheet, we find no mention of any payment or name of any recipient. When the lower authorities are claiming that the sheets contain commission payment, the sheet itself must reflect that payment which is absent in the current sheet. Further, the lower authorities failed to clarify how they interpreted ‘comms earned in 14-15’ as commission payment made in 2014-15 by the assessee. The said loose sheet contains no details about the unaccounted commission payment made by the assessee. There is no information remotely indicating the date on which payment of such commission was made or the identity of person(s) who are the recipient of such commission payment. We know that in the course of search, various loose papers are generally found and seized by the Department and such loose papers contain rough working, notings etc. which might not carry any significance or not have any real value but despite this the officer sometimes presume that its contents are correct. However, it is to be noted that the presumption cannot be stretched to conclude that the notings etc. noted in & others/JP/2025 Silver & Arts Palace the loose document found with the assessee reflect actual transaction. To confirm this, the officer has to produce some corroborative evidence which give meaning to those notings, working etc. In the current case, the lower authorities have just presumed that the contents are reflecting unaccounted commission payment, however, did not bring anything to support this claim. Hence, it will not be wrong to say that the lower authorities conclusion does not emerge from the contents of the seized sheet and their contention are devoid of any merit since there is nothing in this seized sheet which would suggest that any unaccounted payment has been made. The onus was on the Department to collect the evidence to corroborate the notings on the loose sheet which has not been done. Therefore, this is a mere case of guess work or suspicion/presumption of the lower authorities as the addition has no legs to stand alone and the lower authorities just presumed that Rs. 25,64,000/- represent commission payment. Hence, in our view, the unsubstantiated, unsigned and uncorroborated seized material alone cannot be considered as conclusive evidence to make addition as it is a fundamental judicial view that no arbitrary addition to the income can be made by the AO based on the loose papers containing scribbling, rough/vague notings, in the absence of any corroborative material, evidence on record and finding that such dumb documents had materialized into transaction. Therefore, we agree with the submission of the AR of the assessee that no addition can be made on the basis of presumptions and without bringing any corroborative material to substantiate that commission payment has been made by the assessee. Thus, placing reliance solely on the seized material is not legally valid and the additions on the basis of the above loose sheet should be deleted. Therefore,

& others/JP/2025 Silver & Arts Palace  The Hon’ble High Court of Madhya Pradesh in the case of PCIT-I Vs Shri Pukhraj Soni [ of 2017] dated 06.02.2019 dismissed the department appeal where addition was made on the basis of loose papers. Relevant extracts read as under: “7. The Apex Court has taken into account in similar circumstances the incriminating materials in form of random sheets, loose papers, computer prints, hard disk and pen drive etc. and has held that they are inadmissible in evidence, as they are in the form of loose papers.

8. In the present case also entries found during search and seizures which are on loose papers are being made the basis to add income of this respondent.

9. Resultantly, in light of the Supreme Court judgments, referred above, no case for interference is made out with the order passed by the Tribunal. Moreover no substantial question of law arises in the present appeal, the appeal is dismissed”.

 The ITAT, Bangalore in the case of Ace Developers Vs. DCIT [ITA No. 365/Bang/2024] vide order dated 20.09.2024 deleted the addition based on rough noting made on loose sheets and held as under: “18.5 At this juncture, it is equally important to refer the provisions of section 132(4A) and 292C of the Act which provides a presumption that the documents impounded from the premises of the assessee belongs to the assessee and the contents of the same are true. However, such presumption is rebuttable and assessee based on evidence can rebut the same. Even though the provision of section 292C and 132(4A) of the Act provides presumption to the assessing authority to presume that the document belong to the assessee and content are true about the documents found from the possession of the assessee but that does not mean that such documents shall be brought under the tax net. As such, to tax income based on loose sheets, it is necessary to bring finding on record that noting made in such documents are actual transactions which has materialized leading to income in the hand of the assessee and such income has been unaccounted or unexplained by the assessee. 18.6 in the case on hand, there was no finding, based on independent inquiry, brought on record that the assessee has collected on money on sale of flats except relying on the loose sheets/paper found during the survey proceeding at the assessee premises. There was no inquiry made from the person who allegedly bought the flats. Therefore, considering the facts in totality and the discussion made in the preceding paragraph, & others/JP/2025 Silver & Arts Palace we are of the opinion that the revenue authority was not justified in making such an addition merely based on certain rough noting made on loose sheets. Hence, the ground of appeal raised by the assessee is hereby allowed”.  The Mumbai ITAT in case of S.P. Goyal v. Dy. CIT [2002] 82 ITD 85 (Mum.) (TM)held as under: “…loose papers cannot be termed as books of an assessee maintained for any previous year. Loose sheet of paper torn out of a diary could not be construed as books for the purpose of section 68. Addition could not be made simply on the basis of certain nothings on loose sheets of a diary without any corroborative evidence in the form of extra cash, jewellery or investment outside the books. The loose papers appear to be part of a 1992 diary. However, these loose papers consist of pages torn out from March, April, November and December. There is no closing balances or opening balances and there is no reconciliation of these entries. Therefore, it cannot be termed as books maintained by the assessee during the previous year. . . . The loose paper in itself has got no intrinsic value. …When it is a mere entry on a loose sheet of paper and if the assessee claims that it was only a planning, not supported by actual cash, then there has to be circumstantial evidences to support that this entry really represent cash of Rs. 60 lakhs. There is no such evidence found by the Revenue in the form of extra cash, jewellery or investment outside the books.” A.Y. 2016-17

13. The brief facts of the case are that the assessee is a partnership firm engaged in the business of precious and semi-precious stones, Jewellery, textile and handicraft items etc. The assessee filed his return of income under section 139 of the Act on 26.09.2014, declaring total income at Rs. 1,88,34,200/-. A search action under section 132 of the Act was carried out on 19.01.2021 on the assessee group and its associated concerns. Assessee was also searched under section 132 of the Act. Accordingly, notice under section 153A of the Act was issued and in response to this notice, assessee filed return under section 153A of the Act on 13.01.2022 declaring total income of Rs. 1,88,34,200/-. During & others/JP/2025 Silver & Arts Palace the search operation at the premises of the assessee, digital data was found which was claimed to contain details of unaccounted commission paid, in cash, by the assessee. It was stated by the AO, in his assessment order, that the digital sheets contain details of commission paid by the assessee in cash to various tour and travel companies which have not been accounted for in the books; hence addition for the same was made by the AO. The addition made for the current year is Rs. 13,860/-. The AO also made addition of Rs. 19, 78,711/- on the basis of sheet recovered from digital data which was claimed to contain details of commission made to various persons which was, in view of the Ld. AO, also not routed through books of the assessee. Further, addition of Rs. 46, 98,564/- is also being made for unexplained stock in manufacturing activities on the basis of material seized during search of the assessee. During assessment proceedings, the assessee furnished the submissions before the AO. However, AO was not satisfied with the reply of the assessee and accordingly made the addition of Rs. 66, 91,135/- (13,860/- + 19, 78,711/- + 46, 98,564/-). The assessee being aggrieved with this order preferred an appeal before the Ld. CIT (A), who in turn upheld the addition made by the AO. The assessee, being further aggrieved with this order of the Ld. CIT (A), preferred the present appeal before us.

