ACIT., CIRCLE-6(1), HYDERABAD V. P MANOHAR LAL JEWELLERS AND EXPORTERS, HYDERABAD

ITA 849/HYD/2024

AI Insights

The case involves P. Manohar Lal Jewellers and Exporters, a partnership firm engaged in the business of trading in gold jewellery, which filed an appeal against the order of the Commissioner of Income Tax (Appeals) at the Faceless Appeal Centre, Delhi. The primary issues revolved around the disallowance of business promotion expenses, the addition of stock shortages, and the disallowance of purchases from related parties under Section 40A(2)(b) of the Income-tax Act, 1961. The A.O. had made various additions to the assessee's income, which were later deleted by the Ld. CIT(A). The Revenue appealed against these deletions, arguing that the Ld. CIT(A) had erred in law and on facts by granting relief to the assessee without proper examination of additional evidence and not adhering to procedural requirements under Rule 46A of the Income-tax Rules, 1962.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 832147 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2026
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-B
• Assessment Year: misc
• Appeal Filed On: 31-08-2024
• Other Referred Cases: Principal CIT Vs. R.G. Buildwell Engineers Pvt. Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: FURNISHING NECESSARY; SUPPORTING EVIDENCE; ADMITTING ADDITIONAL EVIDENCE WITHOUT
• Keywords: Set aside; Additional evidence; Business expenditure; Corroborative evidences; Fair market value; Rejection of books of accounts; Onus to prove; Gift; Maximum Marginal Rate
• Section: 143(3)

Judgement Text

"आयकर अपीलीय न्यायाधिकरण में, हैदराबाद ‘बी’ बेंच, हैदराबाद IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad “B” Bench, Hyderabad श्री विजय पाल राि, माननीय उपाध्यक्ष एिं श्री मंजूनाथ जी, माननीय लेखा सदस्य SHRI VIJAY PAL RAO, HON’BLE VICE PRESIDENT AND SHRI MANJUNATHA G, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A.No.849/Hyd/2024 (निर्धारण वर्ा/ Assessment Year: 2020-21) The Assistant Commissioner of Income-Tax, Circle – 6(1), Hyderabad. Vs. P. Manohar Lal Jewellers and Exporters, Hyderabad. PAN : AEFP3883G (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) करदाता का प्रतततितित्व/ Assessee Represented by : Shri Satyanarayana Murthy, C.A. & Shri Y. Ratnakar, Advocate. राजस्व का प्रतततितित्व/ Department Represented by : Dr. Narendra Kumar Naik, CIT-DR सुिवाई समाप्त होिे की ततति/ Date of Conclusion of Hearing : 08.12.2025 घोर्णध की तधरीख/ Date of Pronouncement : 21.01.2026 O R D E R PER MANJUNATHA G., A.M : This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals), National Printed from counselvise.com 2 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters Faceless Appeal Centre [in short “NFAC”], Delhi, dated 03.07.2024, pertaining to the assessment year 2020-21. 2. The grounds raised by the Revenue read as under : “1. The Ld. CIT(A) erred both in law and on facts in granting relief to the assessee on the basis of the submissions made by the assessee. 2. The Ld. CIT(A) erred in law by not granting opportunity to the Assessing Officer to examine the additional evidence submitted by the assessee during the course of appeal proceedings, under Rule 46A of the I.T. Rules, 1962. 3. The Ld. CIT(A) erred in law in not considering that the burden of proof to establish that the expenditures claimed have been expended wholly and exclusively for the purpose of business is on the assessee by furnishing necessary and supporting evidence. 4. The Ld. CIT(A) erred on facts in granting relief of addition made towards disallowance of business promotion expenses considering that the names of the customers, addresses and contact details were provided by the assessee to the Assessing Officer during the assessment proceedings whereas only names and discount /gift amounts were provided to the Assessing Officer. 5. The Ld. CIT(A) erred on facts in granting relief of addition made towards disallowance of business promotion expenses as well as shortage of stock on the basis that no third party enquiries / verification was carried out without considering the fact that the assessee did not provide sufficient and adequate information for carrying out the same. 6. The Ld. CIT(A) erred in granting relief of addition made on account of shortage of stock said to be resulting out of manufacturing and melting losses without appreciating the fact that the vouchers and ledgers furnished are from the assessee's own computerized books of accounts which is not corroborated with record or bill or voucher containing the other party signatures or acknowledgements. 7. The Ld. CIT(A) erred in granting relief in respect of disallowance made by the Assessing Officer u/s 40A(2)(b) without considering the fact that the evidence furnished by the assessee is not proper and sufficient. 8. The Ld. CIT(A) erred in law in granting relief on the ground that the Assessing Officer has not rejected the books of account before making the Printed from counselvise.com 3 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters disallowances whereas rejection of books of accounts are generally made when entries in respect of transactions are altogether omitted or incorrect or where there is inherent lacuna in the system of accounting and in the case of the assessee, disallowances made were for non-furnishing of necessary evidence in respect of certain expenditures claimed. Any other ground that may be urged at the time of hearing.” 