DEPUTY COMISSIONER OF INCOME TAX, CENTRAL CIRCLE, DEHRADUN, DEHRADUN vs. KAMAL JEWELLERS, DEHRADUN

“5. In the light of the above submissions and documents filed by the AR during the course of appellate proceedings and findings of the AO in the assessment order, the various grounds of appeal are adjudicated as below: 5.3 Grounds of Appeal Nos. Ito

4. In these grounds, the AR has stated that the AO made an addition of Rs. 6,55,12,717/- on account of cash deposit by treating the same as unexplained money u/s 68 of the Income Tax Act, 1961. The assessee is into the business of trading of gold and diamond jewellery. The AO made the addition on account of cash deposits on the following basis:

1. The cash sale on 08.11.2016 is abnormally high.

2. The assessee has not given any explanation for abnormal rise in sale.

3. Confirmation from major parties from whom the purchases were made were not furnished.

4. The details of sale were not furnished. The AR in his reply during the course of appellate proceedings contended as under:

1. The cash balance is on account of jewellery sold to the customers.

2. The assessee is registered with VAT Department and the sales have been accepted by the VAT Department as per VAT Returns.

3. The turnover as per audited financial statement is Rs. 92,88,33,383/- and the said turnover has been accepted by the order of DC, VAT dated 25.01.2020.

4. The books of accounts have been accepted by the AO and the AO has not tinkered with the purchase; sale & trading results shown by the assessee.

CO 2/DDN/2025 Kamal Jewellers 5. All the sales were recorded in the books of accounts which were audited.

6. No defect in the stock register has been pointed out.

11. The availability of stock was submitted to the AO vide submissions dated 26.12.2016 and cash bills & vouchers relating to sales were submitted to the AO on 20.12.2016/21.12.2016. As per AR, a total of 133 PDF files were uploaded running into approximately 28000 pages relating to the bills issued.

12. That the sale of jewellery was made out of the available stock with the assessee.

CO 2/DDN/2025 Kamal Jewellers c. That in the above case, the stock in hand at the end of September, 2006 was Nil, whereas, in the case of the assessee, regular stock statements were filed before VAT Authorities and the same were also submitted to the Deputy Commissioner, DGCEI on 11.11.2016. d. That in the above case, consumption details of raw material were not maintained whereas in the case of the appellant, the complete movement of stock including issue of bullion and receipt of finished goods have been maintained to the minutest extent. Analysis In this case, the AO has questioned the genuineness of sales made by the assessee concern by considering the cash sales to be unexplained money of the assessee. The AO has treated the cash deposit of Rs. 6,55,12,717/- as unexplained income of the assessee u/s 68. The AR has contended that as the AO has not questioned the genuineness of purchases and other expenses, then how can the sales be questioned. A perusal of the assessment order reveals that the AO has not given any finding to the effect that the purchases, the opening stock and the closing stock of the assessee firm is questionable. The AO has reached the conclusion that the cash sales of the assessee concern are bogus as the cash sales are more in comparison to other time periods. In case, the AO had any doubts regarding the cash sales being bogus, then genuine efforts should have been made to prove the purchases to be bogus as well. In the present case, no such enquiries have been done. To provide adequate natural justice to the appellant, during the appeal proceedings, the AR was directed vide hearing dated 04.12.2023to provide details of parties from whom major purchases have been made. The AR vide reply dated 24.02.2025 submitted the requisite details. Clarificatory evidence It is pertinent to point out that it was during the course of enquiry done by this office that the assessee furnished the relevant evidences like Confirmation of purchasers, Stock Ledger of gold, silver and diamonds traded by the Appellant for the period from 1.4.2016 to 14.11.2016, List of Customers to whom the Sales were made, VAT Returns/VAT Assessment Order, etc. for the Financial Year 2016-17. The aid evidences were called for under the powers of enquiry with the office of Commissioner (Appeal). As per appellant, the complete stock statement and sale bills were also provided to the AO vide replies dated 20.12.2016, 21.12.2016 & 26.12.2016. In case, the AO is not able to collect complete material and take the issue to logical end, the evidence collected by the appellate authority from the assessee/third parties in continuation of the same trail initiated by the AO would be CO 2/DDN/2025 Kamal Jewellers clarificatory evidence. The clarificatory evidence would only remove the doubts arising in the mind of the appellate authorities from the documents on record so that the issue under consideration is taken to a logical conclusion by making the argument more explicit so that the real income can be arrived at. On the said issue, the Hon'ble High Court of Delhi in the case of Commissioner of Income-tax, Central-1 vs. Manish Build Well (P.) Ltd. reported at [2011] 16taxmann.com27 (Delhi) has held as under: “Whether a distinction should be recognized and maintained between a case where assessee invokes rule 46A to adduce additional evidence before Commissioner (Appeals) and a case where Commissioner (Appeals), without being prompted by assessee, while dealing with appeal, considers it fit to cause or make a further enquiry by virtue of powers vested in him under sub-section (4) of section 250 and it is only when he exercises his statutory suomoto power under above sub-section, that requirements of rule 46A need not be followed - Held, yes” Further, the Hon'ble High Court of Karnataka in the case of Shankar Khandasari Sugar Mills v. CIT reported at 59 taxman 405 has observed as under: "The appellate authority should have accepted the material produced by the assessee as clarificatory in nature and considered the same to test the fairness and propriety of the estimate of income made by the Income- tax Officer. Though it was belated production of very relevant material, no prejudice (in its legal sense) would have resulted to the Revenue by considering the material produced by the assessee. ... In the absence of any prejudice to the Revenue, and the basis of the tax under the Act being to levy tax, as far as possible, on the real income, the approach should be liberal in applying the procedural provisions of the Act. An appeal is but a continuation of the original proceeding and what the Income-tax Officer could have done, the appellate authority also could do." [Emphasis supplied] Further, the Hon'ble High Court of Allahabad in the case of Smt. Mohindar Kaur vs. Central Government reported at [1976] 104 ITR 120 (ALL.) has held as under: “The AAC could while disposing of an appeal, make such inquiry as he thought fit. He could permit a fresh or new ground to be raised in the appeal. No part of rule 46A whittles down or impairs the power to make further inquiry conferred upon the AAC by section 250. Similarly, sub- section (5) of the said section confers a power on the AAC to permit the appellant to raise a fresh point. This power has not been even touched by rule 46A.”

