TaxTMI 
TaxTMI 
2025 (12) TMI 975
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.... 147 2022- 23 Assessee 4. 5816/Mum /2025 ITBA/APL/ S/250/202 5-26 /10787483 95 (1) 22.07.2025 CIT(A) 51, Mumbai 29.03.2025 143(3) 2023- 24 Assessee 5. 5744/Mum /2025 ITBA/APL/S /250/2024- 25/107 8746793 (1) 22.07.2025 CIT(A) 51, Mumbai 29.03.2025 147 2020- 21 Revenue 6. 5745/Mum /2025 ITBA/APL/S /250/2024- 25/107 8747123 (1) 22.07.2025 CIT(A) 51, Mumbai 29.03.2025 147 2021- 22 Revenue 7. 5746/Mum /2025 ITBA/APL/ S/250/202 5-26 /10787481 58(1) 22.07.2025 CIT(A) 51, Mumbai 29.03.2025 147 2022- 23 Revenue 8. 5747/Mum /2025 ITBA/APL/ S/250/202 5-26 /10787483 95 (1) 22.07.2025 CIT(A) 51, Mumbai 29.03.2025 143(3) 2023- 24 Revenue 2. Grounds taken by the Assessee and Revenue are reproduced as under: ITA No 5813/Mum/2025 AY 2020-21: "1. (a) The assessment order passed u/s. 147 of the IT Act by the Id. Assessing Officer is without jurisdiction, invalid and bad in law and is also not in accordance with the procedures laid down in the Act. (b) The reopening of assessment u/s. 148 of the Act by the Jurisdictional Assessing....
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....s or assessment proceedings. (b) The Id. CIT(A) erred in law and facts in failing to appreciate that determination of the final sale price would always be the commercial prerogative of the businessman and influenced by various factors and that the pricing decision fall within the legitimate domain of business discretion and that the revenue cannot sit on the armchair of a businessman to decide about the sale price of the item." ITA No 5815/Mum/2025 AY 2022-23: "1. (a) The assessment order passed u/s. 147 of the IT Act by the Id. Assessing Officer is without jurisdiction, invalid and bad in law and is also not in accordance with the procedures laid down in the Act. (b) The reopening of assessment u/s. 148 of the Act by the Jurisdictional Assessing Officer is invalid as the notice ought to have been issued by the Faceless Assessing Officer in view of the amendment in section 151A of the Act and therefore, the entire reassessment proceedings is vitiated and consequently, the assessment order passed by the Jurisdictional Assessing Officer u/s. 147 of the Act is void-ab-initio, invalid and bad in law. 2. (a) The Id. CIT(A) erred in facts and ....
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....nd circumstance of the case and in law, the Ld. CIT(A) erred in holding that the action of the Assessing Officer in applying a 50% adjustment to Cascade tag prices was arbitrary and resulted in absurd gross profit figures, without appreciating that the said adjustment was a conservative and rational method to identify suppressed sales based on the assessee's own records." 3. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred failed to appreciate that stock valuation made by the Departmental Valuer and sales realization serve different purposes, and therefore comparison of implied sales with stock valuation is misconceived and irrelevant for determining suppression of income." 4. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the assessee failed to furnish detailed item-wise reconciliation for 103 jewellery items where recorded sale price was significantly lower than the corresponding Cascade tag price, despite being afforded repeated opportunities." 5. ". Whether on the facts and circumstance of the case and in law, the Ld. CIT(A)) failed to appreciate that....
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....e case and in law, the Ld. CIT(A) erred in ignoring the fact that the assessee failed to furnish detailed item-wise reconciliation for 57 jewellery items where recorded sale price was significantly lower than the corresponding Cascade tag price, despite being afforded repeated opportunities." 5. ". Whether on the facts and circumstance of the case and in law, the Ld. CIT(A)) failed to appreciate that no documentary evidence such as customer communications, negotiation approvals, or contemporaneous records were furnished by the assessee to substantiate steep reductions in sale prices, which rendered the AO's reliance on Cascade and Tally records as the only available basis for income determination." 6. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in the deletion of Rs. 3,03,58,309/- undermines the statutory mandate under Section 28 to make reasonable estimates of unaccounted income using operational records. The Ld. CIT(A)'s approach substitutes the actual evidence with generalized assumptions submitted by the assessee, disregarding the Departmental Valuer's corroborative report which leads to substantial under- as....
