RAJVEE EXPORTS,SURAT vs. DCIT, CENTRAL CIRCLE 3, SURAT

IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH “DB” SURAT

BEFORE SHRI SANDEEP GOSAIN (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER)

ITA No. 520/SRT/2025 Assessment Year: 2021-2022 Rajvee Exports, DCIT, Central Circle 3, 400, Shri Godiji Building, Aayakar Bhavan, Devidas Pipla Road, Vs. Surat-395001. Mahidharpura, S.O. Surat-395003. PAN NO. AAGFR 1008 K Appellant Respondent

Assessee by : Mr. Rasesh Shah, CA Revenue by : Shri Mukesh Jain, CIT-DR

: 08/10/2025 Date of Hearing : 30/10/2025 Date of pronouncement

ORDER PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against order dated 31.03.2025 passed by the Ld. Principal Commissioner of Income- tax (Central), Surat [in short ‘the Ld. PCIT’] for assessment year 2021-2022, wherein he has held the assessment order passed by the Assessing Officer u/s 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 30.12.2022 as erroneous in so far as prejudicial to the interest of the Revenue. The grounds raised by the assessee are reproduced as under:

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order u/s. 263, although the assessment order p order u/s. 263, although the assessment order passed u/s. assed u/s. 143(3) of the I.T. Act, 1961 was neither erroneous nor 143(3) of the I.T. Act, 1961 was neither erroneous nor 143(3) of the I.T. Act, 1961 was neither erroneous nor prejudicial to the interest of the revenue. prejudicial to the interest of the revenue. 2. On the facts and circumstances of the case as well as law on On the facts and circumstances of the case as well as law on On the facts and circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in setting aside the the subject, the learned Pr. CIT has erred in setting aside the the subject, the learned Pr. CIT has erred in setting aside the order passed u/s. 143 order passed u/s. 143(3) with a direction to the assessing (3) with a direction to the assessing officer as per para no. 7 of the revision order to pass fresh officer as per para no. 7 of the revision order to pass fresh officer as per para no. 7 of the revision order to pass fresh assessment order after taking into consideration, the issues assessment order after taking into consideration, the issues assessment order after taking into consideration, the issues as may be considered together with the issues discussed in as may be considered together with the issues discussed in as may be considered together with the issues discussed in order. Accordingly, PCIT has erred i order. Accordingly, PCIT has erred in setting aside the n setting aside the assessment order making it wide open instead of restricting assessment order making it wide open instead of restricting assessment order making it wide open instead of restricting the issues raised in show cause notice. the issues raised in show cause notice. 3. On the facts and circumstances of the case as well as law on On the facts and circumstances of the case as well as law on On the facts and circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in directing the the subject, the learned Pr. CIT has erred in directing the the subject, the learned Pr. CIT has erred in directing the assessing offic assessing officer to make fresh inquiry and verification in er to make fresh inquiry and verification in respect of quantity of stock as per assessee's books of respect of quantity of stock as per assessee's books of respect of quantity of stock as per assessee's books of accounts. accounts. 4. It is therefore prayed that above order passed by Pr. CIT u/s. It is therefore prayed that above order passed by Pr. CIT u/s. It is therefore prayed that above order passed by Pr. CIT u/s. 263 may please be quashed or modified as your honours 263 may please be quashed or modified as your honours 263 may please be quashed or modified as your honours deem it proper. deem it proper. 2. Briefly stated, facts of the case stated, facts of the case as emanating from the as emanating from the record, reveals that a survey action under section 133A of the record, reveals that a survey action under section 133A of the record, reveals that a survey action under section 133A of the Act was conducted on 17th December, 2022, at the business was conducted on 17th December, 2022, at the business was conducted on 17th December, 2022, at the business premises of the assessee, wherein the books of account and other premises of the assessee, wherein the books of account and other premises of the assessee, wherein the books of account and other relevant documents wer relevant documents were duly impounded. During the course of e duly impounded. During the course of such proceedings, the stock of diamonds found on physical such proceedings, the stock of diamonds found on physical such proceedings, the stock of diamonds found on physical verification was discovered to be substantially in excess of that verification was discovered to be substantially in excess of that verification was discovered to be substantially in excess of that recorded in the regular books of account. recorded in the regular books of account.

2.1 It is recorded that during the survey, physical stock of 155 It is recorded that during the survey, physical stock of 155 It is recorded that during the survey, physical stock of 155 carats of diamonds was found, as against a meagre 3 carats carats of diamonds was found, as against a meagre 3 carats carats of diamonds was found, as against a meagre 3 carats reflected in the books. The authorised officer, in the course of reflected in the books. The authorised officer, in the course of reflected in the books. The authorised officer, in the course of statement recorded under oath, elicited an admission from statement recorded under oath, elicited an admission from statement recorded under oath, elicited an admission from Shri Kiran Kumar B. Patel mar B. Patel, a partner of the assessee firm, , a partner of the assessee firm, acknowledging such discrepancy and offering the differential acknowledging such discrepancy and offering the differential acknowledging such discrepancy and offering the differential value, duly quantified at value, duly quantified at ₹33,09,548/- as per valuation by a as per valuation by a Government-approved valuer, for taxation as unexplained stock. approved valuer, for taxation as unexplained stock. approved valuer, for taxation as unexplained stock.

