TaxTMI 
TaxTMI 
2026 (11) TMI 34
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....(A), of allowing relief of Rs. 6,92,85,082/ out of addition of Rs. 7,88,85,082/- and reducing the addition to Rs. 96,00,000/- made by the Assessing Officer u/s. 68 of the Income Tax Act, 1961 on account of bogus sales made in the wake of demonetization, without appreciating the evidence including forensic evidences brought on record by the Assessing Officer and in doing so, the learned ITAT has ignored the law of human probability as laid down by Hon'ble Supreme Court of India in the case of Sumati Dayal vs. CIT, Bangalore (1995) AIR 2109, and also CIT, West Bengal vs. Durga Prasad More 82 ITR 540 SC? (b) Whether on the facts and in the circumstances of the case and in law, the learned ITAT has erred in confirming the decision of CIT(A) reducing the addition made by the Assessing Officer u/s. 68 of the Income Tax Act, 1961 on account of bogus sales made in the wake of demonetization from Rs. 7,88,85,082/-to Rs. 96,00,000/- by allowing relief of Rs. 6,92,85,082/- to the assessee? (c) Whether on the facts and in the circumstances of the case and in law, the learned ITAT has erred in confirming the decision of CIT(A) of restricting the addition to Rs. 95,41,057/- as ....
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....us by noting the following facts in the assessment order; "i) That on 8.11.2016, the assessee had made sales of Rs.3.5 crores mostly in demonetized notes, serving 223 customers in the process from 8:00pm to 12 midnight. This quantum of sales made in a single day was noted to be 40 to 50 times higher than the daily average. It was noted that it was virtually impossible to serve 223 customers in a short span of 240 minutes from 8:00pm to 12 midnight and further CCTV footage of the said day, as evidence of the sales so made to so-many customers, was not produced by the assessee; That imaging of the digital data impounded during survey was carried out, its forensic analysis done and as per the forensic report, it was found that the sales entries made between 8.11.2016 and 22.1.2017 were back-dated to present that they pertained to earlier period. The total value of the such sales was of Rs. 7,88,85,082/-; (ii) Cash sales during the de-monetization period in the month of October and November showed abnormally high increase - percentage wise when compared with that in the same period in the preceding year, showing an increase of 1673.10% in the month of October....
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....s as bogus cash sales. 12. We are of the view that on first principles itself, this addition is not justified. As stated above, the case of the Revenue is that the assessee had routed back its unaccounted income by way of bogus sales. The fact of the matter is, even this bogus sales has been reflected by the assessee in its books of accounts as income. Whether this is sales or whether it is unaccounted income of the assessee, both are entitled to the same treatment of being subjected to tax, which the assessee has already done by treating it as cash sales. So nullifying the cash sales, treating it as bogus sales, and then subjecting it to tax, is in effect a sum-zero exercise. 13. Without prejudice to the above, the basis for treating the cash sales of Rs. 7,88,85,082/- as bogus is, we find, based merely on circumstantial evidence. The case of the Revenue in treating this sales as bogus is, as noted at para 10.2 to 10.5 of his order, on the basis of : * improbability of the assessee having made sales of Rs.3.5 crores in one day i.e. on 8.11.2016 which was 40-50 times the daily average, catering in all 223 customers in 240 minutes with no evidence of the a....
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....ade in the preceding month of the impugned year, i.e. 871% increase in the month of October 2016 and 72% increase in the month of November 2016. (para 10.3 page 47-48) "10.3 The past profile of the assessee analysed on the issue of sales and amount deposited in bank account which is reproduced as under:- period: Month Amount Month Amount Nov'26 45,12,000 Nov'16 705,00,000 Dec'15 68,95,000 Dec'16 2,00,000 Percentage rise in cash sales (%) Month 2015-2016 2016-2017 (Cash) (Cash) Percentage Rise in Cash Sales (%) April 19,38,114 8,58,515 -55.70 May 17,11,231 8,55,860 -49.99 June 25,67,400 4,80,250 -81.29 July 24,94,875 36,75,799 47.33 August 33,26,281 32,97,467 -0.87 September 21,95,722 36,88,615 67.99 October 20,20,595 3,58,27,263 1673.10 November 50,29,122 6,17,90,604 1128.66 December 68,90,317 11,30,919 -83.59 January 86,27,922 23,10,527 -73.22 February 9,91,105 12,24,549 23.55 March 0 1,43,50,263 N.A. * It is evident that the cash sales made in....
