INCOME TAX OFFICER, VEJAPUR V. DARSHAN ORNA LIMITED, NAVRANGPURA

ITA 1606/AHD/2024

AI Insights

The case involves Darshan Orna Limited, which faced scrutiny from the Income Tax Department due to abnormal increases in cash deposits during the demonetization period compared to pre-demonetization. The AO rejected the company's books under section 145(3) of the Income Tax Act, 1961, and treated the cash deposits as unexplained under section 68, leading to an addition of Rs. 2,18,00,000 to the company's income. The CIT(A) later deleted this addition, relying on the audited books of accounts and the availability of cash-in-hand. However, the Tribunal found that the CIT(A) did not adequately address the serious discrepancies highlighted by the AO, including unverified related party transactions and the lack of detailed invoices for cash sales. The Tribunal's decision to restore the matter for fresh adjudication underscores the need for a comprehensive examination of the financial records and transactions involved.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126623 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act, 1961, Companies Act, 2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B.P. SRIVASTAVA
• Assessee Lawyers: DEEPAK SHAH
• Keywords: Set aside; Unexplained cash credit; Related party transaction; Grounds of appeal; Sales bills; Sale bills; Total Turnover; National Faceless Appeal; Commissioner; Auditor's report; Commissioner of Income Tax; Suppressed Sale; Statistical purposes; Purchases; Transfer; Transactions; Restored; Deleted; Delivery of goods; Source of cash deposit; Department; Section 68 of the Act; Directors; Section 44AB; Explanation; Form 3; Section 143(2); ADIT; Companies Act; Disclosure
• Section: 143(3); 143(2); 68; 133(6); 13; 44AB; 145(3)

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदा बा द \u0012ा यपीठ “ए“, अहमदा बा द । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD सु\u0018ी सुिच\u001aा का \u001bले, \u0012ा ियक सद एवं \u0018ी मकरंद वसंत महा देवकर, लेखा सद क े सम\"। ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA No.1606/Ahd/2024 िनधा \u0010रण वष\u0010 /Assessment Year : 2017-18 Income Tax Officer Vejalpur Ahmedabad – 380 015 बनाम/ v/s. Darshan Orna Limited 102, Shri Balaju Paragon C.G. Road Navrangpura Ahmedabad – 380 009 \u0014थायी लेखा सं./PAN: AADCD 7142 E अपीलाथ%/ (Appellant) &' यथ%/ (Respondent) Assessee by : Shri Deepak Shah, AR Revenue by : Shri B.P. Srivastava, Sr.DR सुनवाई की तारीख/Date of Hearing : 21/04/2025 घोषणा की तारीख /Date of Pronouncement: 23/04/2025 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM: This appeal by the Revenue arises out of the order dated 29.07.2024 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as (\"CIT(A)\")] for the Assessment Year (AY) 2017-18, against the assessment order passed by the Income Tax Officer, Ward-1(1)(4), Ahmedabad [hereinafter referred to as “AO”] under section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as “the Act”], dated 30.12.2019. ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 2 2. The assessee, engaged in the business of trading in gold ornaments, filed its return of income declaring a total income of Rs.10,02,120/-. The case was selected for scrutiny through CASS, and notice under section 143(2) was issued. The primary reason for selection of the case for scrutiny was stated as: “Abnormal increase in cash deposits during demonetization period as compared to pre-demonetization period.” During the course of assessment proceedings, the AO observed that the assessee had deposited cash aggregating to Rs.2,18,00,000/- during the demonetization period (09.11.2016 to 30.12.2016). The assessee explained that the cash deposits were out of cash sales of gold ornaments. The AO observed that the assessee had deposited cash aggregating to Rs.2,18,00,000/- in its bank account during the demonetization period, i.e., between 09.11.2016 to 30.12.2016. In examining the explanation offered by the assessee that such deposits were made out of cash sales of gold ornaments, the AO conducted a detailed inquiry into the business operations and the financial records of the assessee. The AO first noted an abnormal and unexplained surge in cash sales and cash deposits during the relevant period. It was specifically recorded that cash sales had increased by 785.56% as compared to the corresponding period of the preceding year, and that cash deposits during the demonetization window had increased by 12804% over the earlier year. The AO found this surge wholly disproportionate, particularly when viewed against the fact that the assessee’s overall turnover had actually declined from Rs.15.29 crores in the preceding financial year to Rs.11.71 crores during the year under consideration. The AO questioned how cash sales and deposits could increase so dramatically while total turnover had, in fact, reduced. On verification of the financial records, the AO observed that during the year, the assessee had issued shares through an Initial Public Offering (IPO) and raised Rs.7,53,60,000/-. Out of these IPO proceeds, a sum of Rs.6,00,00,000/- was ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 3 transferred to M/s. Veeram Spiritual Energies Pvt. Ltd. (now known as Veeram Securities Ltd.), a related party. It was further found that M/s. Veeram Spiritual