15. The AO and the Ld. CIT(A) held that the seized digital sheet contains company wise report having date of sale, name of the guide, amount of sale, rate/amount of commission with the phrase ‘paid’ mentioned therein. Further, the lower authorities stated that the figure mentioned in the seized sheet is suppressed by one zero. Hence, the amount cash commission of Rs. 1,386/- has been computed by applying 25% rate of commission on the payment of commission of Rs. 5,542/- made to Amjad Ali (1,366/-) and Narendra Singh (4,176/-). Accordingly, by multiplying the amount of Rs. 1,386/- by 10, the resultant amount comes to Rs. 13,860/- which was paid to various tour and travel companies without routing them through books of accounts. On the other hand, AR of the assessee denied the allegation that the seized sheet contains out of books commission payment and submitted that all the commission, which has been paid during normal course of business, are duly accounted for in books of account of the assessee. The AR also stated that assessee pays commission on an annual basis/periodically as business recommendation charges/commission to various tour/travel companies assessee which are duly recorded in its books of accounts. The AR of the assessee also highlighted before us the deficiencies in the seized digital sheet and submitted that the seized page neither indicate name of the appellant rather having name of ‘SARAF CARPET’ nor having reference for any payment & others/JP/2025 Silver & Arts Palace or cash, rate of commission or amount of commission. Hence, no addition can be made on the basis of such unrelated sheet.

by the assessee are allowed and the order of the Ld. CIT (A) and the AO is set-aside. The AO is further directed to delete the addition of Rs. 13,860/- in the case of the assessee. We rely on the below mentioned judgement:  ITAT, Mumbai in the case of Mahesh Narain Joglekar Vs DCIT, CC-4 vide order dated 27.02.2025 held as under:

18. We have heard both the parties and gone through the material referred to and the finding of the AO. From the bare perusal of the seized documents which have been scanned at page 23 and also list mentioned by the ld. AO in page 22, it is seen that the name mentioned as ‘S.M. Joglekar‟ with and with contact number. Nowhere this name or contact number pertain to the assessee because assessee is Mahesh N Joglekar and nowhere it has been brought on record whether S.M. Joglekar is the same as Mahesh N & others/JP/2025 Silver & Arts Palace Joglekar. Further, there is a reference of some name Ramesh Gala, which also has no connection with the assessee. It is not the case here that this document is found or seized from the possession of the assessee, albeit from different person subjected to search, therefore for acquiring jurisdiction to assess u/s 153C, AO has to correlate that the seized ledger/document where name written is ‘S.M. Joglekar‟, pertains to assessee or it is some alias name of assessee. If the ld. AO is drawing some adverse inference based on these seized documents, at least he should have verified whether it actually pertains to the assessee or not? Because neither assessee’s name is Ramesh Gala nor S.M. Joglekar. Even in para 5.19 of the AO, telephone diary seized also show alphabet “J”“J/ 71/SJ” where the name of assessee is not there. Once there is no name mentioned of the assessee in the seized documents then, it cannot be said that it is an incriminating material to rope in any addition in the name of the assessee. … 20. On this ground alone the additions made in A.Y.s 2012-13 to 2018-19 which is based on same seized documents wherein name of the assessee is not mentioned is deleted.”

& others/JP/2025 Silver & Arts Palace 19. Before us, the DR appearing for the revenue, strongly supported the order of the lower authorities and submitted that the addition so made deserves to be upheld.

51. The notice issued under Section 153C of the IT Act in respect of the Assessment year 2018-19 is not applicable, which is also supported by various judgments of the High Court. Further, the notice as regards the Assessment years 2015-16, 2016-17 and 2017- 18 are also not applicable, as the total addition of income were made on the basis of loose sheets. Further, the panchnama or mahazar of all the loose sheets said to have been seized from the house of Shri Rajendran, are now unavailable and the learned counsel for the Revenue has no answer for the same. On these premises, the assessment order made for the Assessment years 2015-16, 2016-17, 2017-18 and 2018- 19 requires to be quashed.

 The Hon’ble High Court of Madhya Pradesh in the case of PCIT-I Vs Shri Pukhraj Soni [ of 2017] dated 06.02.2019 dismissed the department appeal where addition was made on the basis of loose papers. Relevant extracts read as under: “7. The Apex Court has taken into account in similar circumstances the incriminating materials in form of random sheets, loose papers, computer prints, hard disk and pen drive etc. and has held that they are inadmissible in evidence, as they are in the form of loose papers.

8. In the present case also entries found during search and seizure which are on loose papers are being made the basis to add income of this respondent.

& others/JP/2025 Silver & Arts Palace 9. Resultantly, in light of the Supreme Court judgments, referred above, no case for interference is made out with the order passed by the Tribunal. Moreover no substantial question of law arises in the present appeal, the appeal is dismissed”.

 The ITAT, Bangalore in the case of Ace Developers Vs. DCIT [ITA No. 365/Bang/2024] vide order dated 20.09.2024 deleted the addition based on rough noting made on loose sheets and held as under: “18.5 At this juncture, it is equally important to refer the provisions of section 132(4A) and 292C of the Act which provides a presumption that the documents impounded from the premises of the assessee belongs to the assessee and the contents of the same are true. However, such presumption is rebuttable and assessee based on evidence can rebut the same. Even though the provision of section 292C and 132(4A) of the Act provides presumption to the assessing authority to presume that the document belong to the assessee and content are true about the documents found from the possession of the assessee but that does not mean that such documents shall be brought under the tax net. As such, to tax income based on loose sheets, it is necessary to bring finding on record that noting made in such documents are actual transactions which has materialized leading to income in the hand of the assessee and such income has been unaccounted or unexplained by the assessee. 18.6 In the case on hand, there was no finding, based on independent inquiry, brought on record that the assessee has collected on money on sale of flats except relying on the loose sheets/paper found during the survey proceeding at the assessee premises. There was no inquiry made from the person who allegedly bought the flats. Therefore, considering the facts in totality and the discussion made in the preceding paragraph, we are of the opinion that the revenue authority was not justified in making such an addition merely based on certain rough noting made on loose sheets. Hence, the ground of appeal raised by the assessee is hereby allowed”.

 The Hon’ble Mumbai ITAT in case of S.P. Goyal v. Dy. CIT [2002] 82 ITD 85 (Mum.) (TM) held as under: “…loose papers cannot be termed as books of an assessee maintained for any previous year. Loose sheet of paper torn out of a diary could not be construed as books for the purpose of section 68. Addition could not be made simply on the basis of certain nothings on loose sheets of a diary without any corroborative evidence in the form of & others/JP/2025 Silver & Arts Palace extra cash, jewellery or investment outside the books. The loose papers appear to be part of a 1992 diary. However, these loose papers consist of pages torn out from March, April, November and December. There is no closing balances or opening balances and there is no reconciliation of these entries. Therefore, it cannot be termed as books maintained by the assessee during the previous year. . . . The loose paper in itself has got no intrinsic value. …When it is a mere entry on a loose sheet of paper and if the assessee claims that it was only a planning, not supported by actual cash, then there has to be circumstantial evidences to support that this entry really represent cash of Rs. 60 lakhs. There is no such evidence found by the Revenue in the form of extra cash, jewellery or investment outside the books.”

& others/JP/2025 Silver & Arts Palace 24. During the assessment and first appellate proceedings, explanation was sought from the assessee on this issue. The assessee submitted that the gold and silver mentioned in the seized material were not sourced externally rather sourced from melting of old or obsolete stock which is duly recorded. The assessee submitted evidences from the material seized during search which contains details of melting of existing stock and recovery of metals etc. therefrom. Further, the assessee also provided references from the seized material suggesting the seized material clearly indicate that the stock items were issued for repair; rework etc. to karigars which was subsequently returned back after completion of such work. More importantly, items appearing in the seized material are duly found recorded in physical stock control sheet maintained by the appellant. Accordingly, in view of the evidence submitted during assessment, the assessee contended that it has not manufactured any stock out of books and whatever stock is appearing in the seized material are recovered from old/obsolete stock and indicating repair/rework of recorded stock. Further, the AR objected to the addition based on presumptive rate in case of precious and semi-precious stones since no supporting document were found in this regard. However, the AO find the submission as not tenable and made the following addition of Rs. 46,99,564/- in the current year which was also confirmed by the Ld. CIT(A): a) Unaccounted gold/silver used in manufacturing Activity of Rs. 37,02,970; b) Unaccounted payment made to Karigars of Rs. 2,55,000; c) Unaccounted precious and semi-precious stones of Rs. 7,40,594/- & others/JP/2025 Silver & Arts Palace 25. Before us, the AR of the assessee reiterated the submission made before the lower authorities and prayed for deletion of the addition of Rs. 46, 99,564/-. On the other hand, the DR of the revenue supported the orders of the lower authorities.

is partly allowed.