CO 2/DDN/2025 Kamal Jewellers Further, the Hon'ble High Court of Bombay in the case of Smt. Prabhavati S. Shah vs. Commissioner of Income-tax reported at [1998] 100 TAXMAN 404 (BOM.) has held as under: “It is, thus, clear that the powers of the AAC are much wider than the powers of an ordinary court of appeal. The scope of his powers is coterminous with that of the ITO. He can do what the ITO can do. He can also direct the ITO to do what he failed to do. The power conferred on the AAC under the said sub-section being quasi-judicial power, it is incumbent on him to exercise the same if the facts and circumstances justify. If the AAC fails to exercise his discretion judicially and arbitrarily refuses to make enquiry in a case where the facts and circumstances so demand, his action would be open for correction by a higher authority. On a conjoint reading of section 250 and rule 46A, it is clear that the restrictions placed on the appellant to produce evidence do not affect the powers of the AAC under sub-section (4) of section 250. The purpose of rule 46A appears to be to ensure that evidence is primarily led before the ITO. ....... The AAC should have considered this evidence in exercise of his powers under sub-sections (4) and (5) of section 250 which he failed to do. Thus, it was a fit case where the AAC should have exercised the powers conferred upon him and taken on record the zerox copies of the cheque, the certificate from the bank and the copy of the account of the assessee with the said bank and considered the same for deciding the genuineness of the loan.” Further, the Ld. ITAT Bench Calcutta in the case of INCOME- TAX OFFICER vs. BAJORIA FOUNDATION reported at [2001] 117 TAXMAN 126 (CAL.) (MAG.) has held as under: “Whether a harmonious interpretation of section 250, even if read with rule 46A, means that if facts of case warrant further enquiries, it is within powers of Commissioner (Appeals) to do so - Held, yes - Whether if prima facie an information is necessary to examine claim of assessee, Commissioner (Appeals) should consider necessary evidence in exercise of his powers under sub-sections (4) and (5) of section 250 - Held, yes” Further, the Ld. ITAT Ahmedabad Bench 'C' in the case of Deputy Commissioner of Income-tax vs. J.A. Infracon (P.) Ltd reported at [2025] 171 taxmann.com 228 (Ahmedabad - Trib.) has held as under: “Commissioner (Appeals) called for a remand report from Assessing Officer and issued notice under section 133(6)