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....er and are not in correct sequence. As per standard, in FoxPro Database, the entries are appended sequentially as a record number which is automatically system generated based on actual timestamping. Meaning that, whenever any entries are made from front end screen of the application to the database, such entry is always added the end (bottom) of the existing data in the database file. However, it was found that in this database, some entries (Highlighted in yellow) made were of a previous date but with actual timestamping of a later date. So, appearing at higher record numbers in a database. Such lots or groups / bunches of entries are repeated continuously until 22/1/17 Therefore, it is concluded that all these entries as shown below, have been made between 8/11/16 and 22/1/17 but through backdating attempt has been made to present that these pertain to earlier period. The total value of such non-sequential entries for Sales is Rs. 7,88,85,082/-. In view of the above, a sum of Rs. 7,88,85,082/- is added to the total income of the assessee as bogus sales through backdating entries in (OHD)." 14. Therefore, evidently, the entire case of the Revenue rests on surrou....
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....6 to 24-01-17 was filed to the AO placed before us at P.B 187-188. Counter wise item report of all items traded across the counter during this period was also filed to the AO, placed at P.B 189-194. Even before us Trading Stock ledgers of all items traded in were filed when the Ld. Counsel for the assessee was specifically asked to do so at bar. 17. Despite all records placed before the AO no bogus purchases were found to have been made by the assessee. No negative stock was reported either by the tax auditor, nor found by the AO, nor pointed out to us by the Ld.DR from the stock ledgers submitted during the course of hearing before us and no corresponding excess stock was found during survey conducted on the assessee by the department." 10. The Tribunal thereafter referred to the order passed by the CIT(Appeals) at paragraphs 6.20 and 6.21, wherein the CIT(Appeals) has noted that the fact of no excess stock being found with the assessee during the survey in consonance with the bogus sales alleged to have been made by the assessee, and the purchase and availability of the stock not having been disputed, the sales could not be held to be bogus sales. Paragraphs 6.20 and 6.21 of t....
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....23 customers in a short span of 240 minutes on 08.11.2016. Paragraph 6.11 of the CIT(Appeals) reads as under; "6.11 On perusal of assessment order, it is observed that AO has proceeded to make addition of treating accounted sales in books of account as bogus sales through backdating on assumption that it was not possible to make such sale of huge jewellery post announcement of demonetization. In the present case, sales on 08/11/2016 was claimed to have been made for Rs 3.58 crore out of aggregate addition of Rs 7.88 crore. The following is the. few video and news items available in public domain justifying that post declaration of demonetization till the midnight of 8th November, 2016, there were huge rush of people to buy the jewellry all over the India. Sr.No. Headline of News/video Link of Youtube Video 1 People rush to goldsmiths in Jalandhar to convert black currency into gold at midnight! https://www.voutube.com/wat ch?v=mep1rEP1rENTuKiW 2 People rush to buy gold jewellry after 500 & 1000 notes banned https://www.youtube.com/wat ch?v= bLfxEyWXVU 3 People take 'note' of 'change', rush to ATMs " and jewellery shops_Daijiworld Television....
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....ssee has been pointed out to us during the course of hearing, neither do we find any in the same. Therefore we find no infirmity in the order of the Ld. CIT(A) accepting the assesses explanation with regard to allegedly unusually large number of customers catered to by the assessee on one single day." 13. With regard to the ground of the Assessing Officer that sales made in the months of demonetization being abnormally unusually high as compared to that in the corresponding months of the preceding year or preceding months of the same year, the Tribunal referred to paragraph 6.18 of the CIT(Appeals) and concurred with it. Paragraph 6.18 of the CIT(Appeals)'s order reads as under; "6.18 So far as comparison of sales made by AO in current year as well as preceding year including month to month comparison, The contention of the AO is not found tenable for the fact that comparability of previous year's data of appellant's business with the current year's data is not possible as the full-fledged retail business of the appellant was started from July, 2016 only. The said fact has not been denied by AO as well. Such retail sale business usually takes a period of 2 to 3 months f....
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.... that no infirmity in the same nor the DR was able to point out why the explanation of the assessee was unacceptable. 15. Regarding the allegation of backdating of the entries of sales resorted by the assessee, which was based on the forensic report of the digital data found during the survey, the Tribunal referred to paragraphs 6.22 to 6.27 of the CIT(Appeals), which reads as under; "6.22 So far as allegation of back dating entries in ORNET Software and reliance placed on forensic report, AO has mainly contended that as per the standard, in FoxPro Database using the application named ORNET, the entries are appended sequentially as a record number which is automatically system generated based on actual time stamping and therefore, whenever any entries are made from front end screen of the application to the database, such entry is always added to the end (bottom) of the existing data in the database file. However, as further stated by the AO, the forensic report of the impounded data revealed that some entries of cash sales made were of a previous invoice and previous date but with actual time stamping of a later date. Such entries were considered as suspicious and not ....