33. As far as addition of Rs. 2, 55,000/- for wages is concerned, since the assessee admitted to have paid wages to karigars for repair/reworked work and the payment is also backed by the seized material, we find no substance in the submission of the assessee that the partners were having sufficient drawings to meet out such payment as no corroborative evidence has been submitted in this behalf. However, we note that assessee has also raised ground no. 5 for allowing telescoping of unaccounted expenses against unaccounted income. We note that we determined Rs. 8,83,464/- in ground of appeal no. 4 as unaccounted profit of the assessee and hence such additional income of Rs. 8,83,464/- was available with the assessee for meeting out unaccounted cash expenditure in current year and even in subsequent year(s), if required. Therefore, the telescoping effect for the cash expenditure of Rs. 2,55,000/- is being given against unaccounted profit of Rs. 8,83,464/-. The remaining & others/JP/2025 Silver & Arts Palace unaccounted profit of 6, 28,464/- (8, 83,464/- – 2, 55,000/-) is available for subsequent year(s), if required. Accordingly, the ground taken by the assessee is allowed. A.Y. 2017-18

34. The brief facts of the case are that the assessee is a partnership firm engaged in the business of precious and semi-precious stones, Jewellery, textile and handicraft items etc. The assessee filed his return of income under section 139 of the Act on 01.11.2017, declaring total income at Rs. 4,55,31,410/-. A search action under section 132 of the Act was carried out on 19.01.2021 on the assessee group and its associated concerns. Assessee was also searched under section 132 of the Act. Accordingly, notice under section 153A of the Act was issued and in response to this notice, assessee filed return under section 153A on 13.01.2022 declaring total income of Rs. 4,55,31,410/-. During the search operation at the premises of the assessee, digital data was found which was claimed to contain details of unaccounted commission paid, in cash, by the assessee. It was stated by the AO, in his assessment order, that the digital sheets contain details of commission paid by the assessee in cash to various tour and travel companies which have not been accounted for in the books, hence addition for the same was made by the AO. The addition made for the current year is Rs. 43,280/-. Further, the AO also made addition of Rs. 31, 79,223/- on the basis of sheet recovered from digital data which was claimed to contain details of commission made to various persons which was, in view of the Ld. AO, also not routed through books of the assessee. Further, addition of Rs. 76, 47,049/- is also being made for unexplained stock in manufacturing & others/JP/2025 Silver & Arts Palace activities on the basis of material seized during search of the assessee. During assessment proceedings, the assessee furnished the submissions before the AO. However, AO was not satisfied with the reply of the assessee and accordingly made the addition of Rs. 1, 08, 69,552/- (43,280/- + 31, 79,223/- + 76, 47,049/-). The assessee being aggrieved with this order preferred an appeal before the Ld. CIT (A), who in turn upheld the addition made by the AO. The assessee, being further aggrieved with this order of the Ld. CIT (A), preferred the present appeal before us.

s No. 2 raised with respect to addition made for unaccounted cash commission of Rs. 43,280/-. We observe from the assessment order and order of the Ld. CIT (A) that a search action under section 132 of the Act was carried out in the case of the assessee on 19.01.2021. During the course of search, certain digital data was found and seized. The AR of the assessee has also submitted the seized material vide his paper book for our perusal. The seized material has been recovered from the digital data found during the search of the assessee.

36. The AO and the Ld. CIT(A) held that the seized digital sheet contains company wise report having date of sale, name of the guide, amount of sale, rate/amount of commission with the phrase ‘paid’ mentioned therein. Further, the lower authorities stated that the figure mentioned in the seized sheet is suppressed by one zero. Hence, the amount cash commission of Rs. 4,328/- has been computed by applying 25% rate of commission on the payment of & others/JP/2025 Silver & Arts Palace commission of Rs. 17,312/- made to Abhishek Srivastava. Accordingly, by multiplying the amount of Rs. 4,328/- by 10, the resultant amount comes to Rs. 43,280/- which was paid to various tour and travel companies without routing them through books of accounts. On the other hand, AR of the assessee denied the allegation of routing the commission paid through books and submitted that assessee pays commission on an annual basis/periodically as business recommendation charges/commission to various tour/travel companies assessee which are duly recorded in its books of accounts. The AR of the assessee also highlighted before us the deficiencies in the seized digital sheet and submitted that the seized page neither indicate name of the appellant rather having name of ‘SARAF CARPET’ nor having reference for any payment or cash, rate of commission or amount of commission. Hence, no addition can be made on the basis of such rough sheet.

by the assessee are allowed and the order of the Ld. CIT (A) and the AO is set-aside. The AO is further directed to delete the addition of Rs. 43,280/- in the case of the assessee. We rely on the following judgement:  ITAT, Mumbai in the case of Mahesh Narain Joglekar Vs DCIT, CC-4 vide order dated 27.02.2025 held as under: “18. We have heard both the parties and gone through the material referred to and the finding of the AO. From the bare perusal of the seized documents which have been scanned at page 23 and also list mentioned by the ld. AO in page 22, it is seen that the name mentioned as ‘S.M. Joglekar‟ with and with contact number. Nowhere this name or contact number pertain to the assessee because assessee is Mahesh N Joglekar and nowhere it has been brought on record whether S.M. Joglekar is the same as Mahesh N Joglekar. Further, there is a reference of some name Ramesh Gala, which also has no connection with the assessee. It is not the case here that this document is found or seized from the possession of the assessee, albeit from different person subjected to search, therefore for acquiring jurisdiction to assess u/s 153C, AO has to correlate that the seized ledger/document where name written is ‘S.M. Joglekar‟, pertains to assessee or it is some alias name of assessee. If the ld. AO is drawing some adverse inference based on these seized documents, at least he should have verified whether it actually pertains to the assessee or not? Because neither assessee’s name is Ramesh Gala nor S.M. Joglekar. Even in para 5.19 of the AO, telephone diary seized also show alphabet “J”“J/ 71/SJ” where the name of assessee is not there. Once there is no name mentioned of the assessee in the seized documents then, it cannot be said that it is an incriminating material to rope in any addition in the name of the assessee. …

20. On this ground alone the additions made in A.Y.s 2012-13 to 2018-19 which is based on same seized documents wherein name of the assessee is not mentioned is deleted.”

& others/JP/2025 Silver & Arts Palace 56. In the light of the above said Apex court Decisions and the Panchanama provided herein, it is deemed appropriate to conclude that the notice provided under Section 153C is bad in law”.  The Hon’ble High Court of Madhya Pradesh in the case of PCIT-I Vs Shri Pukhraj Soni [ of 2017] dated 06.02.2019 dismissed the department appeal where addition was made on the basis of loose papers. Relevant extracts read as under: “7. The Apex Court has taken into account in similar circumstances the incriminating materials in form of random sheets, loose papers, computer prints, hard disk and pen drive etc. and has held that they are inadmissible in evidence, as they are in the form of loose papers.

8. In the present case also entries found during search and seizures which are on loose papers are being made the basis to add income of this respondent.

9. Resultantly, in light of the Supreme Court judgments, referred above, no case for interference is made out with the order passed by the Tribunal. Moreover no substantial question of law arises in the present appeal, the appeal is dismissed”.

 The ITAT, Bangalore in the case of Ace Developers Vs. DCIT [ITA No. 365/Bang/2024] vide order dated 20.09.2024 deleted the addition based on rough noting made on loose sheets and held as under: “18.5 At this juncture, it is equally important to refer the provisions of section 132(4A) and 292C of the Act which provides a presumption that the documents impounded from the premises of the assessee belongs to the assessee and the contents of the same are true. However, such presumption is rebuttable and assessee based on evidence can rebut the same. Even though the provision of section 292C and 132(4A) of the Act provides presumption to the assessing authority to presume that the document belong to the assessee and content are true about the documents found from the possession of the assessee but that does not mean that such documents shall be brought under the tax net. As such, to tax income based on loose sheets, it is necessary to bring finding on record that noting made in such documents are actual transactions which has materialized leading to income in the hand of the assessee and such income has been unaccounted or unexplained by the assessee.

