S CHANDRA PRAKASH,CHENNAI vs. ITO, CENTRAL CIRCLE-3(2), CHENNAI

The assessee had preferred an appeal before the ld.CIT(A) and the ld.CIT(A) in the order u/s.250 of the Act dated 08.08.2025, decided the appeal against the assessee and was dismissed.

Aggrieved by the said action of the ld.CIT(A), the assessee is in appeal before us and had professed the following grounds of appeal:

That the Ld.CIT(A) erred in failing to appreciate that an assessment has no legs to stand when the confession is obtained under threat.

That the Ld.CIT(A) erred in failing to appreciate that a confession obtained during the period of detention by the police cannot possess evidentiary value, more particularly when it is proven that the same was obtained under excessive coercion.

That the Ld.CIT(A) erred in upholding the order of assessment which was framed, ignoring the statement retracted subsequently and the evidences brought on record to adduce the claims and contentions of the appellant made in such retracted statement.

That the Ld.CIT(A) erred in upholding the order of assessment, when the books of accounts and other records provided have not been destabilized or rejected either by the AO nor by the ld.CIT(A). Additional Legal Grounds 7. That the Ld.CIT(A) erred in failing to appreciate that the order passed by the AO in the hands of the appellant is invalid, when it was acknowledged by the Income-tax authorities that the stock of gold seized belongs to the firm in which the appellant is a partner. 8. That the Ld.CIT(A) erred in failing to appreciate that the order passed by the assessing officer stands vitiated when the law established in proviso to S.132(1)(iii) is violated. 9. For those and other reasons that may be adduced at the time of hearing, it is prayed by the Appellant that the Hon'ble Tribunal may be pleased to delete the unjust and inexplicable additions and thus render justice.

The ld.AR for the assessee submitted that M/s.Rajat Emporium is engaged in the retail trade of gold-plated silver jewellery, deploying its own stock-in-trade in the business, the business activity in the case of M/s.Shuba Manggalam is distinct. In respect of latter, the stock belonging to wholesalers is carried to the retailers in mofussil areas and once they are approved, such portion of approved stock is purchased by the assessee, hallmarked and thereafter sold to the retailer who has evinced interest in acquiring the same. Hence, M/s.Shuba Manggalam acts as a conduit, trading the goods, majority of which is not held by it as Stock-in-trade.

He submitted that on 08.03.2021, the assessee had taken 11.17 kgs of gold jewellery from M/s.Vithraag Jewels on approval basis and added to the stock of the firm M/s.Shuba Manggalam being 1.5 kgs, gold jewellery weighing

M/s.Sri Jain Jewellery had selected few items approximately weighing 1.2 kgs on 09.03.2021, equivalent to value of Rs.50 lakhs and had also paid an advance of Rs.12,50,234/-, at the rate of 25% of the gold’s worth to be acquired and transferred the same through banking channels. Since the acquisition was accorded approval by this customer, M/s.Sri Jain Jewellery, in order to hallmark the jewellery identified for purchase by M/s.Sri Jain Jewellery and also return the unutilized portion of the jewels taken for approval to M/s.Vithraag Jewels, the assessee returned to Chennai by bus to Koyambedu and travelled by auto to Kilpauk.

While the assessee was travelling by auto, he was intercepted by the police and based on the evidence provided in the form of Approval Issue Memo, Delivery Challan, e-way bill declaration etc. and based on the explanation provided in the form of a written submission, the assessee was allowed to proceed, as nothing adverse was noticed.

The ld.AR further submitted that, since it was election time and while the SST were interested in submitting boosted statistics of recovery made at the time of elections, the assessee was summoned on the next day and from the tone and tenor of the police authority who called the assessee, there was a premonition in the mind of the assessee that there would be a certain damage inflicted on the assessee, which may even result in seizure of the entire jewellery. Therefore, since the assessee cannot replace the jewellery belonging to a third party being M/s.Vithraag Jewels, if seized, the assessee was forced by compulsion to substitute the equivalent quantity of jewels with silver jewellery that belonged to the firm of the assessee, M/s.Rajat Emporium. However, despite the innocence of the assessee that the jewels carried to Virudachalam and brought back are truly explained with regard to its sources and were nothing

Since the assessee was unable to withstand the torture, the assessee was forced to hand over the gold jewels, which were possessed by M/s.Shuba Manggalam to the extent of 1.50 kgs and that of M/s.Vithraag Jewels to the extent of 11.17 kgs. Thereafter, the jewellery was valued by a valuer Shri G.Karthikeyan who determined the weight to be 12,652.350 grams of gold jewellery. This quantity was unjustly seized by the Inspector of Police, J3, Amaindakarai Police Station, Chennai – 600029 and the assessee was thereafter released.

The ld.AR further narrated that in the intervening period, a statement was recorded u/s.131(1A) of the Income-tax Act on 11.03.2021 by an authorized officer of the Income-tax Department and while the assessee was under immense duress and torment beyond compare, for having undergone the physical torture at the hands of the police and the officers of Income Tax department, the assessee, left with no other alternative had deposed then, that the entire jewellery found and seized by the police was unaccounted for the purpose of Income-tax.

While the assessee was kept in confinement at the police station for three consecutive days for no fault of him like a criminal, for a short intermittent period, the assessee was taken to the business premises of M/s.Shuba Manggalam at Sowcarpet by the authorized officer and a sworn statement was recorded on 11.03.2021.

The treatment inflicted by the officers of the Income-tax Department was not different and it is appalling to mention the dignity and modesty of the assessee was trampled by the Income-tax Officers and in the statement recorded u/s.131(1A) on 11.03.2021, the assessee was forced to confess under pressure that the entire jewellery belongs to the assessee and the same needs

Further, the ld.AR stated that the assessee was already detained in the police station and during such ordeal, the Income-tax Officers were no different and in such a traumatizing situation, the only way out to get rid of this exasperation was to confess against the assessee’s conscience despite being false.