Energies Pvt. Ltd. was engaged in the business of monetary intermediation activities and not in the trading of gold ornaments. The AO recorded that there were common directors between the assessee company and M/s. Veeram Spiritual Energies Pvt. Ltd., namely, Shri Mahendrabhai Ramniklal Shah and Shri Satish Vadilal Seth, and that these transactions indicated a diversion of funds rather than deployment for business operations. In examining the related party transactions, the AO further noted that although substantial purchases amounting to Rs.4,51,55,796/- were recorded from M/s. Veeram Spiritual Energies Pvt. Ltd., no purchase invoices or supporting bills were furnished during the course of assessment proceedings. Importantly, despite the requirement under the Companies Act, 2013, to report related party transactions in the Board’s Report and to disclose the same in the audited financial statements, it was found that the assessee's Annual Report expressly stated that no contracts or arrangements were made with related parties. The statutory auditor's report under Annexure-A, paragraph (xiii), also certified that no related party transactions existed. The AO found this omission deliberate and concluded that the assessee had suppressed material facts in its corporate disclosures. Further examination revealed that the assessee failed to produce any credible quantitative records linking the purchases to the sales. Although the assessee claimed a buildup of stock to support the cash sales, the AO observed that no complete stock movement register, or inventory records were produced to corroborate the claim. In analyzing the cash sale invoices, it was noticed that the bills did not contain the names of buyers, nor any detailed description of the jewellery sold. The description merely stated, \"Gold Ornament,\" without specification of type, weight, or design, which was considered highly unusual in the case ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 4 of sale of high-value goods like jewellery. The AO observed that in the normal course of business, no customer would purchase gold ornaments without precise description and documentation. The genuineness of the sales and purchases was further doubted by the AO upon issuing notices under section 133(6) of the Act to nine different parties. Of these, five notices were returned unserved by the postal department, while four parties, though notices were served, failed to respond. The AO recorded that when such a large number of confirmations are unavailable or untraceable, the transactions cannot be considered genuine. An additional inconsistency was identified by the AO relating to the timing of purchases. The AO noted that during the Gujarati festival season of Diwali and Labh Panchami, which fell between 30.10.2016 and 05.11.2016, business establishments traditionally remain closed. However, the assessee had recorded substantial purchases between 31.10.2016 and 04.11.2016. This was found to be highly improbable and indicative of fabrication of entries to artificially inflate stock to justify the cash sales later recorded. The AO also pointed out that though the assessee reported related party transactions under Section 40A(2)(b) of the Income Tax Act in its Form 3CD, the same transactions were not disclosed as related party transactions under the Companies Act, highlighting inconsistency and non- compliance with corporate law, irrespective of the fact that the Company was a listed entity. 2.1. On the basis of the cumulative discrepancies, including abnormal cash sales, unverifiable purchases, suppressed disclosures regarding related parties, unverified sales transactions, fabricated purchases during the closed business period, and lack of detailed invoices, the AO rejected the books of account under section 145(3) of the Act. The cash deposits of Rs. 2,18,00,000/- ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 5 were consequently treated as unexplained cash credits under section 68 of the Act and added to the total income of the assessee. 3. The assessee preferred an appeal before CIT(A). During the course of appellate proceedings, the assessee submitted that it was maintaining regular books of accounts which were duly audited under the Companies Act, 2013 as well as under section 44AB of the Act, without any adverse comment by the statutory auditors. It was contended that the cash sales recorded in the books were genuine, arising out of routine business operations, and that adequate cash-in-hand was available as per the audited financials and the cash book prior to demonetization. The assessee emphasized that the cash deposits aggregating to Rs.2,18,00,000/- made during the period from 10.11.2016 to 14.11.2016 were fully backed by the existing cash-in-hand recorded in the books of account. The assessee pointed out that detailed submissions were made before the AO explaining the sales transactions. It was stated that cash sales worth Rs. 2,18,00,000/- comprised: • Rs. 1,12,51,350/- made to 221 identifiable parties, and • Rs. 1,05,48,650/- made to walk-in customers for amounts less than Rs. 2 lakhs per transaction. Thus, the assessee submitted that for sales below Rs. 2 lakh, there was no legal requirement under Rule 114B of the Income Tax Rules to collect PAN or full particulars of the buyer. 