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2.2 Subsequent to the sa Subsequent to the said survey action, the assessee filed its action, the assessee filed its return of income for the year under consideration on 29th return of income for the year under consideration on 29th return of income for the year under consideration on 29th December, 2021, declaring a total loss of December, 2021, declaring a total loss of ₹5,22,462/ 5,22,462/-. The case was selected for scrutiny under the compulsory manual selection was selected for scrutiny under the compulsory manual selection was selected for scrutiny under the compulsory manual selection criteria owing to the survey criteria owing to the survey proceedings aforementioned. During proceedings aforementioned. During the assessment, the assessee revised its stand and contended the assessment, the assessee revised its stand and contended the assessment, the assessee revised its stand and contended that, on reconciliation, the stock as per books of account was that, on reconciliation, the stock as per books of account was that, on reconciliation, the stock as per books of account was 146.662 carats as against 155 carats found physically. 146.662 carats as against 155 carats found physically. 146.662 carats as against 155 carats found physically. ss stock at ₹6,24,787/- Accordingly, it computed the value of exce Accordingly, it computed the value of excess stock at and offered the same as unaccounted stock. and offered the same as unaccounted stock. The Assessing The Assessing Officer, while not entirely persuaded by such explanation, Officer, while not entirely persuaded by such explanation, Officer, while not entirely persuaded by such explanation, nonetheless accepted the assessee’s computation and made an nonetheless accepted the assessee’s computation and made an nonetheless accepted the assessee’s computation and made an addition of ₹6,24,787/ 6,24,787/- as unaccounted stock under secti as unaccounted stock under section 69 read with section 115BBE of the Act. read with section 115BBE of the Act. The relevant finding of the The relevant finding of the Assessing Officer in assessment order dated 30.12.2022 is Assessing Officer in assessment order dated 30.12.2022 is Assessing Officer in assessment order dated 30.12.2022 is reproduced as under: reproduced as under:

6.3 The reply of assessee with regard to stock has been perused and 6.3 The reply of assessee with regard to stock has been perused and 6.3 The reply of assessee with regard to stock has been perused and the contention of assessee is not the contention of assessee is not found to be acceptable in totality. found to be acceptable in totality. The assessee is well aware that the books of account was The assessee is well aware that the books of account was The assessee is well aware that the books of account was incomplete as on the date of survey proceeding. During course of incomplete as on the date of survey proceeding. During course of incomplete as on the date of survey proceeding. During course of survey proceedings, stock was taken by department. The summary survey proceedings, stock was taken by department. The summary survey proceedings, stock was taken by department. The summary chart of the stock chart of the stock-position of the assessee is as below: Sr Stock as per books Stock as per books Stock found Difference Difference physically 1. Diamond Diamond-3 cts Diamond-155 cts Gold Gold-145.38 gm Gold- 145.38 gm Diamond Diamond-152 cts

In order to verify the excess stock whether it is accounted in books of In order to verify the excess stock whether it is accounted in books of In order to verify the excess stock whether it is accounted in books of account or not, account or not, on being asked the assessee has submitted the being asked the assessee has submitted the reconciliation of stock of diamond and Gold. As per reconciliation reconciliation of stock of diamond and Gold. As per reconciliation reconciliation of stock of diamond and Gold. As per reconciliation submitted by assessee, it is found that as on date the stock position submitted by assessee, it is found that as on date the stock position submitted by assessee, it is found that as on date the stock position of Gold and Diamond is as under: of Gold and Diamond is as under: Sr Stock as per books Stock as per books Stock found Difference Value (in physically Rs.)