It would not be out of context to mention that even in the statement recorded by the authorized officer, the events as narrated above have been clearly explained and also the fact that the jewellery belongs to the firm M/s.Shubh Manggalam and Shri Jayanthilal Group was not failed to be mentioned. M/s.Vithraag Jewels, from whom 11.17 kgs was obtained for taken for marketing on approval basis, is a firm in which Shri Rishub Challani, son of Shri Jayanthilal is a partner.

Therefore, ld.AR submitted that, it cannot be said that at the time of first confession, the actual facts were not stated. The only mistake was that instead of mentioning the exact name of the firm under such duress, the name of my brother-in-law Shri Jayanthilal was mentioned. Irrespective of the same, it was proven that but for a small quantity of 1.5 kgs that belongs to M/s.Shubh Manggalam, the entire balance belongs to others.

The ld.AR also stated that even this 1.5 kgs does not belong to the assessee but to M/s.Shubh Manggalam only. It is for such reason that the summon u/s.131(1A) was issued by the authorized officer Shri G.Kannan on 11.03.2021 to the assessee in his capacity as a partner of M/s.Shubh Manggalam only. Even the subsequent summon issued by Smt.Aruna Anandraj, ADIT (Inv) (OSD-3), was on 16.03.2021 also issued in the same

However, since there was a compulsion to boost the statistics of seizure at the time of elections, the authorized officer forced the assessee to confess the same to be the unexplained income of the assessee. When a person is detained in the police station for three days and nights continuously and when the Income-tax Department is also taking out a similar treatment, the state of mind would be addled and demented and the only recourse would be to wriggle out of the situation even at the cost of obfuscating the truth.

The ld.AR added that it was under such circumstances that a statement that suited the will and pleasure of the authorized officer was deposed. The documents in proof of movement of stock in the form of Approval Issue Memo, Delivery Challan, e-way bill declaration etc. were already in the possession of the police. Based on these documents only, did the police officer on the night of 09/03/2021 gave a green signal, but none of these documents seemed relevant to the Authorized Officer, because there was a single-minded focus to seize the jewellery, irrespective of its legality.

The enquiry is undertaken at the premises of M/s.Shubh Manggalam and if the Authorized officer was truly fair, he should have at least treated such portion being 1.5 Kgs of Gold Jewellery as explained and desisted from seizing it. But when the officer is premeditated to seize the entire stock, nothing could make him find any logic.

Further, the ld.AR stated that, in response to the second summon issued by Smt.Aruna Anandaraj, ADIT(Inv)(OSD-3), when the assessee was able to regain his mental faculties and was able to think clearly, the assessee was able to provide a clear and complete statement on 30.03.2021, together with supporting documentation, in proof of having taken the jewels that belonged to M/s.Vithraag Jewels for approval.

However, without taking cognizance to the evidence provided vide communication dated 30.03.2021, the ADIT (Investigation) (OSD), proceeded to requisition the jewellery possessed by the Authority of the Corporation of Chennai and seized the same u/s.132A of the Act on 05.04.2021. As per the records of the police, the quantity of gold seized by them is 12,652.350 grams, while the quantities seized by the Department subsequently is 12,077.750 grams.

Later, the action u/s.132A of the Act was undertaken on 05.04.2021 and the clear and true version of the assessee with regard to the source of jewellery was provided on 30.03.2021 itself. As a natural consequence, the Investigating authorized officer, ought to have examined the claims of the assessee with regard to the sources. Even the ownership of the predominant portion of the jewellery seized which is vested with M/s.Vithraag Jewels has been brought on record. Obviously, an enquiry, with regard to the contention and the supporting documents ought to have been made by the Authorized officer, at the time of the seizure. However, in a mechanical manner, the entire gold jewellery was seized without any investigation into this essential aspect.

The assessee filed his Return of Income on 15.03.2022 for A.Y.2021-22 admitting an income of Rs.16,21,070/-. This return of income was taken up for compulsory scrutiny by issue of notice u/s.143(2) of the Act on 29.06.2022. During the course of scrutiny proceedings and in response to the notice u/s.142(1) of the Act, the entire evidence with regard to the source of gold possessed by the assessee and found at the time of first interception by the police on 09.03.2021 was submitted to the AO.

Further, the ld.AR submitted that the assessee reiterated by the explanation provided in the communication dated 30.03.2021 in which it was stated that out of the jewellery weighing 12,652.350 grams found by the police at the time of first interception, only 1.5 kgs belonged to M/s.Shubh Manggalam

The ld.AR drew our attention to the page Nos.14 to 127 of the paper book filed, during the course of assessment, in support of the claim, the copy of the ledger of M/s.Vithraag Jewels as appearing in the books of M/s.Shubh Manggalam, the stock register of M/s.Shubh Manggalam and M/s.Vithraag Jewels, the copy of the ledger of M/s.Sri Jain Jewellery for the period from 01.04.2020 to 24.03.2021 as appearing in the books of M/s.Shubh Manggalam, the purchase register of M/s.Shubh Manggalam for the relevant period, sales register, stock transfer/approval issue memo and delivery challan dt. 08.03.2021 issued by M/s.Shubh Manggalam, were all provided to the assessing officer together with the copy of the letter dated 30.03.2021 filed in response to the summon u/s.131 of the Act dated 15.03.2021. Further, the ld.AR drew our attention to the Tax audit report dated 25.11.2021 for the A.Y.2021-22 of M/s.Vithraag Jewels (PAN – AAANFV5249H), wherein the Tax auditor in Form 3CB has clearly mentioned that the stock of 11,171.222 grams is with the department on account of seizure as detailed below:

According to the ld.AR, the AO did not take cognizance of any of these documents and also the explanation provided by the assessee and passed an order u/s.143(3) of the Act on 30.12.2022 arriving at a taxable income of Rs.5,30,96,436/- after making an addition of Rs.5,14,75,370/- u/s.69 r.w.s 115BBE of the Act.

