Cash bullion transactions may be taxed as unexplained where purchaser identity, delivery evidence, and commercial plausibility are not proved.

Cash sales in gold bullion trading may be treated as unexplained income or unexplained expenditure where the assessee fails to establish the identity of purchasers, the genuineness of transactions, and the commercial reality of the claimed trade pattern. Large cash dealings in a short period, absence of evidence of delivery, storage, or business infrastructure, and cash deposits made after the alleged sales can justify an adverse inference on the touchstone of human probabilities. By contrast, an enhancement based on closing capital difference in an earlier proprietary concern requires fresh examination where effective opportunity of hearing was not granted, and the matter may be remanded for de novo consideration.

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Issues: (i) Whether the assessee's cash sales and related purchases of gold bullion were genuine, and whether the amount of cash deposits and purchase expenditure could be brought to tax as unexplained income or unexplained expenditure; (ii) Whether the enhancement made by the first appellate authority on account of difference in closing capital of the assessee's earlier proprietary concern required fresh consideration.

Issue (i): Whether the assessee's cash sales and related purchases of gold bullion were genuine, and whether the amount of cash deposits and purchase expenditure could be brought to tax as unexplained income or unexplained expenditure.

Analysis: The assessee failed to disclose the identity of the cash purchasers of gold, and the surrounding circumstances did not support the claimed trade pattern. The business was newly started, involved very large cash transactions in a short span, and lacked credible evidence of delivery, storage, infrastructure, or normal commercial conduct. The record also showed that substantial cash deposits were made after the alleged sales dates, and the explanation that sales were on a cash-and-carry basis was found unacceptable on the touchstone of human probabilities. The burden was on the assessee to explain the source and genuineness of the cash credits and the expenditure incurred on purchases, and the withholding of material facts justified an adverse inference.

Conclusion: The cash deposits and purchase expenditure were rightly treated as unexplained, and the addition sustained in favour of the Revenue.

Issue (ii): Whether the enhancement made by the first appellate authority on account of difference in closing capital of the assessee's earlier proprietary concern required fresh consideration.

Analysis: The enhancement was made for the first time in the appellate order based on the remand material, and the assessee's grievance was that no effective opportunity had been granted before the enhancement. In the interest of justice, the matter required de novo examination by the Assessing Officer after affording a proper opportunity of hearing and considering the assessee's reply.

Conclusion: The issue was restored to the Assessing Officer for fresh adjudication, with the assessee getting a statistical relief only.

Final Conclusion: The addition relating to the alleged bullion transactions was sustained, while the separate enhancement on closing capital was set aside for reconsideration, leaving the Revenue successful on the substantive tax dispute and the assessee only partly successful on the ancillary issue.

Ratio Decidendi: Where the assessee withholds the identity of purchasers and the surrounding circumstances do not support the claimed cash transactions, the authorities may draw an adverse inference and tax the amounts under the deeming provisions relating to unexplained credits and unexplained expenditure.

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