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As it is evident from above, the assessee itself As it is evident from above, the assessee itself admitted that Gold admitted that Gold stock as per books of account was 0.093 gram. With regard to excess stock as per books of account was 0.093 gram. With regard to excess stock as per books of account was 0.093 gram. With regard to excess stock, the assessee has stated that jewellery found from the stock, the assessee has stated that jewellery found from the stock, the assessee has stated that jewellery found from the presmises on the date of survey was received for repairing purpose presmises on the date of survey was received for repairing purpose presmises on the date of survey was received for repairing purpose which was already sold. This jewellery wa which was already sold. This jewellery was sold earlier and part of s sold earlier and part of such jewellery should not be considered as assessee's stock in hand. such jewellery should not be considered as assessee's stock in hand. such jewellery should not be considered as assessee's stock in hand. However, the assessee has not submitted any corroborative evidence However, the assessee has not submitted any corroborative evidence However, the assessee has not submitted any corroborative evidence i.e. copy of bill/invoice raised earlier, copy of delivery/receipt of i.e. copy of bill/invoice raised earlier, copy of delivery/receipt of i.e. copy of bill/invoice raised earlier, copy of delivery/receipt of jewellery etc. to prove jewellery etc. to prove that the such jewellery was sold earlier. As on that the such jewellery was sold earlier. As on date of survey, the statement of partner of assessee was recorded date of survey, the statement of partner of assessee was recorded date of survey, the statement of partner of assessee was recorded and he was categorically asked regarding position of stock. In and he was categorically asked regarding position of stock. In and he was categorically asked regarding position of stock. In response to the same, he stated that no other stock was lying at the response to the same, he stated that no other stock was lying at the response to the same, he stated that no other stock was lying at the business premise as well as no stock pertaining to business concern premise as well as no stock pertaining to business concern premise as well as no stock pertaining to business concern was lying at another premise at that time, It clearly indicates that was lying at another premise at that time, It clearly indicates that was lying at another premise at that time, It clearly indicates that the assessee has nothing to submit in respect of excess stock, The the assessee has nothing to submit in respect of excess stock, The the assessee has nothing to submit in respect of excess stock, The assessee is putting only cooked up story. assessee is putting only cooked up story. The assessee merely The assessee merely provided the details of jewellery for so called provided the details of jewellery for so called repairing in tabular form. On this basis, the excess stock amount of repairing in tabular form. On this basis, the excess stock amount of repairing in tabular form. On this basis, the excess stock amount of Rs.6,24,787/- (Diamond 8.34 cts and Gold-145.38 g) cannot be 145.38 g) cannot be treated as explained treated as explained Looking the above facts and circumstances of the case, i Looking the above facts and circumstances of the case, in absence of n absence of any corroborative evidence for sold out the jewellery earlier, the any corroborative evidence for sold out the jewellery earlier, the any corroborative evidence for sold out the jewellery earlier, the excess stock amount of Rs.6,24,787/ excess stock amount of Rs.6,24,787/- is treated as unaccounted is treated as unaccounted stock and added back to the total income of assessee. Therefore, the stock and added back to the total income of assessee. Therefore, the stock and added back to the total income of assessee. Therefore, the amount of Rs.6,24,787/ amount of Rs.6,24,787/- is hereby added back to the total income of assessee as unaccounted unexplained investment u/s 69 r.w.s assessee as unaccounted unexplained investment u/s 69 r.w.s assessee as unaccounted unexplained investment u/s 69 r.w.s 115BBE of the I.T. Act, 1961. 115BBE of the I.T. Act, 1961. I am satisfied that assesse has concealed its income to evade the I am satisfied that assesse has concealed its income to evade the I am satisfied that assesse has concealed its income to evade the due taxes, hence penalty proceedings u/s 271AAC is separately due taxes, hence penalty proceedings u/s 271AAC is separately due taxes, hence penalty proceedings u/s 271AAC is separately initiated for concealment of income. concealment of income.” 3. Thereafter, The ld The ld PCIT on examination of the assessment on examination of the assessment record, was of the considered view that the Assessing Officer had record, was of the considered view that the Assessing Officer had record, was of the considered view that the Assessing Officer had erred in accepting the reconciliation and explanation of the erred in accepting the reconciliation and explanation of the erred in accepting the reconciliation and explanation of the assessee assessee assessee without without without conducting conducting conducting any any any meaningful meaningful meaningful inquiry inquiry inquiry or or or verification of the supporting documentar verification of the supporting documentary evidences. He y evidences. He observed that the Assessing Officer had reduced the quantum of observed that the Assessing Officer had reduced the quantum of observed that the Assessing Officer had reduced the quantum of

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excess stock from excess stock from ₹33,09,548/-, admitted during survey, to , admitted during survey, to ₹6,24,787/- merely on the basis of unverified statements. merely on the basis of unverified statements. merely on the basis of unverified statements.

3.1 Accordingly, a notice under section 263 of the Act was Accordingly, a notice under section 263 of the Act was Accordingly, a notice under section 263 of the Act was issued, calling upon the assessee to show cause why the issued, calling upon the assessee to show cause why the issued, calling upon the assessee to show cause why the assessment order should not be treated as assessment order should not be treated as erroneous in so far as erroneous in so far as it is prejudicial to the interest of the Revenue it is prejudicial to the interest of the Revenue it is prejudicial to the interest of the Revenue. After due consideration of the assessee’s submissions, the Ld. PCIT held consideration of the assessee’s submissions, the Ld. PCIT held consideration of the assessee’s submissions, the Ld. PCIT held that the Assessing Officer had failed to make requisite inquiries essing Officer had failed to make requisite inquiries essing Officer had failed to make requisite inquiries and verification, and consequently, the assessment order was and verification, and consequently, the assessment order was and verification, and consequently, the assessment order was liable to be set aside under the provisions of section 263 of the liable to be set aside under the provisions of section 263 of the liable to be set aside under the provisions of section 263 of the Act. The relevant finding of the Ld. PCIT is reproduced as under: he relevant finding of the Ld. PCIT is reproduced as under: he relevant finding of the Ld. PCIT is reproduced as under:

“5.1 Having carefully considered the factual matrix of this case ng carefully considered the factual matrix of this case ng carefully considered the factual matrix of this case and the legal position in this regard, my comments on the specific and the legal position in this regard, my comments on the specific and the legal position in this regard, my comments on the specific arguments taken by the assessee and the evidence relied upon by arguments taken by the assessee and the evidence relied upon by arguments taken by the assessee and the evidence relied upon by him during the present proceedings are as under: him during the present proceedings are as under:- A. Before me, the a A. Before me, the assessee has argued that he had submitted full ssessee has argued that he had submitted full details and reconciliation during the assessment proceedings and details and reconciliation during the assessment proceedings and details and reconciliation during the assessment proceedings and after considering and verifying the same the altered figures of after considering and verifying the same the altered figures of after considering and verifying the same the altered figures of excess stock of diamond and gold were accepted by him. excess stock of diamond and gold were accepted by him. excess stock of diamond and gold were accepted by him. However, on verification o However, on verification of the assessment record, I observe that f the assessment record, I observe that complete details or reconciliation was not furnished by the complete details or reconciliation was not furnished by the complete details or reconciliation was not furnished by the assessee during the assessment proceedings. It may be relevant assessee during the assessment proceedings. It may be relevant assessee during the assessment proceedings. It may be relevant to note that vide point no. 2 of the Annexure to the notice issued to note that vide point no. 2 of the Annexure to the notice issued to note that vide point no. 2 of the Annexure to the notice issued by the A.O. under section by the A.O. under section 142(1) on 05.09.2022, the A.O. had 142(1) on 05.09.2022, the A.O. had inter alia called for the following specific details : inter alia called for the following specific details :- "2. Please give details of method of stock maintained by you and "2. Please give details of method of stock maintained by you and "2. Please give details of method of stock maintained by you and also state as to whether any stock accounts including day to day also state as to whether any stock accounts including day to day also state as to whether any stock accounts including day to day stock register etc are maintained b stock register etc are maintained by you, if yes, please give y you, if yes, please give details of the opening stock and closing stock in the following details of the opening stock and closing stock in the following details of the opening stock and closing stock in the following format. Sr. Nature/description Nature/description Quantity Rate Value Basis Basis of of No. of item Valuation for Valuation for each each item item separately separately If stock details are not maintained, then please clarify as to how If stock details are not maintained, then please clarify as to how If stock details are not maintained, then please clarify as to how stock stock records records are are verifiable, verifiable, vis vis- à-vis purchase/consumption/sale. Please also give details of month purchase/consumption/sale. Please also give details of month purchase/consumption/sale. Please also give details of month wise purchase and sales made during the year under wise purchase and sales made during the year under wise purchase and sales made during the year under consideration in terms of quantity a consideration in terms of quantity and value. Please furnish nd value. Please furnish