According to the ld.AR, the AO did not proceed to make any inquiries into the claims made by the assessee and the supporting documentation provided but rather pitched the entire addition on two aspects being: a. That the appellant had attempted to deceive the police by substituting silver jewellery on 10.03.2021, while the jewellery found at the time of interception on 09.03.2021 was pure gold jewellery. b. That at the time of deposition u/s.131(1A) of the Income-tax Act on 11.03.2021, the appellant had not provided any evidence with regard to the source of jewellery and therefore the clarification provided subsequently on 30.03.2021 and during the course of assessment proceedings is an afterthought.

In the said order, the addition to the extent of Rs.5.15 crores was made by the AO which corresponds to 12,077.750 grams of gold jewellery, which is the value determined by the approved valuer Shri L.Ajay Mehtha appointed by the Income-tax Department for this purpose and not Rs.5,32,66,393/- that corresponds to 12,652.350 grams determined by the appraiser G.Karthikeyan appointed by the Corporation of Chennai.

As per the valuation report of Shri G.Karthikeyan, appraiser dated 12.03.2021, the approximate weight of 12.652 kgs of gold jewellery was Rs.5.33 crores, while as per the valuation report prepared by Shri Ajay Mehtha dt.06.04.2021, the weight of 12.077 kgs is Rs.5.15 crores.

Aggrieved by the addition made in the assessment order, which had failed to check the veracity of the claim made by the assessee through the communication dated 30.03.2021 and reiterated in response to the notice u/s.142(1), an appeal u/s.246A was preferred before the ld.CIT(A).

In the said appeal, the assessee, apart from contesting the action on part of the AO, who rejected the evidence brought on record, explaining the source of the entire jewellery, had also expressed his dissent in taking into consideration the weightage of jewellery of 12.077 kgs only as against the actual seizure by the AEE and Team Leader, FST-3, Anna Nagar Constituency being 12.652 kgs.

The ld.CIT(A) was requested to appreciate that if a person is detained in the police station for three days and nights continuously, the state of mind would be perplexed and frantic and the only recourse would be to wriggle out of the situation even at the cost of obscuring reality. It was under such circumstances that a statement that suits the will and pleasure of the authorized officer was deposed.

However, when the assessee was able to regain his mental faculties and was able to think clearly, the assessee was able to provide a clear and complete statement on 30.03.2021, together with supporting documentation, in proof of having taken the jewels that belonged to M/s.Vithraag Jewels for approval.

According to the ld.AR, at least at this juncture, when the evidence with regard to the sources were provided, the AO should be dutiful in examining the claims of the assessee. However, no enquiry was conducted, as the AO was complacent since such an exercise was bound to disturb the premeditated mindset of the officer who was determined to make the addition u/s.69A of the Act, irrespective of the truth in the statement of the assessee.

Beyond the two unrelated findings of the Assessing Officer as stated above, the ld.AR states that there is not even an iota of evidence brought on record to substantiate that the claim of the assessee with regard to the source of jewellery found and seized on 11.03.2021 by the police was unexplained for the purpose of Income-tax.

The ld.AR contended that on the first aspect of attempting to substitute the silver jewellery instead of gold jewellery, it was explained by the assessee that the same cannot be treated as an act of deceit. The said jewellery found on 09.03.2021 in the possession of the assessee, belonged to the assessee and the assessee had not substituted the jewellery either belonging to the police or to the Income-tax Department or for the matter any government department

It was further stated that there was reason to substitute the silver jewellery since there was a fear of seizure of gold jewellery to the entire extent. Since the assessee was detained in the police station for more than a period of 48 hours, it became public and therefore the police were precluded from such attempt. However, though their act of dereliction of duty and deceiving the assessee was not to an entire extent, they still managed to steal 500 grams of gold jewellery and the entire stock of silver jewellery which was originally brought to the police station as a substitute. To this day, the gold jewellery weighing 500 grams and silver jewellery weighing 12.6 kgs are untraceable.

The ld.AR submits that even if it were an issue which needs to be reprimanded, it is not clear as to how such an act of substitution would result in taxation of the value of gold jewellery, when the source of such gold is otherwise explained for the purpose of Income-tax. Reliance placed by the AO as expressed in the contents of the assessment order on this immaterial aspect is incongruous and therefore the addition made by the AO to treat the gold jewellery as unexplained to be brought to tax u/s.69A of the Act, is indecorous.

Now coming to the second aspect of basing the addition on a statement recorded on 11.03.2021 u/s.131(1A) of the Act alone and not travelling beyond and examining the correctness of the statement provided on 30.03.2021 and again at the time of assessment proceedings, and desisting from making any inquiry into the claims made in them, certainly enforces lack of credibility on the finding of the AO, which the assessee had hoped the ld.CIT(A) will appreciate.

Therefore, according to the ld.AR, it is clear from the contents of the assessment order that the addition u/s.69A is solidly pivoted to an event that occurred during torment by the police and when the assessee was under :-13-: ITA. No:2815/Chny/2025 & SA No.105//Chny/2025 detention without reason and that there was a fear of misappropriation of the entire jewellery. Therefore, a statement given under duress, which was also retracted subsequently within a span of 17 days when the assessee was able to recover into some normalcy, cannot be the sole basis for making an addition and concluding the assessment, without making appropriate enquiries as it would deem fit.