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....ngs that in first situation, the Voucher Number S/1 is recorded on date 1/5 / 2018 S/2 on 2/5/2018 S/3 also on 2/2/2018 S/4 on 3/5/2018 and S/5 on 5/5/2018 in that sequence. Thereafter, when in the second situation, the Voucher number S / 2 was reopened and then saved a new sequence was generated whereby Voucher number S / 2 which was reopened and saved got placed below Voucher Number S/5 with no change arriving in their date of record. Further, all the above contentions of appellant have been supported by the letter dated 14.12.2018 of D'soft Infotech Pvt Ltd i.e Developer of ORNET software/database wherein the above mentioned functionality of the Database/software is confirmed by the Developer. On understanding of the above facts and technical aspects of ORNET software, I am satisfied with the contentions provided by the appellant especially where no specific contradiction to the contentions of appellant has been made in the forensic report. The peculiar and exceptional aspects of the software have not been commented upon by the forensic audit team and only general aspects of the functionality of the software have been dealt with by them. Further, the software developer ....
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....aterial before the AO, which could have lead to a conclusion that the transaction was simplicitier a device to camouflage activities, to defraud the Revenue. No such presumption could be drawn by the AO merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the AO could not have reopened the assessment. It is settled law that suspicion, howsoever strong cannot take the place of legal proof." In the ITAT Delhi bench 'C' Pavitra Realcon (P.) Ltd. v. Assistant Commissioner of Income-tax, Central Circle-32, New Delhi [2017] 87 taxmann.com 142 (Delhi Trib.) it has been held that even if how strong is the presumption/assumption, it could not be basis for any addition. 6.26 Further, I find the explanations and contentions of appellant satisfactory for the reasons given in Para herein above and for the fact that the said logical and technical explanations are also supported by the software developer itself and also that no specific contradiction with regard to the same is found in the forensic report as has been stated earlier. Further, I also find favour with the contention of appellant that in the....
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.... but the receiving back of money of the assessee's own money initially sent abroad through hawala. The assessee submitted before us that it had shown Rs. 70,00,000/- Rs. 64,00,000/- Rs., 1,06,00,000/- and Rs. 72,00,000/- for the A.Y.1998-99, Α.Υ. 1999-00, Α.Υ. 2000-01 and A.Y.2001-02 respectively in the Profit & loss account as sales which has been offered for taxation. The assessee also submitted that the AO has even accepted such turnover for working out deduction u/s 80HHC of the Act. The assessee further submitted that when it had already offered sales realization of Rs. 70,00,000/- Rs. 64,00,000/- Rs. 1,06,00,000/- and Rs. 72,00,000/- for the Α.Υ. 1998-99, Α.Υ. 1999-00, Α.Υ. 2000-01 and A.Y.2001-02 respectively as sales and such income is accepted by the AO to be the income of the assessee for respective years, addition of the same amount once again u/s 68 of the Act would tantamount to double taxation of the same income. Having regard to the facts of the case, it was argued that addition in these assessment years is based on some information gathered in some other party's case and without concrete evidences....
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....refore, we would have been inclined to remand the proceedings before the Tribunal for a finding on this issue. However, learned counsel for the assessee clarified that the assessee does not claim any deduction under section 80HHC of the Act to the extent of such disputed amount of Rs. 70 lakhs. In other words, he agreed that the Assessing Officer's working out of the deductions under section 80HHC of the Act on the export sale of the assessee of Rs.585.21 crores against the original claim of the assessee of such deduction of Rs.585.91 crores is correct. He submitted that, in fact, in the present case, such diminution of the assessee's eligibility for deduction under section 80HHC of the Act would have no bearing on the assessee's ultimate tax liability. With respect to this last submission, we express no opinion. However, in view of a clear stand taken before us and the statement made, we are not required to remand the proceedings before the Tribunal to the above limited extent also." 16. Considering the above findings of fact recorded by the CIT(Appeals), the Tribunal observed as under; "25. The assessee's explanation with regard to the allegation of backdating of entr....