& others/JP/2025 Silver & Arts Palace 18.6 In the case on hand, there was no finding, based on independent inquiry, brought on record that the assessee has collected on money on sale of flats except relying on the loose sheets/paper found during the survey proceeding at the assessee premises. There was no inquiry made from the person who allegedly bought the flats. Therefore, considering the facts in totality and the discussion made in the preceding paragraph, we are of the opinion that the revenue authority was not justified in making such an addition merely based on certain rough noting made on loose sheets. Hence, the ground of appeal raised by the assessee is hereby allowed”.

 The Mumbai ITAT in case of S.P. Goyal v. Dy. CIT [2002] 82 ITD 85 (Mum.) (TM) held as under: “…loose papers cannot be termed as books of an assessee maintained for any previous year. Loose sheet of paper torn out of a diary could not be construed as books for the purpose of section 68. Addition could not be made simply on the basis of certain nothings on loose sheets of a diary without any corroborative evidence in the form of extra cash, jewellery or investment outside the books. The loose papers appear to be part of a 1992 diary. However, these loose papers consist of pages torn out from March, April, November and December. There is no closing balances or opening balances and there is no reconciliation of these entries. Therefore, it cannot be termed as books maintained by the assessee during the previous year. . . . The loose paper in itself has got no intrinsic value. …When it is a mere entry on a loose sheet of paper and if the assessee claims that it was only a planning, not supported by actual cash, then there has to be circumstantial evidences to support that this entry really represent cash of Rs. 60 lakhs. There is no such evidence found by the Revenue in the form of extra cash, jewellery or investment outside the books.”

44. During the assessment and first appellate proceedings, explanation was sought from the assessee on this issue. The assessee submitted that the gold and silver mentioned in the seized material were not sourced externally rather sourced from melting of old or obsolete stock which is duly recorded. The assessee submitted evidences from the material seized during search which contains details of melting of existing stock and recovery of metals etc. therefrom. Further, the assessee also provided references from the seized material suggesting the seized material clearly indicate that the stock items were issued for repair, rework etc. to karigars which was subsequently returned back after completion of such work. More importantly, items appearing in the seized material are duly found recorded in physical stock control sheet maintained by the appellant. Accordingly, in view of the evidence submitted during assessment, the assessee contended that it has not manufactured any stock out of books and whatever stock is appearing in the & others/JP/2025 Silver & Arts Palace seized material are recovered from old/obsolete stock and indicating repair/rework of recorded stock. Further, the AR objected to the addition based on presumptive rate in case of precious and semi-precious stones since no supporting document were found in this regard. However, the AO find the submission as not tenable and made the following addition of Rs. 76, 47,049/- in the current year which was also confirmed by the Ld. CIT (A): d) Unaccounted gold/silver used in manufacturing Activity of Rs. 63,79,694; e) Unaccounted payment made to Karigars of Rs. 1,000; f) Unaccounted precious and semi-precious stones of Rs. 12,66,355/- 45. Before us, the AR of the assessee reiterated the submission made before the lower authorities and prayed for deletion of the addition of Rs. 76, 47,049/-. On the other hand, the DR of the revenue supported the orders of the lower authorities.

& others/JP/2025 Silver & Arts Palace 47. Firstly, we perused the supporting documents put forth by the AR of the assessee in support of his argument. The AR of the assessee invited our attention to the paper book page no. 4 to 6 which happens to be the extracts from the seized material evidencing that the jewellery items are issued for repair/rework to job workers (Karigars) by the assessee. On verification of the claim of the AR, we found that the seized material contained the details with respect to goods issued to karigars along with the instructions. The seized material enclosed at PBP: 4 to 6 carrying the description generally noted for issuance of goods for job work. For instance, we note that the nature of work i.e. Jadai and Repair, along with the technical nomenclature used in the jewellery industry, is appearing in the seized material. We also observed that the AO have also acknowledged the above argument of repair and rework in his order which has been reproduced below: Point 8.28 at page 49 of the assessment order: “…There are plethora of incriminating documents which were seized and thereafter discussed in details above, shows that the assessee is issuing stock for manufacturing and also some of the items for further repair (which has been verified from the assessee’s books).”

51. Furthermore, as far as addition of Rs. 12, 66,355/- made by taking presumptive rate of 20% is concerned, we find that the lower authorities have not brought before us any material to justify this ad hoc rate of 20% for & others/JP/2025 Silver & Arts Palace making addition for precious and semi-precious stones. Further, we have already given relief of 30% in the material cost of gold/silver items hereinabove, therefore, to maintain the consistency and to meet the ends of justice, we are deleting 30% of the total addition of Rs. 12,66,355/- made on this account and direct the Assessing Officer to delete Rs. 3,79,906/-.

& others/JP/2025 Silver & Arts Palace 53. As far as addition of Rs. 1,000/- for wages is concerned, since the assessee admitted to have paid wages to karigars for repair/reworked work and the payment is also backed by the seized material. We find no substance in the submission of the assessee that the partners were having sufficient drawings to meet out such payment as no corroborative evidence has been submitted in this behalf. However, we note that assessee has also raised ground no. 5 for allowing telescoping of unaccounted expenses against unaccounted income. We note that the assessee has brought forward unaccounted profit of Rs. 6,28,464/- from preceding year and we further determined Rs. 18,49,373/- in ground of appeal no. 4 above and hence such additional unaccounted profit of Rs. 24,77,837/- (6,28,464/- + 18,49,373/-) was available with the assessee for meeting out unaccounted cash expenditure in current year and even in subsequent year(s), if required. Therefore, the telescoping effect for the cash expenditure of Rs. 1,000/- is being given against the above stated unaccounted profit. The remaining unaccounted profit of 24, 76,837/- (24, 77,837/- – 1,000/-) is available for subsequent year(s). Accordingly, the ground taken by the assessee is allowed. A.Y. 2018-19

54. The brief facts of the case are that the assessee is a partnership firm engaged in the business of precious and semi-precious stones, Jewellery, textile and handicraft items etc. The assessee filed his return of income under section 139 of the Act on 26.02.2019, declaring total income at Rs. 1,92,77,894/-. A search action under section 132 of the Act was carried out on 19.01.2021 on the assessee group and its associated concerns. Assessee was also searched under & others/JP/2025 Silver & Arts Palace section 132 of the Act. Accordingly, notice under section 153A of the Act was issued and in response to this notice, assessee filed return under section 153A on 13.01.2022 declaring total income of Rs. 1,92,77,894/-. During the search operation at the premises of the assessee, digital data was found which was claimed to contain details of unaccounted commission paid, in cash, by the assessee. It was stated by the AO, in his assessment order, that the digital sheets contain details of commission paid by the assessee in cash to various tour and travel companies which have not been accounted for in the books; hence addition for the same was made by the AO. The addition made for the current year is Rs. 23, 98,700/-. Addition of Rs. 4,67,715/- is also being made for unexplained stock in manufacturing activities on the basis of material seized during search of the assessee. Further, the AO also made addition of Rs. 2, 50,000/- on the basis of sheet recovered from digital data which was claimed to contain details of unaccounted cash expenses made by the assessee. During assessment proceedings, the assessee furnished the submissions before the AO. However, AO was not satisfied with the reply of the assessee and accordingly made the addition of Rs. 31, 16,415/- (23, 98,700/- + 4, 67,715/- + 2, 50,000/-). The assessee being aggrieved with this order preferred an appeal before the Ld. CIT (A), who in turn upheld the addition made by the AO. The assessee, being further aggrieved with this order of the Ld. CIT (A), preferred the present appeal before us.