The ld.AR submitted that nothing prevented the ADIT(Inv),(OSD) to enquire and destabilise the claims of the assessee when such evidence was submitted before the date of search u/s.132A of the Act or the AO at the time of Assessment proceedings. The action on part of the Authorized officer to have avoided enquiries and placing complete reliance on the statement deposed u/s.131(1A) of the Act in the presence of the police under threat, was stated to be against the intent and purpose of the Circular of CBDT in No.5-F.No. 286/98/2013-IT [lNV-II] dt. 18.12.2014 and F.No.286/2/2003 IT [INV].

The assessee had also relied on the following decisions to prove their contentions: • Kailashben Manharlal Chokshi v. CIT (Guj. HC) • CIT vs. M.P. Scrap Traders 60 taxmann.com 205 (Gujarat)Harjeev Agrawal 241 Taxman 199(Delhi)

It is assumed by the assessee that the ld.CIT(A) would have been impressed that the assessment order does not have legs to stand, when the addition is solely based upon a standalone statement given under immense pressure and threat and therefore, would find it appropriate to cause necessary inquiries at least at this stage of appellate proceedings, in order to ascertain that the source of jewellery found by the police and seized by the Income-tax Department is explained completely for the purpose of Income-tax.

Further the ld.AR stated that the ld.CIT(A) was also appraised that when the enquiry revealed that the jewellery does not belong to the assessee but only

It was submitted before the ld.CIT(A) that when the principles of natural justice have not been complied, the assessment order should stand vitiated and needs to be treated as void-ab-initio.

The ld.CIT(A), on perusal of the submissions and the representation made on behalf of the assessee and concluded against the assessee holding as under:

The ld.AR took us through the first issue of explanation with regard to the source of gold jewellery found of 12.65 kgs, the grounds of appeal of the assessee was dismissed and the finding in this regard by the ld.CIT(A), which is reproduced hereunder:

On the second issue of correct weighment of jewellery, which according to the assessee ought to be 12.652 kgs and not 12.077 kgs as adopted by the AO, the ld.CIT(A) found his reasoning to be as under:

On the last issue of contending that the person who is to be rightly assessed, the findings of the ld.CIT(A) are reproduced below:

The ld.AR stated that in the proceedings before the ld.CIT(A), the assessee had provided written submissions clarifying that the sworn statement that too which is deposed under severe threat, cannot form the sole basis for addition to total income, in the absence of any corroborative evidence. The ld.AR had clarified that despite providing an explanation with regard to the source of gold jewellery in the possession of the assessee found at the time of police interception, immediately after the enquiry but certainly before the action u/s.132A, no attempt was made either by the authorized officer who undertook the search u/s.132A or by the AO, to disprove the contention of the assessee.

The ld.AR stated that the statement recorded u/s.131(1A) on 11.03.2021, is a lacklustre statement obtained in a lackadaisical manner. According to the ld.AR, the statement came to an abrupt conclusion which by itself is self- explanatory on the fact that the statement was not given voluntarily but obtained only by force.

There are totally 25 Q&A in the said statement recorded on 11.03.2021 and only the answer to Q.No.24, has concluded the position adversarial to the assessee. For ease of reference, the ld.AR read out the content of the said Q.No.24 which is reproduced below:

The ld.AR brought on record that the above query is a ‘Leading Question’ and when the answer is brief, the same cannot be considered to be affirmative under the Rule of Evidence. Questions that suggest a desired answer are inappropriate during direct examination of the deponent under oath, as they risk putting words in the witness's mouth and therefore cannot be considered as a reliable piece of evidence.

Further, he brought on record that the explanation provided subsequently on 30.03.2021 in response to the notice u/s.131 of the Act dt. 16.03.2021 cannot be treated as an afterthought, when certain events that are part of the transactions were already concluded prior to the interception by the police.

Further, the ld.AR contended that it is an undisputed fact that the assessee had travelled to Virudachalam, with the entire stock of gold jewellery and a portion of which equivalent to value of Rs.50 lakhs was also approved by M/s.Sri Jain Jewellery, Virudachalam. This customer had also paid an advance of Rs.12,50,234/-, at the rate of 25% of the gold’s worth to be acquired and transferred the same through banking channels. The amount of Rs.12,50,234/- was already credited to the bank account of the assessee before the police interception and hence, by no stretch of imagination can the explanation provided on 30.03.2021, according to the ld.AR, be classified as an afterthought.

According to the ld.AR, the transaction with M/s.Vithraag Jewels is not an isolated transaction, remaining confined to this transaction alone. And the copy

It was further stated that when the letter was provided on 30.03.2021, nothing prevented the ADIT(Inv.) and the ACIT, Central Circle 3(2), Chennai to undertake enquiries and thereafter the ld.CIT(A) to cause enquiries to check the veracity of the claims of the assessee and dislodge the claim. Their resolute avoidance construes that the claim of the assessee, as fostered in the letter dated 30.03.2021, is overwhelming.

The ld.AR further sought the attention of the bench, that two different yardsticks cannot be applied in respect of components of the same transaction. According to the ld.AR, the AO had gone astray to treat a reliable piece of evidence being the receipt of advance in banking channels before the interception event could unfold as “mere coincidence” but the clarification to be an “afterthought’. When M/s.Sri Jain Jewellery payment was not structured to suit the needs of the assessee, the movement of stock for approval and back, obviously is genuine, when the supporting documents were verified by the police on 09.03.2021 were found to be acceptable at the time of first interception and release.