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....18. The CIT(Appeals), during the course of the hearing, found that on account of unaccounted sale of 18CT gold diamond jewellry weighing 1063.05 grams noted from the storage of physical stock on the first floor of the business premises of the assessee, the Assessing Officer noted shortage of such stock by 1063.05 grams, whereas registered valuer during the survey noted the excess stock of 1510.210 grams of 18CT gold diamond jewellry from the first floor. The CIT(Appeals) therefore, considering both the data, held that there was actually excess stock of such jewellry to the extent of difference between that noted by the Assessing Officer and registered valuer of 447.157 grams. Accordingly, when the Assessing Officer made an addition of Rs. 23,34,464/- on account of unaccounted sale of such jewellry, the CIT(Appeals) held that addition to be made on account of unaccounted investment in excess stock to the tune of Rs.9,81,957/- being the difference of the excess stock found by the AO and as per the registered valuer. The CIT(Appeals) also noted that addition made by the Assessing Officer of Rs.1.14 Crore including on account of unaccounted sale to the tune of Rs. 53,12,201/-, which co....
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....aluation is made. Sr.No. Particular Gross Wt. Grms. Net Wt. Grms. Dia. Cts. Gold Avg. rate per 10 Grms. Dia. Avg. per ct. Value (Rs.) SUMMARY 1 Gold Jewellery (91.6%) (ground floor) 32,655.630 32,655.630 26,820 875,82,400 2 Gold Jewellery (75%) (ground floor) 1,421.170 1,421.170 21,960 31,20,889 3 Gold Bar (ground floor) 2,270.100 2,270.100 29,460 66,87,715 4 Gold Jewellery (75%) (1^st floor) 1,963.230 1,510.210 21,960 33,16,421 5 Diamond Jewellery (75%) (1^st floor) 5,299.003 674.68 21,960 48,500 447,39,320 6 Diamond Jewellery (91.6%) (1^st floor) 902.926 114.68 26,820 49,500 80,98,300 TOTAL 44,059.039 789.36 7 Silver (ground floor) 59.4 Kg 59.4 Kg 24,56,130 (Total Valuation of Rs. Fifteen Crore, Sixty Lac, One Thousand, One Hundred, Seventy Four Only)  ....
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....make it clarify further considering the above working, it is once again noted that the Assessing Officer has assessed unaccounted sale of 1063.053 Grams in respect of the 18 Ct. Gold Jewellery meaning thereby the accounted stock of 18 Ct. Gold Jewellery in the books of the appellant on the date of survey was found more than that of physically found stock by 1063.053 Grams. However, as discussed above, the of the appellant of 1510.210 grams of 18 Ct. Gold Jewellery found on the first floor not considered and included in the physical stock found (although evident from the valuer's report reproduced above) by the Assessing Officer being found acceptable ipso facto results into excess stock (i.e. physical stock over book stock) of the 18 Ct. Gold Jewellery by 447.157 grams. [1510.210 grams of stock not considered in physical count (-) 1063.053 grams found short] as on the date of survey. Accordingly, the value of such excess stock of 447.157 gms of 18 CT gold jewellery comes to Rs. 9,81,956/- (447.157 Grams *21960 per 10 grams as on the date of survey). The same is unaccounted investment in the said jewellery. 8.7 Having regard to the above discussion and after taking effect o....
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....ve mentioned table amounts to Rs 95,41,057/- in place of Rs. 1,14,24,765/-." 19. The Tribunal, after considering the above findings, concurred with the addition sustained by the CIT(Appeals) of Rs. 95,41,057/- and deletion of addition of the cash found during the course of survey, by observing as under; "30. Before us the Ld. DR was unable to controvert the factual finding of the Ld. CIT(A) resulting in restricting the addition made by the AO on account of excess stock of Rs. 1,14,24,765/- to Rs. 95,41,057/-. He was unable to controvert the fact noted by the Ld. CIT(A) that the registered valuer had found excess physical stock of 18Ct. gold jewellery from first floor of the business premises of the assessee of 1510.210 gms which the AO had noted to be short by 1011.207gms. In the light of the same we do not find any infirmity in the order of the Ld.CIT(A) adjusting the data of stock of gold jewellery found from first floor premises of the assessee to this extent resulting in addition being restricted only to the resultant excess jewellery found of 447 147 gms. Also we do not find any infirmity in the Ld.CIT(A)'s order telescoping the addition made of investments in exce....
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.... where physical cash exceeds cash as per books of accounts. Accordingly, it is not the case of unaccounted cash and thus no addition should be made in the hand of the assessee firm on account of difference of cash." 20. Learned Senior Standing Counsel, Mr. Varun K. Patel for the appellant, submitted that both the CIT(Appeals) and the Tribunal have committed a grave error in ignoring the findings recorded by the Assessing Officer by deleting the addition of Rs. 7,88,85,082/- and reducing the addition to Rs.96 lakhs made by the Assessing Officer under Section 68 of the Act, as well as restricting the addition to Rs. 95,41,057/- as against Rs. 1,14,24,765/- made by the Assessing Officer for unexplained investment in stock and deletion of addition of Rs. 13,33,961/-on account of excess cash, without appreciating the evidence, including the forensic evidence brought on record by the Assessing Officer, and overlooking the material fact that excess stock and cash were admitted by the partners of the firm in the statement recorded during the course of survey proceedings. 20.1. It was further submitted that on account of demonetization, the modus operandi adopted by the assessee was t....