56. The AO and the Ld. CIT(A) held that the seized digital sheet contains company wise report having date of sale, name of the guide, amount of sale, rate/amount of commission with the phrase ‘paid’ mentioned therein. Further, the lower authorities stated that the figure mentioned in the seized sheet is suppressed by one zero. Hence, the amount cash commission has been computed by applying rate of commission on the payment of commission of and multiplying the resulting figure by 10.Accordingly, in the current case, the amount of commission comes to Rs. 23,98,700/- which was claimed to be paid to various tour and travel companies without routing them through books of accounts. On the other hand, AR of the assessee denied the allegation of routing the commission paid through books and submitted that assessee pays commission on an annual basis/periodically as business recommendation charges/commission to various tour/travel companies assessee which are duly recorded in its books of accounts. The AR of the assessee also highlighted before us the deficiencies in the seized digital sheet and submitted that the seized page neither indicate name of the appellant rather having name of ‘SARAF CARPET’ nor having reference for any payment or cash, rate of commission or amount of commission. Hence, no addition can be made on the basis of such rough sheet.

& others/JP/2025 Silver & Arts Palace 57. The DR relied on the orders of the lower authorities.

& others/JP/2025 Silver & Arts Palace “As far as the page 68 of exhibit-8 is concerned, we find that the said page is a non- speaking document, since it no -where contains any details with respect to any payment more particularly any cash payment or date of transaction. Merely name & amount does not constitute unaccounted cash payment made to trade creditors. In absence of payment details, mode of payment, date of purchase by recipient, signature of recipient and vendor, the said page cannot constitute to contain unaccounted cash payment made to creditors by the assessee. The onus was on the revenue to prove the content, however we find that no tangible material, other than the statement, has been brought to support that the entries appearing in the seized page are unaccounted cash payment made to creditors. On the other hand, the assessee has submitted confirmation of all parties, under consideration, along with affidavits, regarding transactions executed with appellant during the year under consideration. More so, we find that no enquiry was conducted by the AO from even a single person named in the so called seized page, if at all, to strengthen the finding of Revenue culminating with addition. The contention of the Ld. CIT (A) that it is a case of parallel accounting is also hollow and presumptive since no corroborative material was brought on record. We also find force in the argument of the AR of the assessee that there cannot be any unaccounted income without there being any unaccounted purchase or sale or unaccounted stock. Neither the AO nor the Ld. CIT (A) has brought any material of any unaccounted purchase or sale in the current case nor the addition on account of accounted stock was already deleted by the Ld. CIT (A). We agree with the submission of the AR of the assessee that for invoking section 69 of the Act, there has to be an unrecorded/ unaccounted investment and that there cannot be any unaccounted investment without there being any accounted income.

 ITAT, Chandigarh in the case of Tara Health Foods Ltd. Vs DCIT, vide order dated 18.06.2025 held as under: 8. We have duly considered the rival contentions and gone through the record. A perusal of the record would indicate that except a loose paper, no other corroborative material was found by the Revenue at the time of search. No doubt, it is a computerized sheet which does not have any signature of any person, but it has not been demonstrated by the assessee that narrations available on this page have actually been acted upon by the parties. The other connected party is M/s Meuz Hest India Pvt. Ltd. from whom assessee has been purchasing the machinery and it has made purchases of machinery having value of Rs.1.07 Cr in last four years. Thus, company has categorically denied any such transaction with it. It is not discernable whether it was a loan or it was some payment in connection with some transaction. The Department has carried out a search & seizure & others/JP/2025 Silver & Arts Palace operation upon the assessee, therefore, it could easily discover the connection of this loose paper with any transaction, either unexplained investment in the machinery or anything else, but it could not collect any corroborative material from the assessee. The DDIT (Investigation) has called for the information from M/s Meuz Hest Process Tech (P) Ltd. But that concern has specifically denied of any such transaction with it. It is also pertinent to note that Department presume existence of loan and repayment of loan in cash in the hands of M/s Meuz Hest Process Tech (P) Ltd. but CIT (Appeals) has deleted levy of penalty u/s 271D and 271E of the Income Tax Act. The orders of the CIT (Appeals) have been upheld by the ITAT Mumbai Bench, whose copies are available on page No. 50 of the case law Paper Book. Therefore, we are of the view that in the absence of any corroborative material, it is difficult to draw an inference that any cash was transmitted by the assessee to alleged M/s Meuz Hest Process Tech (P) Ltd. and it has received back the cash. Therefore, we are of the view that this addition is not sustainable. Accordingly, we delete the addition.

 ITAT, Mumbai in the case of Mahesh Narain Joglekar Vs DCIT, CC-4 vide order dated 27.02.2025 held as under: “18. We have heard both the parties and gone through the material referred to and the finding of the AO. From the bare perusal of the seized documents which have been scanned at page 23 and also list mentioned by the ld. AO in page 22, it is seen that the name mentioned as ‘S.M. Joglekar‟ with and with contact number. Nowhere this name or contact number pertain to the assessee because assessee is Mahesh N Joglekar and nowhere it has been brought on record whether S.M. Joglekar is the same as Mahesh N Joglekar. Further, there is a reference of some name Ramesh Gala, which also has no connection with the assessee. It is not the case here that this document is found or seized from the possession of the assessee, albeit from different person subjected to search, therefore for acquiring jurisdiction to assess u/s 153C, AO has to correlate that the seized ledger/document where name written is ‘S.M. Joglekar‟, pertains to assessee or it is some alias name of assessee. If the ld. AO is drawing some adverse inference based on these seized documents, at least he should have verified whether it actually pertains to the assessee or not? Because neither assessee’s name is Ramesh Gala nor S.M. Joglekar. Even in para 5.19 of the AO, telephone diary seized also show alphabet “J”“J/ 71/SJ” where the name of assessee is not there. Once there is no name mentioned of the assessee in the seized documents then, it cannot be said that it is an incriminating material to rope in any addition in the name of the assessee. … & others/JP/2025 Silver & Arts Palace 20. On this ground alone the additions made in A.Y.s 2012-13 to 2018-19 which is based on same seized documents wherein name of the assessee is not mentioned is deleted.”

& others/JP/2025 Silver & Arts Palace 62. We have gone through the order of the lower authorities and heard both the parties. Upon perusing all the relevant seized material, it is clear that the core issue is the nature of notings found recorded in the seized material. At one hand, the lower authorities are contending that these seized materials are records of unaccounted gold/silver and precious/semi-precious infused in the manufacturing activity which never formed part of the books of the assessee. On the other hand, the AR of the assessee claims that the stock appearing in the seized material is the stock recovered from melting of old/existing stocks, repaired/reworked and not any unaccounted stock.

& others/JP/2025 Silver & Arts Palace “…There are plethora of incriminating documents which were seized and thereafter discussed in details above, shows that the assessee is issuing stock for manufacturing and also some of the items for further repair (which has been verified from the assessee’s books).”

is partly allowed.

69. As far as addition of Rs. 50,000/- for wages is concerned, since the assessee admitted to have paid wages to karigars for repair/reworked work and the payment is also backed by the seized material, we find no substance in the submission of the assessee that the partners were having sufficient drawings to meet out such payment as no corroborative evidence has been submitted in this behalf. However, we note that assessee has also raised ground no. 5 for allowing telescoping of unaccounted expenses against unaccounted income. We note that the assessee has brought forward unaccounted profit of Rs. 24,76,837/- from preceding year and we further determined Rs. 1,04,182/- in ground of appeal no. 4 above and hence such additional unaccounted profit of Rs. 25,81,019/- (24,76,837/- + 1,04,182/-) was available with the assessee for meeting out unaccounted cash expenditure in current year and even in subsequent year(s), if required. Therefore, the telescoping effect for the cash expenditure of Rs. 50,000/- is being given against the above stated unaccounted profit. The remaining unaccounted profit of 25, 31,019/- (25, 81,019/- (–) 50,000/-) is available for subsequent year(s), if required. Accordingly, the ground taken by the assessee is allowed.