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details regarding method of valuation of closing stock along with details regarding method of valuation of closing stock along with details regarding method of valuation of closing stock along with necessary supporting evidences such as bills, etc." necessary supporting evidences such as bills, etc." It is observed that these details were not submitted in full by the It is observed that these details were not submitted in full by the It is observed that these details were not submitted in full by the assessee despite getting sufficient opportuni assessee despite getting sufficient opportunity during the ty during the assessment proceedings. No details of valuation of opening stock assessment proceedings. No details of valuation of opening stock assessment proceedings. No details of valuation of opening stock had been given by it to the A.O. or even during the present had been given by it to the A.O. or even during the present had been given by it to the A.O. or even during the present proceedings. No stock register for gold was produced before the proceedings. No stock register for gold was produced before the proceedings. No stock register for gold was produced before the A.O. or during the present proceedings. It is seen th A.O. or during the present proceedings. It is seen that the A.O. or during the present proceedings. It is seen that the assessee had claimed before the A.O. that on the date of survey, assessee had claimed before the A.O. that on the date of survey, assessee had claimed before the A.O. that on the date of survey, the stock, as per books, was 146.662 carats of diamond and the stock, as per books, was 146.662 carats of diamond and the stock, as per books, was 146.662 carats of diamond and 0.093 grams of gold instead of 3 carats of diamond and nil gold 0.093 grams of gold instead of 3 carats of diamond and nil gold 0.093 grams of gold instead of 3 carats of diamond and nil gold as admitted by it on the date of survey. The AO had accepted as admitted by it on the date of survey. The AO had accepted as admitted by it on the date of survey. The AO had accepted the contention of the assessee without any further verification and contention of the assessee without any further verification and contention of the assessee without any further verification and supporting documentary evidence. supporting documentary evidence. B. In respect of the reconciliation statement of stock submitted B. In respect of the reconciliation statement of stock submitted B. In respect of the reconciliation statement of stock submitted during the course of the assessment proceedings and in this during the course of the assessment proceedings and in this during the course of the assessment proceedings and in this proceeding, it is specifically proceeding, it is specifically noticed that:- a. During the course of the assessment proceedings, the assessee a. During the course of the assessment proceedings, the assessee a. During the course of the assessment proceedings, the assessee had submitted that the jewellery found during the course of the had submitted that the jewellery found during the course of the had submitted that the jewellery found during the course of the survey was received for repairing purposes only, but no survey was received for repairing purposes only, but no survey was received for repairing purposes only, but no supporting documentary evidence in this regard has eith supporting documentary evidence in this regard has either been er been submitted in the assessment proceedings or in the present submitted in the assessment proceedings or in the present submitted in the assessment proceedings or in the present proceeding even though it was specifically pointed out to the proceeding even though it was specifically pointed out to the proceeding even though it was specifically pointed out to the assessee in the notice issued under section 263 of the I.T. Act. assessee in the notice issued under section 263 of the I.T. Act. assessee in the notice issued under section 263 of the I.T. Act. b. The AO had merely relied upon the submission of the assessee b. The AO had merely relied upon the submission of the assessee b. The AO had merely relied upon the submission of the assessee and reconciliation of stock of the assessee without any supporting and reconciliation of stock of the assessee without any supporting and reconciliation of stock of the assessee without any supporting documentary evidence and had adopted the reduced value and documentary evidence and had adopted the reduced value and documentary evidence and had adopted the reduced value and quantity of excess stock even though the assessee had failed to quantity of excess stock even though the assessee had failed to quantity of excess stock even though the assessee had failed to explain the same during the course of survey proceedings. TAX explain the same during the course of survey proceedings. TAX explain the same during the course of survey proceedings. TAX DEPAR c. During the course of survey proceedings, the assessee could c. During the course of survey proceedings, the assessee could c. During the course of survey proceedings, the assessee could have prepared a stock statement on the basis of record of have prepared a stock statement on the basis of record of have prepared a stock statement on the basis of record of purchases and sales but had failed to explain the difference and purchases and sales but had failed to explain the difference and purchases and sales but had failed to explain the difference and instead agreed to the figures of excess stock. Therefore, any instead agreed to the figures of excess stock. Therefore, any instead agreed to the figures of excess stock. Therefore, any variance to the same can be validly accepted on the basis of nce to the same can be validly accepted on the basis of nce to the same can be validly accepted on the basis of genuine and verified evidences, which in the instant case were genuine and verified evidences, which in the instant case were genuine and verified evidences, which in the instant case were not supplied by it. not supplied by it. d. The assessee had failed to explain why it had admitted that d. The assessee had failed to explain why it had admitted that d. The assessee had failed to explain why it had admitted that the stock, as per the books of account, was only of 3 the stock, as per the books of account, was only of 3 Cts. Of Cts. Of Diamond and why it had not prepared the stock statement as on Diamond and why it had not prepared the stock statement as on Diamond and why it had not prepared the stock statement as on the date of survey with the help of the record of purchases and the date of survey with the help of the record of purchases and the date of survey with the help of the record of purchases and sales. sales. sales. Without Without Without any any any proper proper proper explanations explanations explanations and and and supporting supporting supporting documentary evidence, the A.O. erroneously accepted the stock documentary evidence, the A.O. erroneously accepted the stock documentary evidence, the A.O. erroneously accepted the stock statement submitted by the assessee during the course of the ent submitted by the assessee during the course of the ent submitted by the assessee during the course of the assessment proceedings. assessment proceedings. C. The assessee's argument that any addition as per the proposal C. The assessee's argument that any addition as per the proposal C. The assessee's argument that any addition as per the proposal given by this office under section 263, will lead to double taxation given by this office under section 263, will lead to double taxation given by this office under section 263, will lead to double taxation because the additions have already been mad because the additions have already been made on account of e on account of profit on unaccounted income, is not acceptable. This is so profit on unaccounted income, is not acceptable. This is so profit on unaccounted income, is not acceptable. This is so

