TaxTMI 
TaxTMI 
2026 (1) TMI 1659
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....reciating the fact that the AO has adopted the gross profit rate as admitted by the assessee in the return of Income. 3. The Ld. CIT (A) erred in deleting the addition of Rs. 1,49,84,905/- for AY 2021-22 (Rs.1,23,76,930/- for AY 2020-21) made towards unexplained expenditure u/s.69C on account of unaccounted transactions. 4. The Ld. CIT(A) erred in deleting the addition made towards unexplained expenditure on account of unaccounted purchases while accepting that there exist unaccounted sales on which 2% GP was sustained. 6. The Ld. CIT(A) erred in not appreciating the fact that there cannot be unaccounted sales without there being unaccounted purchases. 7. The Ld. CIT(A) erred in not observing that the unaccounted transactions were unearthed during the course of search, in the group case of M/s. Mohanlal Jewellers Private Limited (MJPL), on comparison of ledger named "Sitaram Sir MD" with the details of purchase of gold ornaments from MJPL submitted by the assessee firm. 8. For these grounds and any other ground including amendment of grounds that may be raised during the course of appeal proceedings, the Order of the Ld. CIT(Appeals) may....
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....atement recorded u/s.131 on 11.11.2020 vide answer to question No.9. 7. In the circumstances proceedings u/s. 153C was initiated by issuing notice u/s.153C of the Act on 24.06.2022 for the A.Y. 2020-21. In response the assessee filed its return of income on 18.01.2023 admitting the same total income of Rs. 52,26,260/-. 8. Similarly, for the A.Y. 2021-22, the assessee filed its return of income u/s.139(1) of the Act by admitting a total income of Rs.1,70,33,310/- on 25.02.2022. The Assessing Officer initiated assessment proceedings by issuing statutory notices. 9. In the assessment proceedings the assessee produced the details of purchases made from M/s. Mohanlal Jewellers (P) Ltd. and corresponding ledger accounts. On perusal of the same the AO found that few of the transactions are not matching with the seized materials. 10. Accordingly, the Assessing Officer concluded that the assessee had not disclosed the entire transaction held with the Mohanlal Jewellers Pvt Ltd and treated unaccounted transactions / expenditures as unexplained. Hence, the peak of the unaccounted transactions are arrived to quantify the unexplained expenditure by holding as under: "Thus t....
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....the Trading Account for the year ended 31-03-2020. By applying the gross profit @ 13.31%, the unaccounted income earned on these purchases is arrived at Rs. 16,22,950/- 10.2 Hence, the sum of Rs.16,22,950/- is added to the total income as unaccounted business income. For this reason, Penalty under section 270A(9) is initiated separately for under reporting of income in consequence to misreporting of income." Thus made an addition of Rs.16,22,950/- for the A.Y. 2020-21 and Rs. 48,26,392/- for the A.Y. 2021-22. 12. The Assessing Officer also noted that the certain expenditures have been made by the assessee are to be treated as unexplained in respect of unaccounted cash transactions by holding as under: "On verification of the ledger name "Sitaram Sir MD in comparison with the details submitted by the assessee, it is seen cash transactions of Rs. 5,00,000/- on 03.06.2019 and Rs. 15,320/- on 29.12.2019 were unaccounted This unaccounted cash transaction of Rs. 5,15,320/- is carried out towards unaccounted purchase of gold jewellery from M/s Mohanlal Jewellers Private Limited and the source of such unaccounted cash transactions remain unexplained 11.2 He....
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.... "6.6 On examination of the facts it can be seen that the entire addition(s) were made upon the findings unearthed during the course of search in the case of MJPL and others. In the seized materials there existed three types of transactions viz .. transactions in regular course recorded in the regular books of accounts as payment through banking channels, second transaction is exchange of old gold and third transactions are cash purchases. The AO in the assessment order(s) has contemplated three kinds of addition, they are discussed and dealt as under. (i) Addition under Business Income for Unaccounted Purchases 6.6.1 The appellant submits that the AO's addition under the head "Business Income" was based on seized materials from M/s. Mohanlal Jewellers Pvt. Ltd. These materials were presumed accurate u/s 132(4A) of the Act However, this presumption is only applicable to the person whose premises were searched, ie .. M/s. MJPL, and not to the appellant. The appellant categorically denied any transactions outside the books of accounts and provided detailed submissions to the AO, including a ledger confirmation from Mis. MJPL, corroborating the appellant'....