& others/JP/2025 Silver & Arts Palace 70. The assessee also raised Ground of Appeal

No. 4 against the addition of Rs. 2,50,000/- made by the lower authorities on the basis of digital sheet recovered from personal computer of one Shri Rajat Agarwal. The lower authorities claim it to be the document pertaining to cash expenses of Rs. 2, 50,000/- made by the assessee during the year. The AR of the assessee submit that the seized sheet is a non-speaking document, does not contain name of the appellant and not found from the possession of the appellant rather from the computer of another person.

71. We have gone through the orders and also perused the seized sheet under consideration. We note that the sheet carry a heading ‘R. Puri & L. Puri’ and two types of notings one with reference of cheques and another with reference of ‘rokdi’ along with date. We also take note of the fact that the said sheet is recovered from the personal computer of Shri Rajat Agarwal and does not carry anything related to the assessee. Moreover, the submission of the AR that the cheque mentioned in the said seized are found recorded in the books of Shri Manoj Agarwal. All these instances make the case of the assessee stronger since there is absolutely nothing of any sort which remotely indicates that this sheet or its content belongs to the assessee. Further, the lower authorities also has not brought before us any reason for attributing this sheet to the assessee or any corroborative evidence which indicate that assessee has made the cash payment as mentioned in the sheet. Therefore, in absence of all this crucial information, we cannot add of Rs. 2, 50,000/- in the income of the assessee by presuming that the assessee must have paid this. Hence, we allow this ground and delete the addition of Rs. 2, 50,000/-.

& others/JP/2025 Silver & Arts Palace A.Y. 2019-20 72. The brief facts of the case are that the assessee is a partnership firm engaged in the business of precious and semi-precious stones, Jewellery, textile and handicraft items etc. The assessee filed his return of income under section 139 of the Act on 14.02.2020, declaring total income at Rs. 2,01,10,080/-. A search action under section 132 of the Act was carried out on 19.01.2021 on the assessee group and its associated concerns. Assessee was also searched under section 132 of the Act. Accordingly, notice under section 153A of the Act was issued and in response to this notice, assessee filed return under section 153A on 13.01.2022declaring total income of Rs. 2,01,10,080/-. During the search operation at the premises of the assessee, digital data was found which was claimed to contain details of unaccounted commission paid, in cash, by the assessee. It was stated by the AO, in his assessment order, that the digital sheets contain details of commission paid by the assessee in cash to various tour and travel companies which has not been accounted for in the books, hence addition for the same was made by the AO. The addition made for the current year is Rs. 80, 44,567/-. Addition of Rs. 93,95,905/- is also being made for unexplained stock in manufacturing activities on the basis of material seized during search of the assessee. Further, the AO also made addition of Rs. 50,000/- on the basis of sheet recovered from digital data which was claimed to contain details of unaccounted cash expenses made by the assessee. During assessment proceedings, the assessee furnished the submissions before the AO. However, AO was not satisfied with the reply of the assessee and accordingly made the addition of Rs. 1, 74, 90,472/- (80, 44,567/- + 93, 95,905/- + 50,000/-). The assessee being aggrieved with this order preferred & others/JP/2025 Silver & Arts Palace an appeal before the Ld. CIT (A), who in turn upheld the addition made by the AO. The assessee, being further aggrieved with this order of the Ld. CIT (A), preferred the present appeal before us.

& others/JP/2025 Silver & Arts Palace On the other hand, the DR of the revenue supported the orders of the lower authorities.

& others/JP/2025 Silver & Arts Palace Point 8.27 at page 48 of the assessment order: “…There are plethora of incriminating documents which were seized and thereafter discussed in details above, shows that the assessee is issuing stock for manufacturing and also some of the items for further repair (which has been verified from the assessee’s books).”

& others/JP/2025 Silver & Arts Palace 80. Therefore, we find force in the argument of the AR of the assessee that the seized material also incorporates therein repaired/reworked items, items made out of melting of old stock and included in physical control sheet. However, the explanation provided is not completely matching with seized documents. Hence, to meet the ends of justice overall 30% rebate is given on account of explanation, with supporting document, provided by the assessee and discussed hereinabove. Accordingly, we delete total addition of Rs. 22, 37,226/-.

is partly allowed.

83. As far as addition of Rs. 4, 47,000/- for wages is concerned, since the assessee admitted to have paid wages to karigars for repair/reworked work and the payment is also backed by the seized material, we find no substance in the submission of the assessee that the partners were having sufficient drawings to meet out such payment as no corroborative evidence has been submitted in this behalf. However, we note that assessee has also raised ground no. 5 for allowing telescoping of unaccounted expenses against unaccounted income. We note that the assessee has brought forward unaccounted profit of Rs. 25,31,019/- from preceding year and we further determined Rs. 25,81,055/- in ground of appeal no. 3 above and hence such additional unaccounted profit of Rs. 51,12,074/- (25,31,019/- + 25,81,055/-) was available with the assessee for meeting out unaccounted cash expenditure in current year and even in subsequent year(s), if required. Therefore, the telescoping effect for the cash expenditure of Rs. 4, 47,000/- is being given against the above stated unaccounted profit. The remaining unaccounted profit of Rs. 46,65,074/- & others/JP/2025 Silver & Arts Palace (51,12,074/- (–) 4,47,000/-) is available for current year as well as for subsequent year(s), if required. Accordingly, the ground taken by the assessee is allowed.

84. Now, we proceed with Grounds of Appeal s No. 2 raised with respect to addition made for unaccounted cash commission of Rs. 80,44,567/-. We observe from the assessment order and order of the Ld. CIT (A) that a search action under section 132 of the Act was carried out in the case of the assessee on 19.01.2021. During the course of search, certain digital data was found and seized. The AR of the assessee has also submitted the seized material vide his paper book for our perusal. The seized material has been recovered from the digital data found during the search of the assessee.

85. The AO and the Ld. CIT(A) held that the seized digital sheet contains company wise report having date of sale, name of the guide, amount of sale, rate/amount of commission with the phrase ‘paid’ mentioned therein. Further, the lower authorities stated that the figure mentioned in the seized sheet is suppressed by one zero. Accordingly, by multiplying the cash commission to 10, the resultant amount has been computed, which, in the view of the lower authorities, was paid to various tour and travel companies without routing them through books of accounts. On the other hand, AR of the assessee denied the allegation of routing the commission paid through books and submitted that all the commission are duly accounted for in books of account of the assessee. The AR of the assessee also highlighted before us the deficiencies in the seized digital sheet and submitted that the seized page neither indicate name of the appellant rather having name of ‘SARAF CARPET’ & others/JP/2025 Silver & Arts Palace nor having reference for any payment or cash, rate of commission or amount of commission and the in some cases, commission has been computed on presumptive rates. Hence, no addition can be made on the basis of such unrelated rough sheet and on presumptions.

no. 3 above, the same was available for making such unaccounted commission payment of Rs. 29,63,895/- and hence we give telescoping effect of Rs. 29,63,895/- against the unaccounted profit of Rs. 46,65,074. The remaining unaccounted profit of 17, 01,179/- (46, 65,074/- – 29, 63,895/-) is available for subsequent year(s), if required. Hence, this ground of appeal is allowed.

93. We respectfully follow the following judgements and rely on the decision of the same:  Hon’ble Karnataka High Court in the case of DCIT/ CIT(A) Vs. Sunil Kumar Sharma [W.A. No. 830/2022] vide order 22.01.2024, whereby the Hon’ble Court rejected the appeal of the revenue by holding that loose sheets have no evidentiary value without corroborative evidence. The Hon’ble Supreme Court has also dismissed SLP filed by the revenue against the said order. Relevant extracts of Hon’ble High Court order are reproduced below: “50. In the instant case, the first issue raised by the Revenue is as regards the addition of income made by the Assessing Officer based on loose sheets found in the house of a third party. However, we find that the Revenue has not established the said loose sheets to be considered as evidence in law by producing corroborative evidence supported by judgments and findings. Further, since the statement made by Shri K. Rajendran under Section 132 of the IT Act is later retracted by him by filing an affidavit, the statement given by him does not hold any evidentiary value.