3.1. The assessee also drew attention to the fact that the stock position had increased substantially during the year. It was submitted that the closing stock for the year stood higher compared to earlier years, there was a corresponding rise in debtors and in gross profit and the overall financial indicators demonstrated that there was no abnormality or suppression in business activities. ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 6 3.2. The assessee submitted that the cash book, ledger accounts, purchase and sales registers, stock registers, VAT returns, bank statements, and other primary documents were made available before the AO, and there was no finding recorded regarding any discrepancy in these primary records. The assessee highlighted that the AO's rejection of the books was merely based on suspicion arising from the magnitude of cash deposits, without appreciation of the documentary evidence submitted. 3.3. In respect of the purchases made from M/s. Veeram Spiritual Energies Pvt. Ltd., the assessee submitted that purchases were made in the normal course of business, and that the related party status was duly disclosed in the Form 3CD under section 40A(2)(b) of the Act. It was contended that the purchases recorded in the books were supported by corresponding stock entries. The assessee further submitted that there were no adverse comments in the Tax Audit Report, and the auditors had not pointed out any suppression of income or inflation of stock. It was also submitted that statutory reports as an annexure to submission had been duly filed with respect to cash transactions as required under the law, which was not disputed by the AO. The assessee placed reliance on several judicial precedents in support of its contention that once cash sales were recorded in the books of account, duly supported by stock records and disclosed in the return of income, no addition could be made under section 68 merely on the basis of suspicion or on the ground that buyer details were incomplete. 4. After considering the submissions of the assessee, the CIT(A) observed that there was no dispute that the assessee was maintaining regular books of account which were audited, and that the audited financial statements were available on record. The CIT(A) further noted that as per the cash book ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 7 maintained by the assessee, the cash balance available immediately before the announcement of demonetization was Rs.2.57 crores, out of which the assessee had deposited Rs.2.18 crores during 10.11.2016 to 14.11.2016. Thus, the cash deposits were duly backed by cash as per books. The CIT(A) held that the AO had made the addition by invoking section 68, whereas the receipts in question were trade receipts, being sale proceeds, which had already been accounted for in the turnover and offered to tax. It was held that when a trade receipt is duly recorded in the books of account, no separate addition under section 68 could be made merely because of doubts regarding the identity of customers or abnormality in sales pattern. The CIT(A) recorded that the AO had not found any specific discrepancy in the purchase records, sales records, stock register, or cash book. It was observed that though notices under section 133(6) of the Act were not fully complied with by some customers, the assessee had furnished substantial details such as sales invoices and ledger accounts to substantiate the cash sales. The CIT(A) also observed that for retail sales below Rs.2 lakh per transaction, there was no statutory requirement to obtain the PAN or full identity particulars of the buyer. Thus, the non-availability of complete buyer details for small cash sales could not be a ground for rejecting the sales altogether. The CIT(A) emphasized that the AO had not doubted the existence of the stock or the movement of stock in the books. Once the stock position and cash sales were matched and properly recorded in the books, and no adverse material was found regarding the purchases or stock register, the addition under section 68 could not be sustained. 5. Aggrieved by the order of CIT(A), the Revenue is in appeal before us raising following grounds of appeal: ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 8 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.2,18,00,000/-, being cash deposit, u/s 68 of the Act, without appreciating the facts narrated in detail in the assessment order? 2. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 3. It is therefore prayed that the order of Ld. CIT(A) may be set aside ans that of the AO be restores. 