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.... 5,656.54 87,85,690 2019-20 5,768.46 5,531.43 70,15,320 5,808.50 5,569.88 70,15,320 2020-21 8,799.40 8,377.17 82,54,440 9,591,80 9,143.02 82,54,440 TOTAL 39,122.73 37,41 3.04 2,97,52,584 40,079.97 38,339.83 2,97,52,584 6.6.4 The jurisdictional tribunal, in the case of Mis. Gold AIK, where the facts and circumstances are identical and the issue emanate from the same kind of seized materials found at the MJPL in the case of the appellant, has observed that a reasonable estimate of gross profit of 2% will meet the ends of justice for both the sides for the years under consideration for unaccounted purchases only of gold from MJPL not recorded in the regular books of accounts and directed the AO to apply gross profit rate of 2% on cash payments made for unaccounted purchases of gold from MJPL for the relevant AY(s) and not on recorded purchases. 6.6.5 The principle of consistency and judicial discipline requires that a uniform approach be adopted in similar cases. Accordingly, the additions made in the hands of the appellant, which are based on the same ledger entries in the "J- PACK" software, deserv....
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..../- 3 2019-20 Rs. 20,48,635/- Rs. 3,55,049/- Rs. 16,93,586/- 4 2020-21 Rs. 16,22,950/- Rs. 2,43,869/- Rs. 13,79,081/- 5 2021-22 Rs.48,26,392/- Rs. 5,62,845/- Rs. 42,63,547/- 6.6.10 In this back drop, all the grounds raised by the appellant firm upon the issue of addition made as unaccounted business income for the years under consideration are hereby treated as partly allowed and the AD is directed to delete the additions as determined above (ii) Addition under section 69C for Unexplained Expenditure 6.6.11 The appellant contests the addition made uls 68C of the Act for unexplained expenditure, which was based on peak credit derived from unaccounted transactions involving gold jewellery issuance as reflected in the "J- Pack" ledger The appellant argues that such inferences are not legally valid without corroborative evidence and cannot be presumed as factual. It has been claimed that the AO failed to consider that these amounts had already been added under the different heads in the same assessment years and that the addition should have been limited to the excess amount. Moreover, the AO acknowledged that some ....
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....ansactions partakes the character of unexplained expenditure u/s 69C of the Act. 6.6.14 Based on this analysis, the condition precedent for invoking section 69C- i.e., the unexplained nature of the expenditure-has not been demonstrated by the AO. The transactions in question are business-related and cannot be deemed unexplained without concrete evidence. Furthermore, the profit element attributable as income arising out these unaccounted transactions has already been quantified in this common order for the respective years under consideration. Considering the same transactions as unexplained expenditure would lead to duplication of additions, which is contrary to the principles of equity and fairness. 6.6.15 Therefore, the addition(s) contemplated by the AO as unexplained expenditure u/s 69C of the Act, in respect of the transactions involving the issue of old gold jewellery, is unsustainable in the eyes of the law. Accordingly, all grounds raised by the appellant on this issue are hereby treated as allowed. The AO is directed to delete the additions of Rs 57,28,549/- Rs 49,96,324/- Rs.33,14,412/-Rs. 1,23,76,930/-, and Rs.1,49,84,905/- made for the assessment year....