51. The notice issued under Section 153C of the IT Act in respect of the Assessment year 2018-19 is not applicable, which is also supported by various judgments of the High Court. Further, the notice as regards the Assessment years 2015-16, 2016-17 and 2017- 18 are also not applicable, as the total addition of income were made on the basis of loose sheets. Further, the panchnama or mahazar of all the loose sheets said to have been seized from the house of Shri Rajendran, are now unavailable and the learned counsel for the Revenue has no answer for the same. On these premise, the assessment order made for the Assessment years 2015-16, 2016-17, 2017-18 and 2018-19 requires to be quashed.

& others/JP/2025 Silver & Arts Palace … 56. In the light of the above said Apex court Decisions and the Panchnama provided herein, it is deemed appropriate to conclude that the notice provided under Section 153C is bad in law”.

 The Hon’ble High Court of Madhya Pradesh in the case of PCIT-I Vs Shri Pukhraj Soni [ of 2017] dated 06.02.2019 dismissed the department appeal where addition was made on the basis of loose papers. Relevant extracts read as under: “7. The Apex Court has taken into account in similar circumstances the incriminating materials in form of random sheets, loose papers, computer prints, hard disk and pen drive etc. and has held that they are inadmissible in evidence, as they are in the form of loose papers.

& others/JP/2025 Silver & Arts Palace 18.6 In the case on hand, there was no finding, based on independent inquiry, brought on record that the assessee has collected on money on sale of flats except relying on the loose sheets/paper found during the survey proceeding at the assessee premises. There was no inquiry made from the person who allegedly bought the flats. Therefore, considering the facts in totality and the discussion made in the preceding paragraph, we are of the opinion that the revenue authority was not justified in making such an addition merely based on certain rough noting made on loose sheets. Hence, the ground of appeal raised by the assessee is hereby allowed”.  The Hon’ble Mumbai ITAT in case of S.P. Goyal v. Dy. CIT [2002] 82 ITD 85 (Mum.) (TM) held as under: “…loose papers cannot be termed as books of an assessee maintained for any previous year. Loose sheet of paper torn out of a diary could not be construed as books for the purpose of section 68. Addition could not be made simply on the basis of certain nothings on loose sheets of a diary without any corroborative evidence in the form of extra cash, jewellery or investment outside the books. The loose papers appear to be part of a 1992 diary. However, these loose papers consist of pages torn out from March, April, November and December. There is no closing balances or opening balances and there is no reconciliation of these entries. Therefore, it cannot be termed as books maintained by the assessee during the previous year. . . . The loose paper in itself has got no intrinsic value. …When it is a mere entry on a loose sheet of paper and if the assessee claims that it was only a planning, not supported by actual cash, then there has to be circumstantial evidences to support that this entry really represent cash of Rs. 60 lakhs. There is no such evidence found by the Revenue in the form of extra cash, jewellery or investment outside the books.”

94. The assessee also raised Ground of Appeal No. 4 against the addition of Rs. 50,000/- made by the lower authorities on the basis of digital sheet recovered from personal computer of one Shri Rajat Agarwal. The lower authorities claim it to be the document pertaining to cash expenses of Rs. 50,000/- made by the assessee during the year. The AR of the assessee submit that the seized sheet is a non-speaking document, does not contain name of the appellant and not & others/JP/2025 Silver & Arts Palace found from the possession of the appellant rather from the computer of another person.

95. We have gone through the orders and also perused the seized sheet under consideration. We note that the sheet carry a heading ‘R. Puri & L. Puri’ and two types of notings one with reference of cheques and another with reference of ‘rokdi’ along with date. We also take note of the fact that the said sheet is recovered from the personal computer of Shri Rajat Agarwal and does not carry anything related to the assessee. Moreover, the submission of the AR that the cheque mentioned in the said seized are found recorded in the books of Shri Manoj Agarwal. All these instances make the case of the assessee stronger since there is absolutely nothing of any sort which remotely indicates that this sheet or its content belongs to the assessee. Further, the lower authorities also has not brought before us any reason for attributing this sheet to the assessee or any corroborative evidence which indicate that assessee has made the cash payment as mentioned in the sheet. Therefore, in absence of all this crucial information, we cannot add of Rs.50, 000/- in the income of the assessee by presuming that the assessee must have paid this. Hence, we allow this ground and delete the addition of Rs. 50,000/-.

& others/JP/2025 Silver & Arts Palace Merely name & amount does not constitute unaccounted cash payment made to trade creditors. In absence of payment details, mode of payment, date of purchase by recipient, signature of recipient and vendor, the said page cannot constitute to contain unaccounted cash payment made to creditors by the assessee. The onus was on the revenue to prove the content, however we find that no tangible material, other than the statement, has been brought to support that the entries appearing in the seized page are unaccounted cash payment made to creditors. On the other hand, the assessee has submitted confirmation of all parties, under consideration, along with affidavits, regarding transactions executed with appellant during the year under consideration. More so, we find that no enquiry was conducted by the AO from even a single person named in the so called seized page, if at all, to strengthen the finding of Revenue culminating with addition. The contention of the Ld. CIT (A) that it is a case of parallel accounting is also hollow and presumptive since no corroborative material was brought on record. We also find force in the argument of the AR of the assessee that there cannot be any unaccounted income without there being any unaccounted purchase or sale or unaccounted stock. Neither the AO nor the Ld. CIT (A) has brought any material of any unaccounted purchase or sale in the current case and the addition on account of accounted stock was already deleted by the Ld. CIT (A). We agree with the submission of the AR of the assessee that for invoking section 69 of the Act, there has to be an unrecorded/ unaccounted investment and that there cannot be any unaccounted investment without there being any accounted income.

& others/JP/2025 Silver & Arts Palace A.Y. 2021-22 97. The brief facts of the case are that the assessee is a partnership firm engaged in the business of precious and semi-precious stones, Jewellery, textile and handicraft items etc. The assessee filed his return of income under section 139 of the Act on 15.02.2022, declaring total income at Rs. 8, 32,250/-. A search action under section 132 of the Act was carried out on 19.01.2021 on the assessee group and its associated concerns. Assessee was also searched under section 132 of the Act. Accordingly, notice under section 142(1) of the Act was issued and in response, the assessee submitted its reply. The AO made various additions to the returned income and assessed the total income at Rs. 45,76,59,325/-.The assessee being aggrieved with assessment order preferred an appeal before the Ld. CIT(A), who in turn allowed part relief to the assessee and restricted the addition to Rs. 1,55,63,415/-. The assessee, being further aggrieved with the order of the Ld. CIT (A), preferred the present appeal before us.

99. Ground No. 3 of the appeal has been raised for unaccounted excess stock of Rs. 95,07,903/-. The AR of the assessee submitted that there was no excess stock in terms of quantity in physical stock found during search and stock found recorded in physical stock control sheet of the assessee. Further submitted that stock found during search included old stock also, however, complete stock was valued at market price as against the method of valuation followed by the assessee which is cost or market price, whichever is lower. It is the contention of the AR of the assessee that although the Ld. CIT(A) has provided deduction of Gross Profit embedded in the market price of the stock found during search, however since there was no discrepancy in quantity of stock, the cost of stock as per book must have been accepted. The AR of the assessee also pointed out the Ld. CIT(A), while computing alleged excess value of stock of Rs. 95,07,903/-, has taken the value of stock as on 31.12.2020 instead of actual book value on the date of search which inflated the value of stock by Rs. 50,27,624/-. Therefore, according to the Ld. CIT (A) the alleged excess stock is of Rs. 44, 80,279/- (95, 07,903/- – 50, 27,624/-). Taking an alternative plea, the AR submitted that even if the addition of Rs. 95, 07,903/- is sustained, the entire addition will be tax neutral as there is no difference in quantity of stock and the said alleged excess stock will be the opening stock of & others/JP/2025 Silver & Arts Palace the assessee in the subsequent year which will eventually reduce the profit of the subsequent year.