6. During the course of hearing before us, the Learned Departmental Representative (DR) extensively relied upon the findings recorded by the AO in the assessment order. The DR submitted that the AO had made a detailed and comprehensive examination of the facts and financial records and had recorded specific findings highlighting material discrepancies in the assessee’s books of accounts. The Ld. DR contended that the CIT(A), while allowing the assessee’s appeal, had merely relied upon the audited financial statements and books of accounts without independently verifying the critical aspects pointed out by the AO. It was submitted that the CIT(A) had not addressed the specific issues such as the diversion of IPO funds to a related party engaged in non-jewellery business, the non-disclosure of related party transactions in the Annual Report and the statutory auditor’s report, the lack of independent verification of stock records correlating purchases with sales, and the absence of detailed particulars in the cash sale invoices. The Ld. DR further drew attention to the outcome of notices issued under section 133(6) of the Act by the AO to nine parties, wherein it was recorded that five notices were returned unserved, and no response was received from the remaining parties, thereby leaving the sales and purchases claimed by the assessee unverified. It was submitted that this failure of independent verification severely undermined the genuineness of the transactions, and ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 9 that the CIT(A) had overlooked this crucial aspect while deleting the addition. The Ld. DR contended that the CIT(A) neither called for a remand report nor initiated any factual verification of the inconsistencies highlighted by the AO, and thus passed an order merely based on the assessee's submissions without proper scrutiny. The Ld. DR submitted that in view of the rejection of books under section 145(3) and the serious deficiencies pointed out in the assessment order, the appellate order suffers from a fundamental infirmity and cannot be sustained. Accordingly, the Ld. DR prayed that the order passed by the CIT(A) be set aside and the matter be restored to his file for fresh adjudication after necessary verification. 6.1. In response to the submissions made by the Learned Departmental Representative, the Learned Authorized Representative (\"Ld. AR\") supported the order passed by the Learned Commissioner of Income Tax (Appeals) [\"CIT(A)\"]. The Ld. AR submitted that the CIT(A) had passed a detailed and reasoned order after appreciating all material facts, evidences, and legal contentions placed on record. Referring to paragraph 5.3 and onwards of the CIT(A)’s order, the Ld. AR submitted that the assessee was carrying on the business of trading in gold ornaments and was maintaining regular books of accounts, which were duly audited under the Companies Act and section 44AB of the Income Tax Act, 1961, with no adverse comments in the audit reports. 7. The Ld. AR pointed out that the CIT(A) recorded that during the assessment proceedings, the assessee had furnished a copy of the trading account, purchase and sales details, stock statement, cash book, and bank statements for verification. It was contended that the assessee had demonstrated, through contemporaneous cash book entries, that a cash balance of Rs.2.57 crores was available as on 08.11.2016, out of which Rs.2.18 ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 10 crores was deposited in the bank between 10.11.2016 and 14.11.2016. The Ld. AR emphasized that this crucial factual finding was specifically recorded by the CIT(A) in relation to Ground Nos. 1 to 3 of the assessee's appeal. 7.1. On the issue of rejection of books of account under section 145(3) of the Act, the Ld. AR submitted that the CIT(A) had observed that although the AO rejected the books and reduced the sales figure, no separate addition on account of suppressed sales or stock discrepancy was made, and the net profit declared by the assessee remained unchanged. The Ld. AR submitted that the CIT(A) rightly noted that the AO had not pointed out any specific discrepancy in the purchase register, sales register, cash book, or stock register maintained by the assessee, and further, no adverse finding was recorded by the VAT authorities regarding sales and purchases reported for the relevant period. 7.2. In dealing with the outcome of notices issued under section 133(6) of the Act, the Ld. AR highlighted that the CIT(A) in his detailed analysis recorded that while the AO observed non-service or non-response to such notices, the assessee had furnished sale bills, quantitative stock details, VAT returns, and complete sales and purchase ledgers. The CIT(A) categorically held that the mere non-appearance or non-response of customers could not be a ground to treat the sales recorded in the books as non-genuine, particularly when supporting contemporaneous documentary evidences were available. 7.3. The Ld. AR further emphasized that the CIT(A) observed that the assessee had made cash sales to 221 different parties amounting to Rs.1.12 crores and that for sales below Rs.2 lakh per transaction there was no ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 11 mandatory requirement to obtain PAN or complete KYC details. The Ld. AR submitted that the CIT(A) correctly appreciated that the jewellery industry operates on high-volume cash transactions, particularly during festival seasons, and that non-collection of PAN details in such circumstances does not vitiate the genuineness of sales. 7.4. Referring to the detailed findings in the CIT(A)'s order, the Ld. AR submitted that the appellant had discharged its primary onus by furnishing books of accounts, purchase bills, sales bills, cash book, stock registers, and bank statements, all of which were contemporaneously maintained. It was further submitted that the AO had not brought on record any independent evidence to prove that the cash deposits were from undisclosed sources or that the sales recorded were fictitious. 