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....2021. Since, the issue of limitation goes to root of the matter of the case and decides the very foundation of the appeal and hence we are duty bound to adjudicate the same before going into other issues raised by the revenue. 19. The ld.AR for the assessee Sri. T. Vasudevan submitted that the consequent search proceedings u/s. 132 of the Act at M/s. Mohanlal Jewellers Pvt. Ltd., Shri Suresh Kumar Khatri & others on 10.11.2020, and on perusal of the search materials i.e. 'J PACK' Software, the ledgers maintained in the name of "SITARAM SIR MD" pertains to the assessee and hence, the proceedings u/s.153C of the Act was initiated on the assessee and a notice u/s.153C of the Act was issued on 24.06.2022. 20. The ld.AR contended that the search was conducted on third Party on 10.11.2020 and notices u/s. 153C issued on the assessee on 24.06.2022 which does not complies with the provisions of Section 153C(3) of the Act. In support of the arguments, the ld.AR for the assessee relied on the judgment of the Hon'ble Madras High Court in the case of Harigovind vs. Assistant Commissioner of Income-tax Non-corporate [2025] 180 taxmann.com 197 (Madras)[28-10-2025], wherein in s....
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....) in the case Shanmugasundaram Manoharan Vs. Dy. CIT in ITA No.1607, 1608 & 1609/Chny/2025 dated 09.12.2025 has quashed the notice u/s. 153C of the Act by holding as under: "5. The primary issue requiring adjudication is whether the notice issued under Section 153C on 08.09.2022 complies with the requirements prescribed under Section 153C(3) of the Act? 6. Before us, the ld.AR for the assessee pointed out that in the present case, the search was conducted on third Party on 05.02.2020 and notices u/s. 153C issued on the assessee on 08.09.2022 which does not complies with the provisions of Section 153C(3) of the Act. To bolster the arguments, the Id.AR for the assessee has referred the judgment of the Hon'ble Jurisdictional High Court in the case of Harigovind vs. Assistant Commissioner of Income-tax Non-corporate [2025] 180 taxmann.com 197 (Madras)[28-10-2025], wherein in similar situation the Hon'ble High Court has quashed the notices issued u/s. 153C, where search was conducted at third-party premises and seized materials were handed over to assessee's Assessing Officer on 25.11.2022, same was to be construed as date of initiation of search against as....
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.... ............................................................... ................................................................ .......................... 27. Now, the main issue that is required to be decided is as to whether the issuance of notice, under Section 153C on 07.02.2023, is in accordance with the provision of Section 153C(3) of the Act? 28. According to the petitioner, the initiation of search for the petitioner is the date, on which the materials were handed over by the Assessing Officer of the searched person to the JAO of the petitioner herein. In this regard, a reference was made to the first proviso to Section 153C(1), wherein it was stated that the initiation of search shall be the date, on which the materials were handed over to the concerned JAO, which means, in this case, the date of initiation of search in terms of first proviso to Section 153C(1) is on 25.11.2022, i.e., the date on which the materials were handed over to the JAO of the petitioner. 29. Further, by referring to Sub-Section (3) of Section 153C of the Act, it was contended by the petitioner that if any search was initiated on or after 01.04.2021, no....
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....n is made and] for the relevant assessment year or years referred to in subsection (1) of section 153A Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person: Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years as referred to in sub-section (1) of section 153A except in cases where any assessment or reassessment has abated. (2) Where books of account or documents or assets seize....
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....equisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall- (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years [and for the relevant assessment year or years] referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and for the relevant assessment year or years Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years and for the relevant assessment year or years: Provided further that assessment or reassessment, if any, relating to any asse....
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....e of search, whereas, for the other person, it was taken the date, on which the requisition is made to the JAO of the other person. 40. Thus, as far as the searched person is concerned, the date of initiation of search is the date, on which the search was conducted in his premises. The said date would be the date of initiation of search for searched person for all purposes. As far as the other person is concerned, the date of initiation of search would be the date, on which the materials, books of accounts, etc., are handed over to the JAO of the other person and this date would be considered as the date of initiation of search for other person for all purposes. Thus, there cannot be two different date of initiation of search, either for the searched person or for the other person. 41. The provisions of Sub-Section (3) of Section 153C states that "153C(3). nothing contained in this Section shall apply in relation to a search initiated under Section 132 or books of account, other documents or any assets requisition under Section 132A on or after the 1st day of April, 2021" which means, if the search is initiated subsequent to 01.04.2021, the provi....