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....r for excess stock and cash found during the course of survey. 20.4. It was further submitted that neither the CIT(Appeals) nor the Tribunal have discussed the forensic report on record, which clearly shows that the sales made by the assessee firm during the demonetization period was recorded as a backdated sales, and without showing as to how the forensic report is not reliable, both the CIT(Appeals) and the Tribunal have relied upon the possibility of making sales to 223 customers within 240 minutes on 08.11.2016 and thereafter depositing the demonetized currency up to 31.12.2016 by the assessee firm as a genuine sales, on the ground that there was stock available with the assessee and therefore, the sales cannot be considered as a bogus sales, ignoring the fact that the assessee has adjusted the stock resulting into excess stock during the course of survey conducted on 24th January 2017. It was therefore submitted by learned Senior Standing Counsel Mr. Patel that that the orders passed by the CIT(Appeals) and the Tribunal are perverse orders, and appeal requires consideration 20.5. It was also submitted by learned Senior Standing Counsel Mr. Patel that the SLP arising o....
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....ction 145 and estimated a fresh gross profit addition of Rs. 96 lakhs as normal business income, which is not under Section 68 linked to the low GP period, giving relief for the balance amount of Rs. 6,92,85,082/-. It was therefore submitted that not the entire addition of Rs. 7.88 Crore is accepted by the CIT(Appeals) and the Tribunal, and the contention of the revenue with regard to the low GP rate is accepted by the CIT(Appeals) and the Tribunal. It was further submitted that there is no evidence on record brought by the revenue with regard to the bogus sales, and contention raised on behalf of the revenue that the onus is upon the assessee is also not tenable in absence of any primary documentary evidence on record to show that there was a bogus sale, except the forensic report of backdated entries of the sales. However, the fact remains that the assessee had made the sales on 08.11.2016 in lieu of the available stock on record, which is not in dispute. 21.2. Learned advocate Mr. Soparkar submitted that the CIT(Appeals) and the Tribunal have arrived at a concurrent finding that the sales were already recorded and taxed as income in the hands of the assessee, and treating the....
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.... ledger so as to tally the purchase and sales shown in the purchase register and stock register placed on record. 21.6. In support of his submission, reliance was also placed on the decision of this Court in case of The Principal Commissioner of Income Tax v. Jewel World, rendered on 23.06.2026 in Tax Appeal No. 554 of 2025. 21.7. Regarding the issue of addition of excess stock of Rs.1.14 crore restricted to Rs.95 lakhs under Section 69B of the Act, it was submitted that CIT(Appeals) and the Tribunal have accepted the factual contention of the assessee that quantity of 18CT gold jewellry of 1510.210 grams lying in the vault on the first floor was not included by the survey team by taking the physical stock count, which distorted stock shortage computation. It was therefore submitted that after adjusting for the vault stock and reworking item-wise figures, the CIT(Appeals) recomputed the correct excess stock valuation at Rs. 95,41,057/- as against Rs.1.14 crore as per the assessment order, and since the books had already been rejected under Section 145 of the Act and gross profit addition of Rs.96 lakhs had already been confirmed, the CIT(Appeals) held that such addition would....
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....eld by the Tribunal by dismissing the appeal filed by the assessee due to the rejection of the books of accounts. Mere rejection of the books of accounts would not obviate the stock register maintained by the assessee. Both the CIT(Appeals) and the Tribunal have referred to and relied upon the reconciliation of the stock on the date of demonetization as well as while reconciliation submitted by the assessee at the time of survey. Therefore, in view of such findings of fact recorded by both the CIT(Appeals) and the Tribunal, it would be difficult for this Court to accept the contention raised on behalf of the revenue that there was a bogus sales on account of the backdated entries in the books of accounts of the assessee, where such books of accounts are already rejected under Section 145 of the Act resulting into addition of Rs.96 lakhs on account of the gross profit ratio worked out by the CIT(Appeals), which is accepted by the assessee by not preferring further appeal against the order of dismissal of the appeal of the assessee by the Tribunal. 25. With regard to the excess stock addition restricted by the CIT(Appeals) and the Tribunal, as well as the deletion of the excess st....