7.5. The Ld. AR also relied upon the judicial precedents to submit that trade receipts duly recorded in the books, backed by corresponding stock movements, cannot be taxed under section 68 merely because of the non- availability of buyer confirmations or suspicion regarding timing of sales. It was thus submitted by the Ld. AR that the CIT(A) had properly appreciated the facts, considered the documentary evidence produced, applied settled judicial principles, and had rightly deleted the addition made under section 68. The Ld. AR prayed for upholding the appellate order passed by the CIT(A) and for dismissal of the Revenue’s appeal. 8. We have carefully considered the rival submissions, perused the assessment order, the order of the Learned CIT(A), the grounds raised by the Revenue, and the material placed on record. ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 12 8.1. The core issue arising for adjudication is whether the CIT(A) was justified in deleting the addition of Rs.2,18,00,000/- made by the AO under section 68 of the Act towards unexplained cash deposits, without properly appreciating the factual discrepancies noted by the AO and without conducting an independent verification of the stock records, sale / purchases, and related party transactions. 8.2. Upon examination of the assessment order, it is noted that the AO rejected the books of account under section 145(3) of the Act after recording detailed findings. The AO observed an abnormal and disproportionate increase of 785.56% in sales during the period 01.04.2016 to 08.11.2016 compared to the same period of the previous year, and an extraordinary 12804% increase in cash deposits during the demonetization period as compared to the corresponding period of the preceding year. Despite this, overall turnover had declined, which raised serious doubts on the genuineness of the sales. These findings go to the root of the correctness and completeness of the accounts maintained by the assessee. In such circumstances, where the basic veracity of the accounting entries is seriously undermined, rejection of books of account under section 145(3) is not only justified but warranted in law. We accordingly uphold the action of the AO in rejecting the books of account under section 145(3) of the Act. 8.3. Further, the AO noticed that the assessee had transferred Rs.6,00,00,000/- out of the IPO proceeds to M/s. Veeram Spiritual Energies Pvt. Ltd., a related party engaged not in the jewellery business but in monetary intermediation activities. The assessee had also shown purchases worth Rs.4,51,55,796/- from the said related party. However, no supporting documentary evidence were furnished to substantiate the said purchases. ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 13 Importantly, these related party transactions were not disclosed in the assessee’s Annual Report for F.Y. 2016-17 as required under the Companies Act, 2013, and the statutory auditors in their report under Annexure A also recorded no related party transactions, indicating suppression of material facts. 8.4. The AO also observed that the cash sale invoices furnished by the assessee merely mentioned “gold ornament” without detailing the specific description, weight, or type of jewellery sold. There was a complete absence of buyer names and essential transaction details, undermining the authenticity of the cash sales. Further, notices issued under section 133(6) to nine parties to verify sales and purchases resulted in five notices being returned unserved, and no response being received from the remaining parties, leaving the transactions unverified. Moreover, the assessee recorded purchases during the Diwali–Labh Panchami holiday period (31.10.2016 to 04.11.2016), when, by established local tradition, business establishments remain closed, further eroding the credibility of the entries made in the books. 8.5. In view of these serious inconsistencies, the AO lawfully rejected the books under section 145(3) of the Act and treated the cash deposits of Rs.2,18,00,000/- as unexplained cash credit under section 68 of the Act. 8.6. On the other hand, the CIT(A) deleted the addition primarily by relying upon the audited books of accounts, cash book, availability of cash- in-hand, and the judicial precedents. The CIT(A) observed that once cash sales were recorded in books and no specific discrepancy in cash book or stock registers was pointed out, addition under section 68 could not be sustained. ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 14 8.7. However, upon careful consideration, we find merit in the contentions raised by the Learned DR. While the CIT(A) has extensively relied on the books of accounts and the availability of cash-in-hand, there is no independent verification of the crucial aspects raised by the AO. The issue of related party purchases from M/s. Veeram Spiritual Energies Pvt. Ltd. and the complete absence of disclosure of such transactions in the Annual Report and Audit Report has been overlooked. No attempt was made to verify the genuineness of the purchases, which is a critical factor in cases where sales are cited as the source of cash deposits, particularly when no sale is possible without genuine purchases. We also note that during the course of hearing before us, when queried specifically, the Learned