3. The brief facts of the case are that, assessee is a partnership firm and is engaged in the business of trading in jewellers under the name and style of “M/s. P. Manohar Lal Jewellers and Exporters”, filed its return of income for the Assessment Year 2020-21 on 09.02.2021, declaring total income of Rs. 60,83,01,720/-. The case was selected for scrutiny, and the assessment has been completed under Section 143(3) of the Income-tax Act, 1961 on 26.09.2022 and determined total income at Rs. 21,97,40,851/- by making additions towards disallowance of business promotion expenses of Rs. 2,30,52,559/-, variation in respect of disallowance on account of shortage of stock for Rs. 12,00,27,746/- and further, an addition towards 10% ad hoc disallowance of purchases from related parties under Section 40A(2)(b) of the Income-tax Act, 1961 for Rs. 83,58,826/-. 4. Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A) and challenged various additions Printed from counselvise.com 4 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters made by the A.O. The Ld. CIT(A), for the reasons stated in the appellate order dated 03.07.2024, has allowed relief to the assessee and deleted the additions made towards disallowance of business promotion expenses, addition towards shortage of stock and also addition towards disallowance of 10% purchases from a related party under Section 40A(2)(b) of the Income-tax Act, 1961. 5. Aggrieved by the order of Ld. CIT(A), the Revenue is now in appeal before the Tribunal. 6. The first issue that came up for our consideration from Ground Nos. 2 to 4 of Revenue’s appeal is deletion of addition made towards business promotion expenses of Rs. 2,30,52,559/-. 7. The facts with regard to the impugned dispute are that the assessee firm engaged in the business of trading in gold jewellery has been operating a scheme called ‘Swarnabhishekam’, whereby interested customers can pay an amount of Rs. 5,000/- /Rs. 10,000/- / Rs. 20,000/- each per month for a period up to 10 months, and after the end of 11 months, the customers will be allowed to purchase jewellery worth of Rs. 55,000/- / Rs. Printed from counselvise.com 5 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters 1,10,000/- / Rs. 2,20,000/-. The assessee has collected amounts from various customers as per the scheme for a period of 10 months, and wherever the customers have paid money for full 10 months, the assessee has credited one month premium to the accounts of the customers and allowed them to purchase jewellery equivalent to the 11 months subscription. The assessee has credited premium to the accounts of the customers and debited the said amount to the business promotion expenses account. The A.O. disallowed the business promotion expenses on the ground that, the assessee has failed to produce any documentary evidence with respect to expenses incurred on this Scheme. The vouchers and ledger copies are also perused, and it is found that, nowhere in those vouchers, the amount of discounts were mentioned. The assessee himself stated that, the sale invoice is made in respect of sale made to customers for the gross amount and even the GST payable on the gross amount as an extra amount available to the customers is not allowable as deduction from the character of GST. Therefore, it is clear that no entry whatsoever is made in the books of accounts of the assessee for the discounts given to the customers. Therefore, the A.O. rejected the explanation of the Printed from counselvise.com 6 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters assessee and disallowed the business promotion expenses of Rs. 2,30,05,269/-. 8. The Ld. CIT-DR for the Revenue, Dr. Narendra Kumar Naik, submitted that, the Ld. CIT(A) erred in deleting the additions made towards business promotion expenses by admitting additional evidence submitted by the assessee during the course of appellate proceedings without providing an opportunity to the A.O., contrary to Rule 46A of the Income-tax Rules, 1962. The Ld. CIT- DR further submitted that, the A.O. observed that, the assessee has not furnished any details, whereas the Ld. CIT(A) claims that, the assessee has furnished details of discount allowed to customers or premium paid to the customers. From the above, it is very clear that, the Ld. CIT(A) has admitted the additional evidence and allowed relief to the assessee as per Rule 46A of the Income-tax Rules, 1962. Further, although the assessee claims to have paid one-month premium to the customers and the same has been adjusted against purchase of jewellery, but no evidence has been furnished. Therefore, he submitted that, the Ld. CIT(A), without appreciating the relevant facts, simply deleted the addition made by the A.O. Therefore, the order of the Ld. CIT(A) Printed from counselvise.com 7 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters should be set aside and the addition made by the A.O. should be upheld. 