The ld.AR travelled ahead to impress, that even the ld.CIT(A) had not supported this pretence of the AO, but indirectly supported the addition made by the AO, once again placing reliance on the contents of the deposition u/s.131(1A) of the Act, as the air was thick only to dislodge the claims of the assessee even at the cost of violating the principles of natural justice and rule of evidence.

According to the ld.AR, the ld.CIT(A) failed to conceptualise the state of mind of the assessee when the statement was recorded u/s.131(1A), after being detained like a hard-core criminal for two days in the custody of the police, even though no grave crime was committed by the assessee. At the time of custodial unauthorised interrogation, it was natural to provide explanation which would help the assessee to get out the rigors of illegal confinement, but the same cannot be inviolable and ultimate, more particularly when the deposition followed a minor assault by one of the team members. The CCTV clip to accentuate the claim that there was a certain act of outraging the modesty of the assessee was also furnished by the ld.AR.

The ld.AR argued that there is nothing imperfect, in mentioning the name of Sri.Jayanthilal Challani, from whom a major portion of jewels was got on loan. The assessee had taken 11.17 kgs of jewellery from M/s.Vithraag Jewels on loan basis, the firm in which, Sri.Rishub Challani son of Sri. Jayanthilal Challani is a partner. Therefore, the ld.AR expressed there can be an aberration of facts but certainly, it is not a distortion of facts. This anomaly is undoubtedly not a case of falsification, and therefore the ld.CIT(A), according to ld.AR ought not to have merely relied on this deviance to fix the assessee and the claims made in the reply dated 30.03.2021 are unreliable.

Both the AO and ld.CIT(A) are duty-bound to travel beyond the deposition given and duress and highlight the inconsistencies if any, with regard to claims made in the reply dated 30.03.2021 and reiterated multiple times subsequently, at the time of investigation post search proceedings, assessment proceedings and first appellate proceedings. The ld.AR stated that when not one of them cared to be judicious in their approach but remain arbitrary, the addition made solely of the confession, which was retracted subsequently supported by satisfactory and statutory documentation, is whimsical and pleaded for its deletion.

The ld.AR argued that as a natural consequence, the ld.CIT(A) ought to have been impressed that the assessment order does not have legs to stand, when the addition is solely based upon a standalone statement given under immense pressure and threat. On the contrary, the ld.CIT(A) dismissed the grounds of appeal of the assessee in toto.

The ld.AR further submitted that the books of account of M/s.Shubh Manggallam and the ledger folio of the firm as appearing in the books of account of M/s.Vithraag Jewels and various other records were provided at the time of search u/s.132A of the Act, before the conclusion of assessment and the Appellate proceedings as a paper book, a copy of which is also submitted before the bench. But not one of them were seriously concerned to be astute and incorporate the relevant findings in the report / assessment order / appellate order respectively, as such an exercise would be detrimental to their interest. On account of this action of the lower authorities, the stock worth Rs.5 crores approx. is lying idle for almost half a decade, and the business of the assessee is ravaged beyond the redemption.

The ld.AR stated that in the said order, the ld.CIT(A), merely reproduced the contents of the assessment order without destabilizing the claims of the assessee and had once again placed reliance on a cryptic reply forced to be given by the assessee on 11.03.2021 u/s. 131(1A) of the Act. The relevant contents of the statement, being answers to Q.Nos.15 to 20 were reproduced in the said order in Pg.No.11 & 12 of the appellate order, is the only material evidence which has been relied by the ld.CIT(A) to uphold the order of the assessing officer.

Neither the AO nor the ld.CIT(A) travelled beyond the statement obtained under duress, to unravel anything adverse against the claims and contentions of the assessee. The ld.AR forced his cause to state that the claims of the assessee would have been incorrect, if the following events had not occurred.

When not one of these aspects could be accomplished and held against the assessee, the ld.AR prayed that the appellate order passed which upheld the illogical assessment order needs to be quashed.

The assessee had complained about the shortfall in quantity and value of gold jewellery seized by the Income Tax Department u/s.132A in comparison to the quantity and value of gold jewellery seized by the head of the FST Team Shri M.Manimozhi. The ld.AR stated that this issue was raised before the ld.CIT(A) only to nurture the point that there was a reason to substitute Silver for gold jewellery, when called by the police on 10.03.2021.

As per the valuation report of the approved valuer Shri G.Karthikeyan who undertook the valuation at the police station, certified that the total value of gold jewellery with 91.6% purity – 22 carat was 12,652.350 grams. This quantity of gold is seized by the DRO and held in his possession till it was handed over to the Income-tax Department. As per the mahzarnama of the Income-tax Department, the total value of jewellery received from the AEO and seized by :-25-: ITA. No:2815/Chny/2025 & SA No.105//Chny/2025 the ITD u/s.132A of the Act was 12,077.750 grams. These discrepancies were brought to the notice of the ld.CIT(A), which according to the ld.AR was only to influence that there was a compulsion to substitute the gold-plated silver jewellery instead of gold jewellery as there was a threat of misappropriation and theft looming large, the fact that 500 grams of gold jewellery went untraceable was highlighted.

Though it was not a Ground of appeal but rather a submission of fact, to prove that there is no such act of deception, the ld.AR stated the ld.CIT(A) travelled beyond their realm and had himself concluded that the difference is because the first valuation report was as per gross weight and the second report is based on net weight. When Shri G.Karthikeyan has clearly certified that the purity of gold is 91.6%, that valuation is based on net weight only.