AR was unable to confirm whether the quantitative details of stock, including opening stock, purchases, sales, and closing stock, had been disclosed by the assessee’s tax auditor in the annexure to the audit report in Form 3CD as required. The absence or insufficiency of audited quantitative particulars further necessitates independent verification of the quantitative records maintained by the assessee to corroborate the genuineness of the transactions. In addition, it is pertinent to observe that significant purchases were recorded by the assessee from M/s. Veeram Spiritual Energies Pvt. Ltd., an entity primarily engaged in monetary intermediation and not in the business of trading in gold or jewellery. The genuineness of such purchases, the actual delivery of goods, and their reflection in stock movement records assume greater importance in the facts of the present case and require detailed verification. 8.8. The AO’s findings regarding recording of purchases during festival closure days, lack of detailed invoices, and failure of third parties to respond to notices under section 133(6) were material and went to the root of the issue. The CIT(A) did not call for any remand report from the AO or undertake any ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 15 factual verification to rebut these discrepancies but accepted the assessee’s explanation solely based on audited books. 8.9. The judicial precedents relied upon by the CIT(A) are distinguishable on facts, as in those cases there was no finding of suppressed related party transactions, unverified stock entries, or complete failure of independent verification. In the present case, the factual matrix is materially different. 8.10. We also observe that although the CIT(A) noted that the AO had rejected the books of account under section 145(3) of the Act, the CIT(A) did not independently adjudicate whether the said rejection was justified in the facts of the case. The CIT(A) merely proceeded on the basis that the books of account were audited and relied upon the cash book and stock records submitted by the assessee, without critically examining the serious discrepancies recorded by the AO. No independent verification of quantitative stock records, purchases, sales, or cash movements was undertaken by the CIT(A). The CIT(A) also did not address the material inconsistencies relating to related party purchases and unverified sales. In the absence of reconciliation of discrepancies or independent verification, the CIT(A) could not have accepted the assessee’s explanation at face value after lawful rejection of the books of account by the AO. The failure of the CIT(A) to properly deal with the rejection of books vitiates the appellate order and necessitates restoration of the matter for fresh adjudication. 8.11. Thus, we are of the considered opinion that the CIT(A) has not passed a sufficiently reasoned and comprehensive order dealing with the serious discrepancies highlighted by the AO. The order of the CIT(A) suffers from ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 16 lack of factual verification and examination of critical issues necessary to establish the genuineness of the cash deposits. 8.12. Accordingly, in the interest of justice, we deem it appropriate to set aside the order of the CIT(A) and restore the matter back to his file for fresh adjudication in accordance with law. The CIT(A) shall: • Verify the quantitative stock details with reference to purchase and sale records maintained by the assessee. • Examine in detail the transactions with M/s. Veeram Spiritual Energies Pvt. Ltd. in the light of related party disclosure requirements under the Companies Act, 2013 and the Income Tax Act, 1961. • Verify the genuineness of purchases and correlation with the sales shown. • Examine the issue of unverified sales and non-responded 133(6) notices. • Examine the purchases recorded during the Diwali–Labh Panchami closure period. • Pass a fresh reasoned and speaking order after granting due opportunity of hearing to the assessee. 8.13. We clarify that we have not expressed any conclusive view on the merits of the case and all issues are left open. 9. In the result, Revenue’s appeal is accordingly allowed for statistical purposes. Order pronounced in the Open Court on 23 April, 2025 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER अहमदाबाद/Ahmedabad, िदनांक/Dated 23/04/2025 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS ITA No.1606/ahd/2024 ITO vs. Darshan Orna Ltd. Asst. Year : 2017-18 17 आदेश की #ितिलिप अ$ेिषत/Copy of the Order forwarded to : 1. अपीलाथ% / The Appellant 2. #&थ% / The Respondent. 3. संबंिधत आयकर आयु' / Concerned CIT 4. आयकर आयु' ) अपील ( / The CIT(A)-(NFAC), Delhi 5. िवभागीय #ितिनिध , आयकर अपीलीय अिधकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाड\u0010 फाईल / Guard file. आदेशानुसार/ BY ORDER, स&ािपत #ित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad 1. Date of dictation (word processed by Hon’ble AM in his laptop) : 22.4.2025 2. Date on which the typed draft is placed before the Dictating Member. : 22.4.2025 3. Date on which the approved draft comes to the Sr.P.S./P.S : 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 23.4.25 7. Date on which the file goes to the Bench Clerk. : 23.4.25 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order : "