9. The learned counsel for the assessee, on the other hand, supporting the order of Ld. CIT(A), submitted that, it is an admitted fact that, the assessee is operating a Scheme for monthly subscription of the customers, whereby the customers subscribed for 10 months, and upon completion of 10 months, the assessee will provide one-month premium to the customers, which is in the nature of interest or premium for making advance amount for purchase of jewellery. Further, the amount credited to the customers’ account has been debited to business promotion account, because it is not in the nature of interest and it is in the nature of discount or premium given to the customers for promoting the sale of goods. The assessee has furnished all the details, including the relevant customers’ ledger account along with gift vouchers, to prove that, the assessee has credited premium to the accounts of the customers and the same has been adjusted against the sale of jewellery. Since it is not a discount allowed to the customers and only a premium paid for advance of payment of money for purchase of jewellery, the same has not Printed from counselvise.com 8 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters been shown as discount in the invoices. The A.O. without appreciating the relevant facts, simply disallowed the entire business expenditure. The Ld. CIT(A), after considering the relevant facts, has rightly deleted the addition made by the A.O. Therefore, he submitted that, the order of the Ld. CIT(A) should be upheld and the additions made by the A.O. should be deleted. 10. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. The assessee has been operating a scheme called ‘Swarnabhishekam’, whereby the interested customers can pay an amount of Rs. 5,000/- / Rs. 10,000/- / Rs. 20,000/- per month for 10 months, and the assessee firm will allow the customers to purchase jewellery worth Rs. 55,000/- / Rs. 1,10,000/- / Rs. 2,20,000/- after 11 months. As per the Scheme, various customers have paid monthly subscription on which the assessee has credited one month subscription as premium to the accounts of the customers and the balance available in the customers’ accounts, including the premium has been adjusted against purchase of jewellery. This is evident from the relevant ledger account copies of the customers and the bill copies issued for Printed from counselvise.com 9 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters purchase of jewellery. From the details furnished by the assessee, it is abundantly clear that, the assessee has provided one month premium to the customers and the same has been debited to the business promotion expenditure account, because the Scheme has been floated to promote the business of the assessee. Although the assessee has furnished relevant details, including ledger account and bill copies to prove the claim, but the A.O. has disallowed the entire amount debited under the head ‘business promotion expenditure’ only on the ground that’ in the invoices’ there is no proof of discount allowed to the customers. In our considered view, the A.O. has completely misunderstood the Scheme, because as per the Scheme, it is only an advance amount received from the customers in equal instalments for a period of 10 months on which the assessee has credited one month premium, which is nothing but an amount paid to the customers in the nature of interest, although it is not an interest per se. Therefore, the objection of the A.O. that, there is no proof of discount allowed to customers in the bill is contrary to the Scheme promoted by the assessee. Since the assessee has filed relevant evidence to prove the business promotion expenditure, in Printed from counselvise.com 10 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters our considered view, the Ld. CIT(A) has rightly allowed the relief to the assessee. 11. In so far as the argument of the Ld. CIT-DR in the light of Rule 46A of the Income-tax Rules, 1962, in our considered view, there is no violation of Rule 46A of the Income-tax Rules as claimed by the Revenue, because the Ld. CIT(A) has analyzed the issue in the light of various evidences filed by the assessee and he found that, the same evidences are already filed before the A.O. at the time of assessment proceedings. Therefore, it is not a case of admission of additional evidence as claimed by the Revenue and therefore, the grounds of appeal raised by the Revenue on this aspect has been rejected. Thus, we are inclined to uphold the findings of Ld. CIT(A) and reject the grounds taken by the Revenue. 