Even if it were to be assumed but not accepted by the assessee to be a case of unexplained asset, when it is proven to be the stock that belongs to M/s.Shubh Manggalam, the assessment has to be passed in the hands of M/s.Shubh Manggalam only u/s.153C of the Act and not in the hands of the assessee. The ld.AR stated that the asset belongs to M/s.Shubh Manggalam, part of which being owned by it and major portion of which being taken on loan from M/s.Vithraag Jewels is also acknowledged by the IT Department, for if it were otherwise, the summons u/s.131(1A) on 11.03.2021 and u/s.131 on :-26-: ITA. No:2815/Chny/2025 & SA No.105//Chny/2025 16.03.2021 would have been issued in the name of the assessee in his individual capacity and not in his capacity as partner of M/s.Shubh Manggalam.

When the officers of the Income-tax Department who undertook the enquiry and search u/s.132A of the Act were satisfied that the jewellery belongs to M/s.Shubh Manggalam only, the assessment ought to have been passed in the hands of M/s.Shubh Manggalam only and when the same is passed in the hands of the assessee, the ld.AR submitted that the order so passed is void- ab-initio.

It was argued that though this significant ground was raised on the aspect of the erroneous assessment in an individual capacity, the ld.CIT(A) totally ignored these essential features and in para 6.5 of the said order, had arbitrarily concluded that the order passed in the hands of the assessee is justified, as the same was found in his possession only.

At the time of hearing before us, a fresh legal ground was raised that the search proceeding is illegal and thus the consequential assessment order has to follow suit. According to the ld.AR, the enquiry team had visited the business premises of the firm in which the assessee is a partner. The series of events as detailed above, clearly illustrate that the gold jewellery seized irrespective of its nature, whether explained or otherwise is undoubtedly stock-in-trade of the firm. If it were to be otherwise, the advance consideration from M/s.Sri Jain Jewellery, Virudachalam of Rs.12,50,234/- would not have credited into the bank account held by the firm.

When the authorized officer was aware that the gold jewellery is held as stock-in-trade by the assessee, there is no provision under the law to seize the same. As per proviso to Section 132(1)(iii), jewellery being held as stock in trade of the business found as a result of search should not be seized by the authorized officer. When the stock-in-trade held by the firm has been seized, the entire procedure stands impaired and therefore the consequent assessment

In light of the above arguments the ld.AR prayed for deleting the additions made by the Assessing Officer by setting aside the order of the ld.CIT(A).

Per contra, the ld.DR asserted the action of the ld.CIT(A) in confirming the order of the Assessing Officer and prayed for confirming the order of the ld.CIT(A).

We have heard the rival contentions perused material available on record and gone through the orders of the authorities along with the written submission and paper book filed. The controversy before us revolves around the addition of Rs.5,14,75,370/- made u/s.69A r.w.s.115BBE of the Act in respect of gold jewellery weighing 12,077.750 grams seized u/s.132A of the Act, which has been sustained by the ld. CIT(A).

For the sake of brevity, the facts are not reproduced. It can be ascertained from the contents of the assessment order that the addition is made, based solely on two findings, being: a. That the assessee had attempted to deceive the police by substituting silver jewellery on 10.03.2021, while the jewellery found at the time of interception on 09.03.2021 was pure gold jewellery. b. That at the time of deposition u/s.131(1A) of the Act on 11.03.2021, the assessee had not provided any evidence with regard to the source of jewellery and therefore the clarification provided subsequently on 30.03.2021 and during the course of assessment proceedings is an afterthought.

On the first aspect of attempting to substitute the silver jewellery instead of gold jewellery, the same cannot be treated as an act of deceit. The said jewellery found on 09.03.2021 in the possession of the assessee, belonged to the assessee and the assessee had not substituted the jewellery either belonging to the police or to the Income-tax Department or for the matter any government department or any third party, with that of the silver jewellery. Therefore, there cannot be any offence committed, for if it were an offence, the :-28-: ITA. No:2815/Chny/2025 & SA No.105//Chny/2025 police would have lodged an FIR to such effect. Needless to state that, even if it were an act of deceit, it certainly does not have any ramifications on the explanation with regard to the source of gold jewellery in the possession of the assessee. Therefore, it is found that this observation of the AO is insignificant in the case under adjudication.

On the second aspect of lack of supporting documentation at the time of enquiry on 11.03.2021, the ld.CIT(A) has also pivoted his upholding act to this feature, that the assessee had not provided any satisfactory documents at the time of interception and subsequent enquiry. The failure on part of the assessee cannot be treated as a serious discrepancy. Even otherwise, when evidence are brought on record, nothing prevented the AO and the ld.CIT(A) to logically destabilising the claims by proving that such evidence are unreliable and cannot be given credence. The AO and ld.CIT(A) stand fractured and disdain to travel beyond 11.03.2021. This action on the part of the revenue to desist from countering the evidence in a rational manner, and remain restrained to the initial statement and fail to cross this barrier is undesirable.

It is evident that at every level, the addition only revolves around the statement deposed u/s.131(1A) of the Act taken on 11.03.2021 and refuses to cross the obstacle created by the reply dated 30.03.2021, though made within 19 days of the sworn statement made u/s.131(1A) of the Act. The retraction dated 30.03.2021, was accompanied with supporting documentation, and in the absence of proper counter, the retraction is valid.

Once a statement is retracted, the burden shifts to the AO to establish its correctness with corroborative material and addition cannot rest solely on a retracted statement. In the absence of corroborative evidence, a retracted statement cannot be the sole basis for addition.

The Revenue neither at the time of post-search proceedings nor at the time of assessment proceedings, confronted the Deponent who retracted, by :-29-: ITA. No:2815/Chny/2025 & SA No.105//Chny/2025 way of cross-examination, to establish that the retraction lacks basis, which is a violation of the decision of the Hon’ble Supreme Court in the case of M/s. Mehta Parikh (1956) 30 ITR 181. Though a deposition given u/s.131(1A) of the Act is crucial and an essential piece of evidence, it possesses evidentiary value only to the extent of it finds support through corroboration and additional evidence. Therefore, a statement can be retracted to the extent that it can be shown to be incorrect or involuntary, particularly if the retraction is supported by credible evidence.