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because any excess stock found in a year need to be taxed in that because any excess stock found in a year need to be taxed in that because any excess stock found in a year need to be taxed in that year itself as per the principles of accounting and provisions of year itself as per the principles of accounting and provisions of year itself as per the principles of accounting and provisions of law. D. The assessee has submitted copies of bil D. The assessee has submitted copies of bills of purchases and ls of purchases and sales but has not submitted, either during the course of sales but has not submitted, either during the course of sales but has not submitted, either during the course of assessment proceedings, the copies of confirmations of those assessment proceedings, the copies of confirmations of those assessment proceedings, the copies of confirmations of those parties or even a copy of ledger accounts, especially of the sellers. parties or even a copy of ledger accounts, especially of the sellers. parties or even a copy of ledger accounts, especially of the sellers. In the absence of such details, the genuineness In the absence of such details, the genuineness of the claim of of the claim of purchases claimed in the P&L account to increase the stock could purchases claimed in the P&L account to increase the stock could purchases claimed in the P&L account to increase the stock could not be verified. E. These facts clearly suggest that the AO had not applied his E. These facts clearly suggest that the AO had not applied his E. These facts clearly suggest that the AO had not applied his mind to verify the stock as on the date of the survey as per the mind to verify the stock as on the date of the survey as per the mind to verify the stock as on the date of the survey as per the books of accounts and the reco books of accounts and the reconciliation statement submitted by nciliation statement submitted by the assessee. F. In this case the issue involved is stock as per the books of F. In this case the issue involved is stock as per the books of F. In this case the issue involved is stock as per the books of account as on the date of survey, and during the course of the account as on the date of survey, and during the course of the account as on the date of survey, and during the course of the survey the assessee had admitted that there was stock of only 3 survey the assessee had admitted that there was stock of only 3 survey the assessee had admitted that there was stock of only 3 cts. of diamond a cts. of diamond after verifying its record of stock, and hence, with fter verifying its record of stock, and hence, with due respect to those, the judicial pronouncements on which the due respect to those, the judicial pronouncements on which the due respect to those, the judicial pronouncements on which the assessee has relied upon are not applicable to the assessee's assessee has relied upon are not applicable to the assessee's assessee has relied upon are not applicable to the assessee's case.” 3.2 After referring to the decisions of the two precedents on the After referring to the decisions of the two precedents on the After referring to the decisions of the two precedents on the issue in dispute, the Ld. PCIT held the order passed by the the Ld. PCIT held the order passed by the the Ld. PCIT held the order passed by the Assessing Officer as erroneous in so far as prejudicial to the Assessing Officer as erroneous in so far as prejudicial to the Assessing Officer as erroneous in so far as prejudicial to the interest of the Revenue and directed interest of the Revenue and directed the ld AO to pass a fresh to pass a fresh assessment order. The relevant finding is reproduced as under: assessment order. The relevant finding is reproduced as under: assessment order. The relevant finding is reproduced as under:

“6. Conclusion Adverting to the facts of the instant case, it is seen that the AO Adverting to the facts of the instant case, it is seen that the AO Adverting to the facts of the instant case, it is seen that the AO has not examined the issue of quantity of stock as per the has not examined the issue of quantity of stock as per the has not examined the issue of quantity of stock as per the assessee's books of account on the date of survey that was assessee's books of account on the date of survey that was assessee's books of account on the date of survey that was "admitted as only 3 carats of diamond and nil gold, and without "admitted as only 3 carats of diamond and nil gold, and without "admitted as only 3 carats of diamond and nil gold, and without such examination examination examination during during during the the the course course course of of of the the the assessment assessment assessment proceedings, the assessee's revised figures for the same have proceedings, the assessee's revised figures for the same have proceedings, the assessee's revised figures for the same have been accepted by him thereby reducing the figure of excess stock been accepted by him thereby reducing the figure of excess stock been accepted by him thereby reducing the figure of excess stock found found found physically physically physically on on on the the the date date date of of of survey survey survey and and and in in in turn turn turn underassessing the assessee's underassessing the assessee's income. It neither emanates from income. It neither emanates from the order nor from the records that there was application of mind the order nor from the records that there was application of mind the order nor from the records that there was application of mind by the A.O. on this issue. Therefore, I am convinced that in the by the A.O. on this issue. Therefore, I am convinced that in the by the A.O. on this issue. Therefore, I am convinced that in the instant case the assessment order is erroneous in so far as it is instant case the assessment order is erroneous in so far as it is instant case the assessment order is erroneous in so far as it is prejudicial to the interes prejudicial to the interest of revenue. 7. Directions In view of the above facts and findings, using the powers vested In view of the above facts and findings, using the powers vested In view of the above facts and findings, using the powers vested in me by the provisions of section 263, the assessment order in me by the provisions of section 263, the assessment order in me by the provisions of section 263, the assessment order

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passed under section 143(3) on 30.12.2022 is set aside with a passed under section 143(3) on 30.12.2022 is set aside with a passed under section 143(3) on 30.12.2022 is set aside with a direction to the Assessing Officer to pa direction to the Assessing Officer to pass a fresh assessment ss a fresh assessment order after taking into consideration the issues that may have order after taking into consideration the issues that may have order after taking into consideration the issues that may have been already considered together with the issue discussed been already considered together with the issue discussed been already considered together with the issue discussed hereinabove also. Further, the assessment is to be completed hereinabove also. Further, the assessment is to be completed hereinabove also. Further, the assessment is to be completed within the stipulated time frame after conducting th within the stipulated time frame after conducting the necessary e necessary enquiries and giving due opportunity of being heard to the enquiries and giving due opportunity of being heard to the enquiries and giving due opportunity of being heard to the assessee. The assessing officer is also directed to initiate penalty assessee. The assessing officer is also directed to initiate penalty assessee. The assessing officer is also directed to initiate penalty proceedings wherever applicable as per the provisions of the proceedings wherever applicable as per the provisions of the proceedings wherever applicable as per the provisions of the Income Tax Act, 1961. Income Tax Act, 1961.” 4. The assessee, aggrieved by su The assessee, aggrieved by such action, has preferred the ch action, has preferred the present appeal before us. present appeal before us. Before us, the Ld. Counsel for the Before us, the Ld. Counsel for the assessee filed a Paper Book containing page assessee filed a Paper Book containing pages 1 to 188. 1 to 188.