CO 2/DDN/2025 Kamal Jewellers to aforesaid investor companies and in response to same, parties namely 'ATPL1 and 'ALPL' confirmed transactions with assessee company with necessary documents and evidences – These confirmations were not controverted by Assessing Officer by way of bringing anything adverse on record - Further, in spite of availability of all documents on record, nothing had been brought on record by Assessing Officer to doubt transaction with share applicant companies who had made share application in assessee company - Whether, on facts, Commissioner (Appeals) rightly deleted addition made by Assessing Officer - Held, yes [Paras 7, 8 and 11] [In favour of assessee]” Further, the Hon'ble Supreme Court in the case of CIT vs. Kanpur Coals Syndicate [1964] 53 ITR 225 has held that "the appellate Commissioner has plenary powers in disposing of an appeal. The Hon'ble Court further held that the scope of the power of CIT(A) is coterminous with the AO." Further, the Hon'ble High Court of Karnataka in the case of CIT vs. K. S. Dattatreya [2011] 197 taxman 151 has held that "as a revisional authority commissioner appeal can revise not only the ultimate computation arrived at but every process which lead to the ultimate computation or assessment". Further, the Hon'ble Kerala High Court in the case of V. SubramoniaAiyr vs. CIT [1978] 113 ITR 685 held that "the power conferred on Appellate Authority by Section 246 which is exercised in accordance with procedure with Section 250 indicate and amplitude and width which is no less wide than that of an ITO and the Appellate Authority could substitute the order of the ITO by one of his own." From the above, it is very clear that the powers of CIT(A) are coterminous with that of the AO. Moreover, there is no additional evidence submitted by the assessee which requires to be admitted or rejected during the appellate proceedings. Even otherwise, the evidences provided by the appellant were shared with the AO for comments vide email dated 25.02.2025 but no objections have been received till the date of finalization of appeal. In above circumstances, it is seen that the purchases of the assessee concern have been verified by the major creditors of the assessee. Once the purchases of the assessee have been confirmed, the stock register is well maintained, the VAT returns have been filed, the AO having brought no evidence on record to prove that the purchases are bogus, then considering the sales as bogus shall not stand the test of law. Also, the AO has accepted the purchases, expenditure and trading results of the assessee as the books of accounts have not been rejected.

CO 2/DDN/2025 Kamal Jewellers Addition u/s 68 As regards, the addition of Rs. 6,55,12,717/- u/s 68 and invoking the provision of Section 115BBE is concerned, the order of the AO and the detailed submissions of the assessee along with the case laws have been thoroughly perused and various case laws as relied upon by the assessee have also been gone through. The contentions of the assessee had been that it is not a case of 'unexplained money' having been deposited in the bank account of the assessee and it is sale of jewellery etc. which have been deposited in the bank account and such entries have duly recorded in the audited books of accounts. The submissions of the assessee about the filing of the VAT returns have also been considered. No defects have been pointed by the AO in respect of the purchases made by the assessee, the trading results of the assessee, then the cash realized on account of sales of the stock cannot be held to be 'unexplained money' and, as such, the addition of Rs. 6,55,12,717/- is devoid of any valid reason". Moreover, the major creditors of the assessee have confirmed the purchases made by the assessee. The judgment of Hon'ble High court of Himachal Pradesh in the case of JMJ Essential Oil Company quoted by the AO has been distinguished by the appellant and the said issue has been discussed above on page 17 of appellate order. The facts of the case of Zaveri Diamonds vs. CIT relied upon by the AO are totally different from the present case. In the said case the assessee firm did not have necessary infrastructure to carry on the business. Moreover, as per the order of Hon'ble High Court, the assessee could not prove the ownership of any weighing scale to weigh the jewellery. Moreover, in the said case, numerous transactions were there in the account of the assessee in a period of just over one month. Perusal of the order of the Hon'ble Court further reveals that the business premise of the assessee was not commensurate with the scale of alleged business of sale and purchase of jewellery as claimed by the assessee. The AO in the assessment order of the said case reached the conclusion that no business was carried out but the said assessee was only providing entries by depositing cash in the bank account and issuing cheques to prospective customers by charging 2 to 3% commission on the alleged transactions. In fact a number of persons in above case confirmed in their statements that they had received cheques after paying commission at the rate of 2 to 3%. From the above discussion it is apparent that the decision of Hon'ble High Court in the case of Zaveri Diamonds vs CIT relates to an assessee who created a garb of false/non-existent business of sale purchase of jewellery whereas the actual business of the said assessee was of providing accommodation entries. The Hon'ble Court in the said matter decided the case by relying upon various factual evidences like, non existence of actual business, poor infrastructure at CO 2/DDN/2025 Kamal Jewellers the business premise, statements of various persons confirming entry operator business, large transactions in the accounts pertaining to a period of just one month and absence of genuine business expenses to carry out such a business. On the contrary, the assessee in the present case is a regular business house doing purchase and sale of jewellery. No questions have been raised by the A.O about the genuineness of the business of the assessee in the case under consideration. No allegations are there regarding any commission business of assessee in the case under consideration. Accordingly, the facts of thecase in Zaveri diamonds Vs CIT are entirely different from the facts of the present case as the assessee in the present case is maintaining regular audited books of accounts, purchase and sale ledgers, stock statement etc. Moreover the creditors have confirmed the transactions made with the assessee. ..................... ..................... In view of the above discussion and judicial pronouncements, the source of the cash depositing in the accounts is adequately explained being sale of the jewellery and the same having been recorded in the regular books of accounts and thus, Section 68 is not applicable at all and no case has been made out that the assessee is found to be owner of money, which is not recorded in the books of accounts and rather the assessee has valid explanation that there was available cash in hand, out of the sale of jewellery and in view of the various judgments discussed above invoking of Section 68 r.w.s. 115BBE by the AO is not correct. In view of the foregoing discussion and taking into consideration all the facts and the circumstances of the case, it appears that cash deposits in bank account represent the sales which the assessee has rightly offered for taxation. No defect in the trading account and the stocks of the assessee has been pinpointed by the AO. Also, confirmations for the major purchase transactions of the assessee concern were submitted during the appellate proceedings by respective creditors, the results of these enquiries were shared with the AO for any comments. The AO has also not spotted any specific defect in the books of account, sales, purchase and stock. Since the assessee has already admitted the sales as revenue receipt, there is no case for making the addition u/s 68 or tax the same u/s 115BBE again. Hence, the action of the Assessing Officer in making an addition of Rs. 6,55,12,717/- is not justified and same is therefore deleted. Accordingly, these grounds of appeal are allowed.”