The initial statement shifts the burden of proof to the person who made it. To successfully retract the statement, the assessee must provide cogent and sufficient evidence to prove that the earlier statement was factually incorrect or involuntary. In the case under consideration, certain aspects of the deposition, to such extent which is not supported were proven to be inconsistent and therefore it is found that complete reliance cannot be placed on this statement alone. Moreover, the assessee through CCTV video footage was able to demonstrate that the statement u/s.131(1A) was obtained after a minor assault. The fact that the assessee was kept under unauthorized confinement by the police also drives the point that the original statement was given under undue pressure. The confession obtained by posing leading questions in the impugned statement also classifies this statement to be an unreliable piece of evidence, and the AO and the ld.CIT(A) ought not to have got etched to this statement alone.

The arguments of the ld.AR that the evidence submitted on 30.03.2021 cannot be an afterthought is also accepted. The receipt of advance sum from M/s.Sri Jain Jewellery, Vridhachallam before all these vents got initiated proves the point that the same is not a coincidence as observed by the AO but an essential piece of evidence that rallies in favour of the assessee that it is genuine. Even if it were to be held otherwise, the AO is duty-bound to counter it systematically and cannot categorize it to be worthless without enquiry.

Further the transactions with M/s.Vithraag Jewels are not an accommodation for the reason that similar transactions have happened in the past with the same party, moreover, the trips to mofussil stations including Virudachalam is not a falsification as the same was stated before the police on the first day. Further, the testimony that the jewels were taken for approval is also demonstrated that the advance to be paid @ 25% in respect of jewels approved for acquisition by M/s.Sri Jain Jewellery, Virudachalam was received through banking channels even before release of the assessee from police detention. Such evidence clearly rallies in favour of your assessee, and hence the conclusion drawn by the AO and supported by the ld.CIT(A) that the response dated 30.03.2021 is an afterthought and cannot be given weight, is overruled.

In the present case, we find that it is undisputed that the assessee, vide detailed communication dated 30.03.2021, much prior to the action u/s.132A of the Act, furnished a comprehensive explanation regarding the source of jewellery along with documentary evidences such as approval issue memos, stock registers, ledger accounts, affidavits from M/s.Shuba Manggalam and M/s.Vithraag Jewels and bank evidence of advance received from M/s.Sri Jain Jewellery. This evidence was also reiterated during the assessment proceedings in response to notices u/s.142(1) of the Act.

Coming to the aspect that the addition can still rest on the statement given on oath, the argument of the ld.AR that it is a settled legal proposition that a confession needs corroboration with evidence is accepted. Therefore, in the absence of any enquiry and affirmation, the confession cannot be taken as the sole basis for making the addition and reliance placed on the decision of the Hon’ble Supreme Court in the case of M/s.Pullangode Rubber Produce Co. Ltd. v. State of Kerala (1973) 91 ITR 18 get enforced. Further, this statement cannot be categorized to be a deposition that possesses evidentiary value, when the same is proven to be obtained by way of threat and coercion. The CBDT has :-31-: ITA. No:2815/Chny/2025 & SA No.105//Chny/2025 issued instructions to curb the practice of obtaining forced confessions during search and seizure operations. CBDT Circular F. No. 286/2/2003-IT(Inv.), dated March 10, 2003, states that "no attempt should be made to obtain confession/surrender as to the undisclosed income during search," and any action to the contrary will be viewed adversely. Therefore, a statement given under duress, which was also retracted subsequently within a span of 17 days when the assessee was found able to recover into some normalcy, cannot be the sole basis for making an addition and concluding the assessment, without additionally corroborating it.

In the present facts of the case, we are of the view that nothing prevented the ADIT(Inv.),(OSD) to enquire and destabilize the claims of the assessee when such evidence was submitted before the date of search u/s.132A of the Act or the AO at the time of Assessment proceedings. The action on part of the Authorized officer and the Assessing Officer to have avoided enquiries and placing complete reliance on the statement deposed u/s.131(1A) of the Act, is against the intent and purpose of the Circular of CBDT in No.5- F.No. 286/98/2013-IT [lNV-II] dt. 18.12.2014 and F.No.286/2/2003 IT [INV].

In the case of Kailashben Manharlal Chokshi v. CIT1, the Hon’ble Gujarat High Court held that the additions could not be made only on the basis of admissions made by the assessee, in the absence of any corroborative material. The relevant paragraph No. 26 of the said decision has been reproduced here in below: - “26. In view of what has been stated hereinabove we are of the view that this explanation seems to be more convincing, has not been considered by the authorities below and additions were made and/or confirmed merely on the basis of statement recorded under section 132(4) of the Act. Despite the fact that the said statement was later on retracted no evidence has been led by the Revenue authority. We are, therefore, of the view that merely on the basis of admission the assessee could not have been subjected to such additions unless and until, some corroborative evidence is found in support of such admission. We are also of the view that from the statement recorded at such odd hours cannot be considered to be a voluntary statement, if it is subsequently retracted and necessary evidence is led contrary to such admission. Hence, there is no reason not to disbelieve the retraction made by the Assessing Officer and explanation duly supported by the evidence. We are, therefore, of the view that the Tribunal was :-32-: ITA. No:2815/Chny/2025 & SA No.105//Chny/2025

Furthermore, the Hon’ble Gujarat High Court in the case of CIT vs. M.P.Scrap Traders 60 taxmann.com 205 (Gujarat)[2014], while passing the order made the following observations:

The fact and circumstances in the present case are exactly identical to the cases cited above and therefore in the absence of independent enquiry into this claim of assessee, and decide the course of taxation, the addition cannot be sustained.