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....Further, the partner of the assessee in his statement recorded had clearly accepted that these transactions were not recorded in the books of accounts and hence the same has been treated as unaccounted purchases in the assessment. Ignoring these facts, the ld.CIT(A) allowed the grounds of appeal of the assessee which is erroneous and needs to be reversed. 29. On the contrary, the ld.AR for the assessee submitted that the ld.CIT(A) has rightly allowed the appeal following the decision of this Tribunal in the Gold AIK v. ITO Central Circle 3(3) (supra) by restricting the addition to gross profit of 2% on unaccounted purchases and also deleting the addition of expenditure. 30. The ld.AR submitted that the ld.CIT(A) decided the issue of addition under business income for unaccounted purchases in favour of the assessee by relying on the decision of the coordinate bench of Chennai in the case of Gold AIK v. ITO Central Circle 3(3) vide ITA No.1046 to 1051/Chny/2024 dated 06.11.2024. In the said case the Tribunal has observed that a reasonable estimate of gross profit of 2% will meet the ends of justice for both the sides under consideration for unaccounted purchases only of gold fr....
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....ble on the records and gone through the orders of the authorities along with the judicial precedents relied on. Admittedly search proceedings u/s.132 of the Act conducted at M/s.Mohanlal Jewellers Pvt. Ltd., Shri Suresh Kumar Khatri & others on 10.11.2020, and on perusal of the search materials seized i.e. 'J PACK' Software, the ledgers maintained in the name of "SITARAM SIR MD" pertains to the assessee and hence, the proceedings u/s. 153C of the Act was initiated on the assessee and a notice u/s. 153C of the Act. Further, the assessee filed Accordingly the notice u/s.153C of the Act was issued on 24.06.2022 to the assessee for the A. Y.2020-21. Similarly, for the A.Y.2021- 22, the assessee filed its return of income u/s. 139(1) of the Act by admitting a total income of Rs.1,70,33,310/- on 25.02.2022. In the assessment proceedings the assessee produced the details of purchases made from M/s.Mohanlal Jewellers (P) Ltd. and corresponding ledger accounts. On perusal of the same the AO found that few of the transactions are not matching with the seized materials. 35. Accordingly, the Assessing Officer concluded that the assessee had not disclosed the entire transaction held ....
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....inding by the Assessing Officer, the addition was held to be unsustainable. 39. The ld. CIT(A) also decided the issue of addition of unexplained expenditure made u/s.69C of the Act in favour of the assessee by observing that the section 69C of the Act cannot be invoked by the AO unless it is proved that the assessee has failed to demonstrate or explain the source of the expenditure. Therefore, the ld. CIT(A) directed the AO to delete the entire additions by allowing the corresponding grounds of the assessee. 40. Before us the core grievance of the Revenue is that the ld. CIT(A) erred in restricting the addition to 2% gross profit on unaccounted purchases instead of sustaining the addition made by the Assessing Officer on the entire value of such purchases. 41. Admittedly, the unaccounted purchases were detected pursuant to search proceedings conducted u/s. 132 of the Act in the case of M/s. Mohanlal Jewellers Pvt. Ltd. (MJPL), based on seized materials, including digital data. It is also not in dispute that certain purchase transactions found in the seized material were not recorded in the regular books of accounts of the assessee and that the partner of the assessee, in h....
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....es and brought to tax under the head "business income," as unexplained expenditure u/s.69C of the Act. The ld. CIT(A) deleted such additions holding that the same amounts cannot be taxed twice under different provisions of the Act. 49. We find merit in the reasoning adopted by the ld. CIT(A). Once the Assessing Officer has identified and quantified the unaccounted purchases and brought the profit element thereof to tax as business income, treating the very same transactions again as unexplained expenditure results in double taxation of the same income, which is impermissible in law. 50. Further, section 69C of the Act can be invoked only when the Assessing Officer establishes that the assessee has incurred expenditure, and the assessee has failed to satisfactorily explain the source of such expenditure. In the present case, the Assessing Officer has not recorded any categorical finding that the assessee failed to explain the source of expenditure. On the contrary, the expenditure was directly linked to business purchases, which were already considered for the purpose of estimating business income. 51. The ld.AR has also rightly relied upon the decision of this Tribunal in ....