CIT(A) called for certain documents from the Assessee by exercising the power conferred under Rule 46A(4) of the Income Tax Rules, 1962. Incompliance with the direction of the Ld. CIT(A) to produce certain documents, the Assessee produced the documents such as confirmation of purchases, which are admittedly not produced before the A.O. and produced the same before the Ld. CIT(A) for the first time. The Ld. CIT(A) on receipt of the those additional evidence/ documents produced by the Assessee for the first time, shared the same with the A.O. for comments vide e-mail dated 25/02/2025. It is further mentioned in the order of the Ld. CIT(A) that, no objections have been received by the Ld. CIT(A) till finalization of the Appeal.

Thereafter, proceed to pass the order by allowing the Appeal of the Assessee.

8. It is well settled law that as per Rule 46A (4) of the Rules, Ld. CIT(A) has to power to admit the additional evidence and decide the first appeal without preferring to those documents to A.O. for his comment or objection and Ld. CIT(A) can himself examine the genuineness and veracity of the documents produced before him for the first time or can make enquiry and decide the Appeal. However, in the present case the Ld. CIT(A) after receipt of the additional documents from the Assessee, referred the additional documents for the comments of the A.O. on the additional documents referred by the Ld. CIT(A), the order impugned came to be passed by allowing the appeal on 09/06/2025. It is an undisputed fact that the Ld. CIT(A) has neither issued any reminder to the A.O. calling for his objection/comment nor made any examination or enquiry on theadditional documents produced by the Assessee. However, in an hurried manner, passed the order impugned by allowing the appeal of the Assessee. In our considered view, the Ld. CIT(A) either should have given one more reminder to the A.O. by seeking comments on the additional documents or should have made enquiry/examination of the additional documents by himself and thereafter should have decided the Appeal.

9. In view of the above, we are of the opinion that the issue involved in the present Appeal is required to be restored to the file of the A.O. with a liberty to the Assessee to produce all documents which will render the substantial justice. Accordingly, we set aside the order of the Ld. CIT(A) and remand the matter to the file of the A.O. with a liberty to the Assessee to produce all the documents in support of its claim and the A.O. is directed to consider the documents and the submissions made by the Assessee and frame the assessment de-novo in accordance with law after providing opportunity of being heard to the Assessee.

161/DDN/2025 is partly allowed for statistical purpose.

Order Pronounced in the Open Court on 14/01/2026.