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.... in law, the Ld. CIT(A) erred in the deletion of Rs. 2,49,26,204/- undermines the statutory mandate under Section 28 to make reasonable estimates of unaccounted income using operational records. The Ld. CIT(A)'s approach substitutes the actual evidence with generalized assumptions submitted by the assessee, disregarding the Departmental Valuer's corroborative report which leads to substantial under- assessment and loss to the exchequer." 7. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in law and on facts in treating the AO's methodology as arbitrary, whereas the same constituted a reasonable and accepted procedure under Section 28 of the Act for estimating suppressed business income in the absence of satisfactory explanation by the assessee." ITA No 5747/Mum/2025 AY 2023-24: 1. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in restricting the addition for suppressed sales from Rs. 2,95,64,653/- to Rs. 47,78,471/- by replacing the AO's item wise Cascade vs Tally comparison with a uniform 14.27% GP-on cost benchmark derived solely from assessee- furnished comparable.....
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....tion by the assessee." 3. Additions made in the present appeals contested by the assessee are to be tested on the touch stones of effect of there being no corroborative evidence found during the course of search proceedings or assessment proceedings to make the addition and that the commercial prerogative for the determination of final sale price is always with the business man which is influenced by various factors. According to the assessee, addition made u/s.28 by applying average GP percentage on the cost of comparable companies for certain specified items identified by the ld. AO is not justifiable. 4. Identical issue is involved in this set of eight appeals, wherein both revenue and assessee are in cross appeals. The difference is only on account of quantum of addition. Accordingly, all these appeals are taken up together for adjudication by passing this consolidated order. We take appeal for AY 2020-21 as the lead case to draw our facts and make our observations to arrive at the findings which shall apply mutatis-mutandis to all the other appeals. 4.1. Fact of the matter is that assessee is engaged in the business of jewellery wherein the business is of trading of c....
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.... management and recording of actual final sales in the Tally software is reproduced below. "Jewellery is made on job work basis. All the raw materials (diamonds, colour stones and gold) issued to job workers are entered in Cascade software and job issue slip' is generated. This enables the assessee to keep a track of items issued to job workers. Once the item is manufactured by the job worker, the item code is created in Cascade. This enables the assessee to keep a track of finished items manufactured by the job workers. The item code is an alphanumeric number in series. For instance, Bangles will have reference number starting with 'BNG", necklace with 'NEC', bracelet with 'BRC, ear-ring with 'EAR', ring with 'RNG", etc. For maintaining physical stock of finished jewellery items, a photograph is clicked and a tag is printed for each item from the Cascade software. This enables the assessee to maintain physical stock of finished items at its store. A Tag Price (Reference price) is given to the finished item so that at any given point the Tag Price of the item can be quoted to the customer. When the customer likes a....
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....tten signed invoice to the customer, the same is entered in the Tally software at the agreed final sale price with the customer. In the Cascade software, this sale transaction is recorded with its tag price so as to track its outward movement from the inventory. Thus, the difference between the tag price in Cascade software and the final sale price recoded in the Tally software is not an unaccounted or unrecorded sale value as alleged by the ld. AO. Assessee submitted detailed reconciliation to explain the difference between the tag price/reference price in the Cascade software vis-à-vis the final and actual sale price in the Tally software. For the purpose of explaining the difference, it used the word "discount" as a nomenclature. This difference is not the real discount which the assessee offeres to its customers while concluding the deal for sale made by it. While submitting the reconciliation of sales reflected in Cascade with the actual sale as per Tally software, it was explained that value displayed in Cascade software is an artificially inflated price which is much higher than the actual realizable value of the item. There is nothing brought on record, neither by th....
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....ut in terms of unrealistic and absurd gross profit percentage. The said working is tabulated below: Sr. No. Particulars Rs. 1 Total Sale price of items in respect of which addition is made 8,89,19,391 2 Total cost of items in respect of which addition is made 7,81,02,406 3 Total profit declared on items in respect of which addition is made (1-2) 1,08,16,985 4 Difference above 50% added by AO 4,27,01,971 5 Updated sale price considered by AO (At 50% discount) (1+4) 13,16,21,362 6 Updated profit as per AO (3+4) 5,35,18,956 7 Resultant GP% on sales after addition by AO (6/5 X 100) 40.66% 8 Resultant GP% on cost after addition by AO (6/2 X 100) 68.52% 10. From the above table, it was pointed out before us that the resultant gross profit on sales stands at 40.66% and at 68.52% on cost which is highly unrealistic and absurd in the line of business in which assessee deals in. To support its contention, assessee had furnished the details of GP margins, both on sales and cost basis, of comparable companies engaged in similar line of business. Based on the working of the comparable company's average GP ma....