12. The next issue that came up for our consideration from Ground Nos. 5 and 6 of Revenue’s appeal is deletion of addition made towards stock shortage claimed by the assessee. During the Financial Year 2019-20 relevant to the Assessment Year 2020-21, the assessee has claimed stock shortage of 27,825 grams of gold. Printed from counselvise.com 11 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters The assessee sold 4,45,056 grams of gold ornaments and purchased 4,42,176 grams of gold ornaments and reported the opening and closing stock of gold ornaments at 65,015 grams and 34,307 grams respectively, which resulted into a shortage of stock to the extent of 27,825 grams. The assessee claims that, out of total shortage of stock of 27,825 grams, 9,932 grams relates to melting loss and 17,892 grams relates to manufacturing loss. The melting loss is on account of reworking the jewellery already manufactured and manufacturing loss relates to conversion of gold into ornaments. The assessee further claimed that, if we consider the manufacturing loss alone, it is at 4.49% of the total ornaments sold by the assessee, which is normal in the business of manufacturing of jewellery. The assessee has also explained melting loss and claimed that, in many cases, customers rejected jewellery on account of pattern etc. and the assessee needs to remake the jewellery and, in that process, there is a loss of gold. The A.O. did not accept the explanation of the assessee and according to the A.O., the assessee has failed to substantiate its case of stock shortage with cogent documentary evidence. The A.O. further noted that, the assessee’s reply is vague and general Printed from counselvise.com 12 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters in nature and there is no supporting evidence like vouchers to prove manufacturing loss or melting loss. Further, no documentary evidence on record being part of the financial statements shows the loss of gold due to wastage. Since the assessee has not furnished relevant details to prove the shortage of stock, the A.O. rejected the explanation of the assessee and made addition of Rs. 12,00,27,746/- being the value of gold jewellery of 27,825 grams of stock shortage shown by the assessee and added back to the total income. On appeal, the Ld. CIT(A) for the reasons stated in the appellate order deleted the additions made by the A.O. 13. The Ld. CIT-DR submitted that, the Ld. CIT(A) erred in deleting the additions made towards shortage of stock without appreciating the fact that, the vouchers and ledgers furnished by the assessee are from the assessee’s books of account, which is not corroborated with bills or vouchers containing the other parties’ signatures and acknowledgements. The Ld. CIT-DR further submitted that, once again the Ld. CIT(A) has allowed relief to the assessee by admitting additional evidence without providing those documents to the A.O. for his comments and Printed from counselvise.com 13 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters rebuttal. Therefore, he submitted that, the order of Ld. CIT(A) should be set aside and the additions made by the A.O. should be upheld. 14. The learned counsel for the assessee, on the other hand, supporting the order of Ld. CIT(A), submitted that, the assessee is into the business of manufacturing of gold ornaments, and as evident from the nature of business of the assessee, it is true that, there is a loss of gold in the process of manufacturing of ornaments. The assessee purchased raw gold and made ornaments through goldsmiths. The assessee has also entered into agreements with goldsmiths, whereby a loss of gold in the manufacturing process is agreed. The assessee had also maintained relevant records, including the Stock Inward and Outward Register, along with slips for movement of gold to the goldsmith premises and receipt of manufactured ornaments, and from the above, it is very clear that, the assessee has received less gold ornaments when compared to the raw gold sent to the goldsmiths. The assessee has also furnished a complete list of goldsmiths to whom he has entrusted the work of gold ornaments. Further, the assessee makes mainly studded jewellery and articles Printed from counselvise.com 14 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters thereof, which involves a lot of handmade workings, which results in more loss of gold in the process of manufacturing the jewellery. The assessee has also furnished a copy of the Manual issued by the Government of India, Ministry of Commerce and Industry, as part of the Foreign Trade Policy, which prescribes the maximum wastage or manufacturing loss on gold/silver/platinum jewellery and articles thereof, and if we consider the wastage percentage fixed by the Government of India, which is at 5% for studded jewellery and articles thereof. The assessee has claimed manufacturing loss of 4.98% only, which is within the permissible limit of wastage. All these evidences have been furnished to the A.O. and Ld. CIT(A). The Ld. CIT(A), after considering the relevant facts, has rightly deleted the additions made by the A.O. Therefore, he submitted that, the order of Ld. CIT(A) should be upheld and the additions made by the A.O. should be deleted. 15. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that, the assessee is into the business of trading in gold jewellery and in Printed from counselvise.com 15 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters that process purchased raw gold and makes ornaments. It is also an admitted fact that, in the process of manufacturing gold ornaments, there was a loss of wastage of gold. The assessee has claimed stock shortage of 27,825 grams of gold for the year under consideration, which works out to 4.49% of total gold ornaments sold by the assessee. If we exclude the stock shortage on account of melting loss, the loss on account of manufacturing of ornaments works out to 4.49% of total sales. The assessee has explained the melting loss due to remaking of jewellery when the customer has rejected the ornaments made by the assessee, and in the process of remaking jewellery, the goldsmiths need to remove the studs and, in that process, there will be a loss of gold. To prove this argument, the assessee has furnished the details and as per the details furnished by the assessee, it appears that, the assessee is manufacturing studded ornaments. 