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146.662 carats of diamond stock as per books without any 146.662 carats of diamond stock as per books without any 146.662 carats of diamond stock as per books without any verification of records, verification of records, bills, or valuation statements. It was urged bills, or valuation statements. It was urged that the Ld. PCIT had merely corrected a manifest error that had that the Ld. PCIT had merely corrected a manifest error that had that the Ld. PCIT had merely corrected a manifest error that had occasioned prejudice to the Revenue and had therefore acted occasioned prejudice to the Revenue and had therefore acted occasioned prejudice to the Revenue and had therefore acted within the bounds of jurisdiction conferred by section 263. within the bounds of jurisdiction conferred by section 263. within the bounds of jurisdiction conferred by section 263. He submitted that the Ass submitted that the Assessing Officer without verifying the essing Officer without verifying the supporting documentary evidences admitted claim of the supporting documentary evidences admitted claim of the supporting documentary evidences admitted claim of the assessee, which is based on incorrect assumption of facts and is based on incorrect assumption of facts and is based on incorrect assumption of facts and without proper inquiry and therefore, Ld. PCIT has validly set without proper inquiry and therefore, Ld. PCIT has validly set without proper inquiry and therefore, Ld. PCIT has validly set aside the order of the Assessing Office aside the order of the Assessing Officer holding it to be erroneous r holding it to be erroneous in so far as prejudicial to the interest of the Revenue. in so far as prejudicial to the interest of the Revenue. in so far as prejudicial to the interest of the Revenue. 7. We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant material on record. the relevant material on record. The short controversy centres on The short controversy centres on whether the assessment order dated 30th December, 2022, whether the assessment order dated 30th December, 2022, whether the assessment order dated 30th December, 2022, suffers from the twin vices of being suffers from the twin vices of being erroneous and and prejudicial to the interests of the Revenue the interests of the Revenue, within the meaning of section 263 of , within the meaning of section 263 of the Act. It is trite law that an o the Act. It is trite law that an order can be said to be erroneous rder can be said to be erroneous not only when it contains an incorrect assumption of facts or not only when it contains an incorrect assumption of facts or not only when it contains an incorrect assumption of facts or application of law, but also when the Assessing Officer fails to application of law, but also when the Assessing Officer fails to application of law, but also when the Assessing Officer fails to make necessary inquiries or verification which circumstances of make necessary inquiries or verification which circumstances of make necessary inquiries or verification which circumstances of the case demand. The Explanation the case demand. The Explanation 2(a) and (b) appended to 2(a) and (b) appended to section 263 places beyond pale of doubt that where an order is section 263 places beyond pale of doubt that where an order is section 263 places beyond pale of doubt that where an order is passed without making inquiries or verification which should passed without making inquiries or verification which should passed without making inquiries or verification which should have been made, the same shall be deemed to be erroneous and have been made, the same shall be deemed to be erroneous and have been made, the same shall be deemed to be erroneous and prejudicial to the interests of the Revenue. prejudicial to the interests of the Revenue.

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7.1 In the present case, the survey proceedings revealed a In the present case, the survey proceedings revealed a In the present case, the survey proceedings revealed a substantial excess of physical stock as compared to the books. substantial excess of physical stock as compared to the books. substantial excess of physical stock as compared to the books. The assessee, during such proceedings, had unequivocally The assessee, during such proceedings, had unequivocally The assessee, during such proceedings, had unequivocally admitted to such discrepancy and had offered admitted to such discrepancy and had offered ₹33,09,548/ 33,09,548/- to tax. However, at the stage of assessment, it revised its claim, the stage of assessment, it revised its claim, the stage of assessment, it revised its claim, asserting that the stock as per books was 146.662 carats. No asserting that the stock as per books was 146.662 carats. No asserting that the stock as per books was 146.662 carats. No cogent evidence in the form of books of account, purchase cogent evidence in the form of books of account, purchase cogent evidence in the form of books of account, purchase registers, stock registers, or supporting bills was produced either registers, stock registers, or supporting bills was produced either registers, stock registers, or supporting bills was produced either before the Assessing before the Assessing Officer or before the Ld. PCIT to substantiate Officer or before the Ld. PCIT to substantiate this claim. Despite noting this very deficiency in paragraph 6.3 of this claim. Despite noting this very deficiency in paragraph 6.3 of this claim. Despite noting this very deficiency in paragraph 6.3 of the the the assessment assessment assessment order, order, order, the the the Assessing Officer Assessing Officer Assessing Officer inexplicably inexplicably inexplicably proceeded to accept the assessee’s explanation. proceeded to accept the assessee’s explanation. The ld PCIT asked the assessee to re asked the assessee to reconcile as how the assessee has worked concile as how the assessee has worked out stock in books of accounts as on the date of the survey out stock in books of accounts as on the date of the survey out stock in books of accounts as on the date of the survey amounting to 146.662 carats diamonds as against the stock of amounting to 146.662 carats diamonds as against the stock of amounting to 146.662 carats diamonds as against the stock of only three carats of diamond, which was found recorded during only three carats of diamond, which was found recorded during only three carats of diamond, which was found recorded during the course of the survey. Even bef the course of the survey. Even before us no justification has been ore us no justification has been filed by the Ld. Counsel for the assessee explaining 146.662 filed by the Ld. Counsel for the assessee explaining 146.662 filed by the Ld. Counsel for the assessee explaining 146.662 carats diamonds in books of accounts, as submitted during carats diamonds in books of accounts, as submitted during carats diamonds in books of accounts, as submitted during assessment proceedings. assessment proceedings.The record is bereft of any indication The record is bereft of any indication that that that the the the Assessing Assessing Assessing Officer Officer Officer had had had conducted conducted conducted v v verification commensurate with the gravity of the discrepancy or that he had commensurate with the gravity of the discrepancy or that he had commensurate with the gravity of the discrepancy or that he had called called called for for for reconciliation reconciliation reconciliation supported supported supported by by by contemporaneous contemporaneous contemporaneous documents. Such perfunctory acceptance, in our considered documents. Such perfunctory acceptance, in our considered documents. Such perfunctory acceptance, in our considered view, amounts to a non view, amounts to a non-application of mind and renders the application of mind and renders the order amenable to revision under section 263. enable to revision under section 263.