104. Hence, it is clear that the addition of Rs. 95,07,903/- represent difference on account of valuation of stock only which arose due to difference in market & others/JP/2025 Silver & Arts Palace value, even after reducing the GP rate on approximate basis, and book value of stock. In this regard, we note that the assessee has followed the method of valuation: lower of cost or market rate during the year. This contention was also found to be correct by the Ld. CIT (A) in para 5.3.6 of his order. Further, the Ld. CIT (A) himself admitted that the consistent method of valuation, followed by the assessee, cannot be discarded by the AO and accordingly removed the gross profit embedded in the stock found. The relevant observation of the Ld. CIT (A) is reproduced below: Point 5.3.6.1 at page 54 of the Ld. CIT (A) order: “5.3.6.1 As per the accounting standard issued by the ICAI and ICDS issued by the CBDT prescribes that the method of valuation of inventories should be consistently followed by the concerned assessee. In the instant case, the appellant is following “lower of cost or market price”, therefore, the regular and consistent method of valuation cannot be discarded by the AO. The said view is found force from the following judgement:”

105. Therefore, when there is no difference in quantity of stock found during search and quantity of stock found recorded in books of accounts of the assessee, rather the difference is of valuation only and further, when the lower authorities have admitted that the assessee is consistently following the method of valuation (cost or market price, whichever is lower), then adopting a different method of valuation, in our view, is not valid and the stock ought to have been valued at cost or market price whichever is lower as persistently followed by the assessee. Accordingly, we are in agreement with the AR of the assessee that the value of stock as per book should be accepted and no addition should be made merely on the basis of valuation since there exists no difference in quantity of stock.

& others/JP/2025 Silver & Arts Palace Further, the meagre difference in stock of 100.552 grams is also ignored considering its quantity compared (0.02% of total stock) to total stock of 5, 08,573.380 grams and various reason of its occurrence. Therefore, we delete the addition of Rs. 95, 07,903/-. Further since we deleted the entire addition, there is no question of telescoping as provided by the Ld. CIT (A) in his order.

& others/JP/2025 Silver & Arts Palace 43/2021 and other related case laws as discussed herein above the grounds of appeal no. 3 raised by the assessee is allowed and impugned addition made u/s 69B of the Act on this issue is directed to be deleted in entirety. The orders of the lower authorities with respect to this issue are set aside and Ground No. 3 of the Assessee appeal is thus allowed in favour of the Assessee.”

 The ITAT, Jaipur in the case of Cottage Handicraft Textile Emporium Vs. DCIT V [ITA No.183/JP/2025] vide order dated 25.05.2025 held as under: “… Thus, there is no dispute about the quantity of the stock maintained by the assessee but only dispute about the valuation of the stock at the business premises of the assessee. When the matter carried before the ld. CIT(A) he sustained the addition for an amount of Rs. 6,61,606/- as the assessee failed to explain the difference between the stock price and MRP price stock price maintained by the assessee. Thus, so far as the quantity of the stock ld. AO or that of the ld. CIT(A) has not observed anything contrary and since the quantity of the stock is not in dispute merely there was difference in the stock record based on the cost and MRP does not got reconciled no addition merely on that difference can be made and therefore, we direct the ld. AO to delete that addition. We get support of our on the issue by the decision of our Hon’ble jurisdictional Rajasthan High Court in the Case oPCIT-1 Vs. M/s. Jewels Emporium in DBIT no. 43/2021 wherein High Court has held that ;  The ITAT, Jaipur in the case of DCIT Vs. M/s Vikas Jewellers [ITA No.789/JP/2019] vide order dated 01.11.2021 held as under: “13. Apart from our above discussion, we are of the view that said alleged difference in value of Rs. 2,12,54,055/- of stock in trade as per books of accounts and as per valuation report of registered valuer as on the date of search i.e. 28-01-2016. The A.O. has not held that there was any difference in quantity of stock as per valuation report and as per hooks of accounts. There can be no addition simply on the basis of valuation unless excess quantity of stock is found…”

That the revenue has to prove the undisclosed income beyond doubt. Further it was held that the document should be a speaking one and it should contain narration in respect of various figures noted therein. Otherwise the same should be considered as dumb document on which reliance could not place upon.

 Hon’ble Gujarat High court in the case of CIT vs. Maulik kumar K Shah reported in 307 ITR 137 wherein it was held that: “Notings in the seized diary found from the premises were the only material on the basis of which the Assessing Officer had made the impugned additions. The Assessing Officer had not brought any corroborative material on record to prove that such sales were made and 'on-money' was received by the assessee outside the books of account. The Assessing Officer had not examined any purchaser to whom the sales of shops were affected. Onus heavily lay on the revenue to prove with corroborative evidence that the entries in the seized diary actually represented the sales made by the assessee. Such onus had not been discharged by the revenue. Mere entries in the seized material were not sufficient to prove that the assessee had indulged in such a transaction. The inference of the Assessing Officer that the assessee has received 'on money', was merely based on suspicion and surmises and there was no material whatsoever to support the conclusion of the Assessing Officer that the assessee had in fact received any 'on-money'. The addition as made by the Assessing Officer being based on mere presumptions and assumptions and without any corroborative evidence could not be sustained.  Hon’ble ITAT, Hyderabad, in the case of M/s Nagarjuna Construction Company Ltd. Vs. DCIT held as under:

& others/JP/2025 Silver & Arts Palace 43. We have heard both the parties on this issue. As seen from the facts of the case, the addition based on the loose seeds bearing no. 136 to 153 of Annexure marked as A/NCCL-1/1 seized from the office premises situated at plot No.41, Nagarjuna Hills, Punjagutta, Hyderabad. This is with reference to calculation of interest receivable from Shri V Srinivasa Raju on advance of Rs.440 lakhs made by the Company. This is only the calculation made by the assessee to put pressure on Shri V Srinivasa Raju. These loose sheet bundles is a dumb documents and cannot be considered as tangible material to determine the undisclosed income. There should be a accrual of income and it should be a real one. The income should be receivable and cannot be hypothetical and only on real income, income tax could be levied. On hypothetical accrual of income, Tax cannot be levied.

& others/JP/2025 Silver & Arts Palace 117. During the assessment and first appellate proceedings, explanation was sought from the assessee on this issue. The assessee submitted that the gold and silver mentioned in the seized material were not sourced externally rather sourced from melting of old or obsolete stock which is duly recorded. The assessee submitted evidences from the material seized during search which contains details of melting of existing stock and recovery of metals etc. therefrom. Further, the assessee also provided references from the seized material evidencing that the seized material clearly indicate that the stock items were issued for repair, rework etc. to karigars which was subsequently returned back after completion of such work. More importantly, items appearing in the seized material are duly found recorded in physical stock control sheet maintained by the appellant. Accordingly, in view of the evidence submitted during assessment, the assessee contended that it has not manufactured any stock out of books and whatever stock is appearing in the seized material are recovered from old/obsolete stock and indicating repair/rework of recorded stock. Further, the AR objected to the addition based on presumptive rate in case of precious and semi-precious stones since no supporting document were found in this regard. However, the AO find the submission as not tenable and made the following addition of Rs. 32, 16,784/- in the current year. Unaccounted gold/silver used in manufacturing Activity of Rs. 24, 08,641/-; Unaccounted payment made to Karigars of Rs. 3, 26,415/-; Unaccounted precious and semi-precious stones of Rs. 4, 81,728/- & others/JP/2025 Silver & Arts Palace 118. Out of the addition of Rs. 32,16,784/-, the Ld. CIT(A) given credit of Rs. 79,276/- on account of melting of existing/old stock and sustained the addition of Rs. 31,37,508/-.