On the aspect of the evidentiary value that the statement given on force were to possess, the Hon'ble Delhi High Court in the case of Harjeev Agrawal 241 Taxman 199(Delhi) held as under: "20. In our view, a plain reading of Section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words "evidence found as a result of search" would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to Section 132(4) of the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the Assessee during search operation”.

The standalone statement does not possess evidentiary value and therefore the order passed by the AO based on this standalone deposition is held to be bad in law.

We are of the opinion that in the present case, the statement dated 11.03.2021 stood retracted within a reasonable time and was followed by a detailed explanation supported by contemporaneous documentary evidence. We also find force in the argument of ld.AR that the Tax auditor has made note of the stock of gold which has been given by M/s.Vithraag Jewels (PAN – AANFV5249H), wherein the Tax auditor in Form 3CB has clearly mentioned that the stock of 11,171.222 grams is with the department on account of seizure as detailed below: “Observation in Tax audit Report - Form 3CB 7. Observation in clause 35 – During the year, the assessee had sent Gold jewellery weighing about 11,171.222 Grams to M/s.Shuba Manggalam on Approval / return basis. M/s.Shuba Manggalam had in turn taken the goods to its customers on approval / return basis. However, while returning, the goods were initially taken to custody by the returning officer, Anna Nagar Assembly constituency (Election Officer) and was later handed over to Income Tax Department for further investigation. The said stock of gold jewellery weighing about 11,171.222 Grams is still lying confiscated with the Income Tax Department as on the date of signing of the Audit report. The closing stock as on 31.03.2021 includes the above confiscated gold jewellery.”

A perusal of the assessment order reveals that no enquiry whatsoever was conducted by the AO to verify the claims of the assessee with M/s.Vithraag Jewels, M/s.Shuba Manggalam or M/s.Sri Jain Jewellery, despite complete details being furnished. Even the advance payment of Rs.12,50,234/- received through banking channels prior to the interception, which corroborates the assessee’s explanation of movement of stock on approval basis, has not been disputed.

The ld.CIT(A), instead of exercising his co-terminus powers, has merely endorsed the conclusions of the AO and rejected the evidence on presumptions and surmises, alleging manipulation of books without any tangible proof. Such an approach is contrary to the settled principles of appellate adjudication.

In view of the above discussion and findings, we are of the considered view that the addition to the tune of Rs.5,14,75,370/- u/s.69 r.w.s 115BBE of the Act in the hands of the assessee is not sustainable and we are setting aside the order of the ld.CIT(A) and delete the addition.

As a result, the Grounds 1 to 6 raised by the assessee are allowed.

Alternatively, the assessee claims that the gold jewellery seized belongs to M/s.Shuba Manggalam and therefore, the same irrespective of its characteristics, whether explained or not, has to be necessarily assessed in the hands of M/s.Shuba Manggalam and the assessment order passed in the case of the assessee is void.

The ld.CIT(A) did not favour this claim of the assessee and held that since it was found in the possession of the assessee at the time of interception and this fact of actual ownership was not brought to the notice of the Authorised Officer at the time of enquiry, the assessment passed in the hands of the assessee to be justified.

The written and oral arguments put forth by the ld.AR of the assessee was carefully considered. We are of the considered view that the finding of the ld.CIT(A) is erroneous. i. The summons u/s.131(1A) to record the sworn deposition on 11.03.2021 was issued to the assessee not in his individual capacity but as his capacity as partner in the firm M/s.Shuba Manggalam. ii. The summons u/s.131 seeking response and addition clarification was also issued on 16.03.2021 in the same status and capacity, “Shri. Chandraprakash Partner in M/s.Shuba Manggalam”. iii. The AO at the start of the Assessment order asserts that the firm M/s.Shuba Manggalam is the dealer in Gold Jewellery and does not specify that the assessee is the one dealing in this business.

Notwithstanding the contention of the assessee that, even assuming without admitting that the income is liable to be brought to tax, the same ought to be assessed in the hands of the partnership firm M/s.Shuba Manggalam and not in the hands of the assessee in his individual capacity, we find that, in view of our categorical finding that the gold jewellery found and seized stands duly explained for the purposes of the Act, such contention raised vide Ground No. 7 becomes purely academic in nature. Accordingly, the said ground does not call for adjudication and is dismissed as infructuous.

The ld. AR contended that the enquiry team had visited the business premises of the firm in which the assessee is a partner and that the sequence of events clearly establishes that the gold jewellery seized, irrespective of whether explained or otherwise, constituted stock-in-trade of the partnership firm. It was further submitted that had the jewellery not represented business stock, the advance consideration of Rs.12,50,234/- received from M/s.Sri Jain Jewellery, Virudachalam would not have been credited to the bank account of the firm.

It was argued that once the authorized officer was aware that the gold jewellery was held as stock-in-trade, the seizure thereof was contrary to the proviso to section 132(1)(iii) of the Act, which expressly prohibits seizure of stock-in-trade of a business, and consequently, the entire seizure and the proceedings emanating therefrom stood vitiated.

However, in view of our finding on merits that the addition to total income is unsustainable and liable to be deleted, the adjudication of this legal contention does not survive independently. Accordingly, following the reasoning

In view of the disposal of the appeal in favour of the assessee by deleting the impugned additions, the stay application filed by the assessee no longer survives for consideration and is, accordingly, dismissed as infructuous.

In the result, the appeal of the assessee is partly allowed, and the stay application is dismissed as infructuous.