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....erial used by the assessee is diamonds, which is highly subjective product with high margin, it is possible for the assessee to provide high discounts. The assessee has clarified that the tag prices displayed in the Cascade software are not reflective of the actual sale prices but are instead artificially inflated reference prices. This marketing strategy. commonly practiced in the jewellery industry, is aimed at creating a perception of higher value and exclusivity. The assessee has convincingly demonstrated that these inflated prices are not intended for actual transactions but serve merely as starting points for customer negotiations. Hence, in order to meet the ends of justice, it would be fair and appropriate to consider discounts upto 50% within the acceptable range so as to avoid absurd results. 5.8.2 Based on the item wise reconciliation as given in the para 5.7.1 above, it is observed that discounts have indeed been offered by the assessee. With respect to the acceptability of the Updated Tag Price, the contention of the assessee is justified as the same was found from the seized material and therefore verifiable. 5.8.3 The assessee has limited clientele ....
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....6,88,48,476 1,16,10,379 16.86% Items where no profit/ loss is reported 2. 1,12,146 26,788 26,788 0 0.00% Items sold at loss 15 2,99,99,183 84,33,748 92,27,143 -7,93,395 -8.60% Total 103 26,32,42,724 8,89,19,391 7,81,02,407 1,08,16,984 13.85% 13.1. Accordingly, from the above factual details tabulated above, the methodology adopted by ld. AO fails to address the very absurdity it sought to correct by applying a 50% discount on Cascade Tag Prices and treating the balance amount as unaccounted sales which is devoid of any statistical data or reasoning, yielding patently unrealistic results. Such an approach of ld. AO is based on estimation, without any element of corroborative data, moreover, ignoring the most clinching fact on record in terms of Departmental Valuation Report which in itself demonstrates that the current market value arrived at in the valuation exercise is significantly lower than the tag price recorded in the Cascade software. 14. In respect of reconciliation furnished by the assessee, ld. AO observed that no reconciliation was provided for certain items appearing in the Cascade software. In t....
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....rch action only cash of approximately Rs. 2 Cr. was found and seized. Assessee had already offered income of approximately Rs. 2.30 Cr. for the assessment years from AY 2017-18 to AY 2024-25 in respect of reconciled items appearing in Cascade software which is higher than the amount of cash found and seized during the course and search. 16. In respect of the above, it is worth noting that in order to substantiate the price actually realized by the assessee from its customers on sale by items, it had submitted the following documentary evidences during the course of assessment. These documents stands as testimoney to the price realized by the assessee on the sale of items which have not been controverted or disproved by the ld. AO. These documentary evidences include: (i) Copy of invoices raised (ii) Copy of ledger account of the customer in the books of the assessee (iii) Copy of sales voucher extracted from Tally software. 17. The GP rate of 15.65% on cost as per the comparable is reasonable and is based on data to arrive at correct income in the hands of the assessee. Since the accuracy of sales figures itself is in dispute, it is more appropriate....
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....f the customer and also for negotiation purpose. c. The final sale price is typically much lower, and various factors such as quality. design, market demand, and customer perception play a role in determining the final price and the final sale price is accurately reflected in the assessee's Tally accounting software. Assessee has submitted that the discrepancy is attributed to such high difference between the display price and the real sale price. d. Assessee also emphasized that "Discount" word was used in post search and assessment proceedings for nomenclature purpose to explain the reconciliation and the difference amount between the Cascade tag price and the actual sale price cannot be said to be real discount usually given in other industries. e. Assessee also relied on the valuation report prepared by the Department's appointed registered valuer at the time of search action to show that the tag prices entered into Cascade are substantially higher than the realisable value of the items. f. Assessee has disputed the difference figure of Rs. 26,10,97,840/- stated in the show cause notice and has provided a revised difference with detai....