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7.2 In such circumstances, there is no doubt that Assessing In such circumstances, there is no doubt that Assessing In such circumstances, there is no doubt that Assessing Officer has admitted the claim of the assessee without proper Officer has admitted the claim of the assessee without proper Officer has admitted the claim of the assessee without proper verification and the documentary evidence and therefore, the verification and the documentary evidence and therefore, the verification and the documentary evidence and therefore, the order passed by the Assessing Offic order passed by the Assessing Officer is deemed to be erroneous er is deemed to be erroneous in so far as prejudicial in so far as prejudicial to the interest of the Revenue i to the interest of the Revenue in view of clause (a) and (b) of Explanat clause (a) and (b) of Explanation 2 to section 263 of the Act. ion 2 to section 263 of the Act.

7.3 The reliance placed by the Ld. Counsel on The reliance placed by the Ld. Counsel on The reliance placed by the Ld. Counsel on G.M. Mittal Stainless Steel (P) Ltd. Stainless Steel (P) Ltd. (supra) and Amit Corporation mit Corporation (supra) is misplaced. Those decisions were rendered in contexts where the misplaced. Those decisions were rendered in contexts where the misplaced. Those decisions were rendered in contexts where the Assessing Officer had made a conscious and reasoned choice Assessing Officer had made a conscious and reasoned choice Assessing Officer had made a conscious and reasoned choice after proper inquiry. In the present case, the deficiency lies not in after proper inquiry. In the present case, the deficiency lies not in after proper inquiry. In the present case, the deficiency lies not in the conclusion arrived at but in the the conclusion arrived at but in the absence of inquiry itself absence of inquiry itself — a situation expressly covered by the deeming provisions of situation expressly covered by the deeming provisions of situation expressly covered by the deeming provisions of Explanation 2 to section 263. Explanation 2 to section 263.

7.4 We accordingly concur with the finding of the Ld. PCIT that We accordingly concur with the finding of the Ld. PCIT that We accordingly concur with the finding of the Ld. PCIT that the assessment order is erroneous in so far as it is prejudicial to the assessment order is erroneous in so far as it is prejudicial to the assessment order is erroneous in so far as it is prejudicial to the interest of the Revenue. The direction issued by the Ld. PCIT erest of the Revenue. The direction issued by the Ld. PCIT erest of the Revenue. The direction issued by the Ld. PCIT to the Assessing Officer to frame a fresh assessment after to the Assessing Officer to frame a fresh assessment after to the Assessing Officer to frame a fresh assessment after conducting requisite inquiries and verification, and after conducting requisite inquiries and verification, and after conducting requisite inquiries and verification, and after affording the assessee a reasonable opportunity of being heard, is affording the assessee a reasonable opportunity of being heard, is affording the assessee a reasonable opportunity of being heard, is both justified and within jurisdiction. ed and within jurisdiction.

7.5 In the result, we find no infirmity in the impugned order In the result, we find no infirmity in the impugned order In the result, we find no infirmity in the impugned order passed under section 263 of the Act. passed under section 263 of the Act. The grounds of the appeal of The grounds of the appeal of the assessee are accordingly dismissed. the assessee are accordingly dismissed.

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Order pronounced by way display o Order pronounced by way display of result on notice f result on notice board on 30/10/2025 under Rule 34(4) of ITAT Rules, 1963. /10/2025 under Rule 34(4) of ITAT Rules, 1963. /10/2025 under Rule 34(4) of ITAT Rules, 1963.

Sd/- Sd/- (SANDEEP GOSAIN (SANDEEP GOSAIN) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Surat; Dated: 30/10/2025 Rahul Sharma, Sr. P.S. (on Tour) Copy of the Order forwarded to the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Surat 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Surat ITAT, Surat