16. Insofar as the shortage of stock on account of manufacturing jewellery, we find that, the Ld. CIT(A) recorded a categorical finding in the light of the Government of India’s Trade Policy Handbook issued by the Ministry of Commerce and Industry as part of the Foreign Trade Policy, as per which wastage norms have Printed from counselvise.com 16 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters been fixed at different percentages for different jewellery, and in the case of studded jewellery and articles thereof, the maximum percentage of 5% has been fixed by the Government of India. If we consider the handbook issued by the Government of India for allowing wastages in the manufacturing of studded jewellery and consider the loss percentage claimed by the assessee while making jewellery, in our considered view, the loss or wastage claimed by the assessee is within the limit fixed by the Government of India. Therefore, the reasons given by the A.O. that, the assessee has claimed excessive wastage/shortage of stock is incorrect. 17. Insofar as the observation of Ld. CIT(A) with regard to the evidence furnished by the assessee, the assessee has furnished all the evidence, including the details of goldsmiths, who made the gold ornaments and has also furnished relevant details of movement of stock from the assessee’s premises to the goldsmiths’ premises and return of manufactured gold ornaments. Upon perusal of relevant details, we find that, the assessee has received less quantity of gold ornaments when compared to gold sent to the goldsmiths. From the above, it is very clear that, there is a wastage of gold in the manufacturing process for which the Printed from counselvise.com 17 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters assessee has maintained proper records. Further, the loss claimed by the assessee for the year under consideration is also similar to the loss claimed for the earlier two financial years in respect of manufacturing loss as well as melting loss, which is evident from para 9.2.2 of Ld. CIT(A)’s order. As evident from the above details, the assessee has been claiming the expenditure at a similar percentage for the last year as well. Since the assessee has furnished all the evidence and has proved the loss/wastage of gold claimed in the manufacturing process, in our considered view, the A.O. ought not to have made addition towards shortage of stock. The Ld. CIT(A), after considering the relevant facts, including the agreement between the assessee and Titan Company Ltd., where it has been clearly shown wastage at 5% on different types of jewellery, allowed relief to the assessee. The Revenue failed to bring on record any contrary evidence to counter the findings of fact recorded by the Ld. CIT(A), except stating that, the Ld. CIT(A) has allowed relief by accepting the additional evidence contrary to Rule 46A of the Income-tax Rules, 1962. Therefore, we are of the considered view that, there is no error in the reasons given by the Ld. CIT(A) to delete the additions towards shortage of stock, and Printed from counselvise.com 18 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters thus, we are inclined to uphold the findings of Ld. CIT(A) and reject the grounds taken by the Revenue. 18. The next issue that came up for our consideration from Ground Nos. 7 and 8 of Revenue’s appeal is deletion of addition made towards ad hoc disallowance of purchases from related parties under Section 40A(2)(b) of the Act for Rs. 83,58,826/-. The assessee has claimed purchases from two related concerns, M/s. Saphaire Gems (India) Pvt. Ltd. and M/s. PMJ Gems and Jewellers Pvt. Ltd. The assessee has purchased Emerald Cut-TKH @ Rs. 375/- per carat from M/s. Saphaire Gems (India) Pvt. Ltd. and further, purchased Ruby Cut - THQ @ Rs. 475/- per carat from the very same party. The A.O. disallowed 10% purchases from related parties and made addition of Rs. 83,58,826/- on the ground that, the assessee has failed to offer any explanation as to why the purchases were made from related parties and that the price paid to the related parties was at arm’s length. It was the explanation of the assessee that, it has purchased Emerald Cut - TKH @ Rs. 375/- per carat and Ruby Cut - THQ @ of Rs. 475/- per carat and the rate paid to the related parties is less than the average rate paid to outside parties for purchase of ruby and Printed from counselvise.com 19 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters emerald. The assessee has furnished a comparative table of purchases from related parties and the rate paid to them and also purchases from third parties like Lucky Gems and Karthikeya Gems and Jewellers for ruby and emerald cut and claimed that, the price paid to the related parties is less than the price paid to the third parties. The assessee further contended that, assuming for a moment the assessee has paid little higher amount to the related parties, but fact remains that, the related parties are separate entities for tax purpose and paid tax at maximum marginal rate and there is no loss of revenue. 19. Ld. CIT-DR for the Revenue, submitted that, the Ld. CIT(A) erred in deleting the addition made towards ad hoc disallowance of purchases from related parties without properly appreciating the fact that, the assessee has made substantial purchases from related concerns and failed to establish that, the prices paid to such related parties were at arm’s length. He further submitted that, the assessee has not brought on record any independent comparable data to prove that, the rates paid to the related concerns were fair and reasonable. Therefore, he contended that, the A.O. was justified in invoking the provisions of Section Printed from counselvise.com 20 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters 40A(2)(b) and making disallowance of 10% of such purchases, and hence, the order of Ld. CIT(A) should be set aside. 20. The learned counsel for the assessee, on the other hand, supporting the order of Ld. CIT(A), submitted that, the assessee has furnished complete details of purchases from related parties as well as from third parties along with comparative rates, which clearly demonstrate that, the prices paid to the related concerns were either lower than or comparable to the prices paid to outside parties. He further submitted that, in the absence of any material brought on record by the A.O. to show that, the prices paid to related parties were in excess of the fair market value, the ad hoc disallowance made under Section 40A(2)(b) of the Act, is not sustainable. Therefore, he submitted that, the order of Ld. CIT(A) deleting the disallowance be upheld. 21. We have heard both parties and considered the relevant arguments of the Ld. CIT-DR for the Revenue and the learned counsel for the assessee. There is no dispute with regard to the fact that, the assessee has made purchases from two related parties, i.e. M/s. Saphaire Gems (India) Pvt. Ltd. and M/s. PMJ Printed from counselvise.com 21 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters Gems and Jewellers Pvt. Ltd. to an extent of Rs. 8,35,88,258/-. It is also an admitted fact that, the A.O. has made ad hoc disallowance of 10% of purchases and made addition of Rs. 83,58,826/- only on the ground that, the assessee has failed to furnish relevant evidence to prove that, the price paid to related parties was at arm’s length. Apart from this, there is no finding from the A.O. as to excessive price paid by the assessee to the related parties when compared to the third parties. On the other hand, the assessee has furnished a chart showing the details of purchases from related parties, price paid to them and also details of purchases from third parties like Lucky Gems and Karthikeya Gems and Jewellers, and upon perusal of the rate paid by the assessee to the related parties and the average rate paid by the assessee to the third parties, the rate paid to the related parties for purchase of Emerald Cut - TKH and Ruby Cut - THQ is less than the rate paid by the assessee to the third parties for purchase of emerald and ruby cut. Therefore, in our considered view, once the price paid by the assessee is less than the market price paid to the third parties, the A.O., without bringing on record any comparable cases of similar nature to allege that, the Printed from counselvise.com 22 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters assessee has paid excessive price to the related parties, cannot make ad hoc disallowance @ 10% of purchases under Section 40A(2)(b) of the Income-tax Act. The Ld. CIT(A), after considering the relevant facts and also by following the decision of the Hon’ble Supreme Court in the case of Principal CIT Vs. R.G. Buildwell Engineers Pvt. Ltd. (2018) 99 taxmann.com 283 (SC), held that, the A.O. has made ad hoc disallowance without finding anything contrary to the price paid by the assessee to the related concerns which is in excess of the fair market value of the above goods when compared with the purchases from the third parties. Therefore, we are of the considered view that, there is no error in the order of Ld. CIT(A) to delete the additions made towards ad hoc disallowance of purchases from related parties under Section 40A(2)(b) of the Act. Thus, we are inclined to uphold the findings of Ld. CIT(A) and reject the grounds taken by the Revenue. Printed from counselvise.com 23 ITA No.849/Hyd/2024 P. Manohar Lal Jewellers & Exporters 22. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the Open Court on 21st January, 2026. Sd/- श्री विजय पाल राि (VIJAY PAL RAO) उपाध्यक्ष /VICE PRESIDENT Sd/- (मंजूनाथ जी) (MANJUNATHA G.) लेखा सदस्य/ACCOUNTANT MEMBER Hyderabad, dated 21.01.2026. TYNM/sps आदेशकी प्रनतनलनप अग्रेनर्त/ Copy of the order forwarded to:- 1. निर्धाररती/The Assessee : P. Manohar Lal Jewellers and Exporters, 8-2-674/1/A, Road No.13, Banjara Hills, Hyderabad – 500034, Telangana. 2. रधजस्व/ The Revenue : The Assistant Commissioner of Income Tax, Circle – 6(1), Hyderabad. 3. The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Hyderabad Printed from counselvise.com "