R C GEMS,BANDRA(EAST V. DCIT CENTRAL CIRCLE-1(1), MUMBAI, MUMBAI

CO 57/MUM/2025

AI Insights

The case involves appeals by the DCIT, Central Circle-1(1), Mumbai against R C Gems concerning the assessment years 2019-20, 2020-21, and 2022-23. The core issue was the CIT(A)'s decision to restrict the addition made by the Assessing Officer (AO) by applying the gross profit rate on unaccounted sales rather than adding the entire sales amount as unaccounted income. The background of the case includes a search operation on the Ratnakala Group, which revealed the use of multiple software for different types of transactions, including unaccounted cash transactions. The AO had added the entire sales amount to the assessee's income based on these unaccounted transactions, which was contested by the assessee and partially overturned by the CIT(A).

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126064 (ITAT-MUMBAI)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-04-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2022-2023
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANYOGITA NAGPAL
• Assessee Lawyers: HIMANSHU GANDHI
• Keywords: Opportunity of cross examination; Borrowed satisfaction
• Section: 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘D’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.721/Mum/2025 (Assessment Year :2022-23) & ITA No.812/Mum/2025 & 813/Mum/2025 (Assessment Year :2020-21 & 2019-20) DCIT, Central Circle- 1(1), Mumbai Vs. R C Gems BW-3081/82, Bharat Diamond Bourse BKC, Bandra (E) Maharashtra- 400 051 PAN/GIR No.AADFR8460J (Appellant) .. (Respondent) CO No.57/Mum/2025 (Arising out of ITA No.721/Mum/2025) (Assessment Year :2022-23) & CO No.58/Mum/2025 & CO No.56/Mum/2025 (Arising out of ITA No.812/Mum/2025 & 813/Mum/2025) (Assessment Year :2020-21 & 2019-20) R C Gems BW-3081/82, Bharat Diamond Bourse BKC, Bandra (E) Maharashtra- 400 051 Vs. DCIT, Central Circle-1(1), Mumbai PAN/GIR No. AADFR8460J (Appellant) .. (Respondent) ITA No.721/Mum/2025 and others R.C.Gems 2 Assessee by Shri Himanshu Gandhi Revenue by Smt. Sanyogita Nagpal, CIT DR Date of Hearing 07/04/2025 Date of Pronouncement 22/04/2025 आदेश / O R D E R PER BENCH: The aforesaid appeals have been filed by the department and cross objections by the assessee against separate impugned orders passed by CIT(A)-47, Mumbai for the quantum of assessment passed u/s.143(3)/147 & 143(3) for the A.Y. 2019- 20, 2020-21 and 2022-23. 2. In all the appeals, the common issue involved is that Ld. CIT(A) has erred in restricting the addition made by the ld. AO by applying G.P. Rate on unaccounted sales. 3. The brief facts in all the years are that a search was conducted on Ratnakala Group on 22/09/2021. During the search it was found that they were maintaining three software:- a) Diamond Software for accounted transactions b) Mirekal Software for unaccounted transactions c) DOS for Cash Transaction entries 4. During the search it was also revealed that Ratnakala Group is involved in cash sales / cash purchases, unaccounted cash payments. Statement of Director Ranchhodbhai K Detroja ITA No.721/Mum/2025 and others R.C.Gems 3 and employees/accountant Shailesh R Godhani, Shashikant N Godhani and Jitendra Parikh was recorded in which they have explained the modus operandi. Data extracted from Mirekal Software in which Ledger of assessee, M/s RC Gems was found wherein they have shown having various transactions of purchases. As per the said Ledger found from Mirekal Software , assessee had sold Patala Diamond in cash to Ratnakala Group. Ld. AO on the basis of ledger account of M/s. RC Gems noted the detailed transactions giving description of goods, lot, rate, broker name etc., which has been incorporated in the impugned assessment order. From the ledger accounts, he noted that Ratnakala Exports Private Limited is a purchase party and assessee, i.e., M/s. RC Gems is a sale party and it was found from the software that assessee has sold patala diamond to Ratnakala Exports Pvt. Ltd., in cash. 5. In response to show-cause notice assessee filed detailed submissions wherein it was submitted that he does not have any cash sales and nothing can be implicated on the basis of Mirekal software found from the possession of the purchase party. Assessee also submitted an affidavit from Ratnakala Exports Private Limited that all the sales made were accounted for and was not in cash. Thus, assessee denied making any cash sales to Ratnakala group. However, the ld. AO rejected the same on the ground that during the search in the case of Ratnakala Exports Private Limited, the software which was found and seized by the Investigation Wing it was found that assessee had sold patala diamond in cash to Ratnakala Exports Private Limited and ITA No.721/Mum/2025 and others R.C.Gems 4 during the course of search and also by the various statements, it was found that they were actual cash sales, accordingly, he added the entire sales in the hands of the assessee for the assessment years. For instance, in A.Y.2019-20, he added the amount of Rs.86,53,491/-; in A.Y.2020-21, he added the entire sales of Rs.1,09,18,715/-; and in 2022-23 he added Rs.1,74,90,081/-. 6. Before ld. CIT (A) the assessee made detailed submissions which has been incorporated in the impugned order wherein, it was stated that nothing was found from the assessee and only there were statements of couple of employees of Ratnakala Exports Private Limited who have given a general statement explaining this modus operandi and in any case none of them have specifically admitted of making cash purchases from the assessee. There are no incriminating documents found to establish the existence of cash as a result of such unrecorded sales and whatever sales assessee has made to Ratnakala Exports Private Limited has been duly incorporated in the books. Apart from that assessee has also stated that the statements cannot be relied upon without giving opportunity of cross examination. The ld. CIT (A) after analyzing the entire facts and material on record held that purchases of diamonds have not been doubted at all by the ld. AO and yet he has made the addition of entire sales made to this party in each year. He held that only a profit element may be taxed on these transactions. After referring the various judgments of Hon’ble High Court wherein it has been held that only profit element can be taxed in ITA No.721/Mum/2025 and others R.C.Gems 5 such cases. He further noted one very important fact that most of the sales made to Ratnakala Group was recorded in the books of account. Thus, only unaccounted sale is to be considered for the purpose of applying GP to make the addition. Accordingly, he held that the gross profit declared by the assessee for the concerned year was to be applied. 7. The year wise summary of the addition made by the ld.AO on account of alleged unaccounted sales, out of which the sales which were accounted and duly recorded in the books considered by the ld. CIT(A) and GP rate applied to sustain the additions are as under:- 8. Before us ld. Counsel submitted that first of all the reopening in the case of the assessee was based on borrowed satisfaction without any enquiry or verification by the ld. AO. Secondly, Director / employees of Ratnakala Exports Private Limited have AY Alleged Sale by AO AO Accounted Sale considered by CIT(A) Unaccounted Sale considered by CIT(A) GP Rate applie d on alleged Cash Sale Addition sustained by CIT(A) 2019-20 86,53,491 86,53,491 - 86,53,491 8.34% 17,21,701 2020-21 1,09,18,715 1,09,18,715 41,62,097 67,56,618 5.5% 3,74,992 2022-23 1,74,90,081 1,74,90,081 1,51,92,866 22,97,215 4.42% 1,01,537 ITA No.721/Mum/2025 and others R.C.Gems 6 given a general statement and not specifically identified the assessee. Thus, ld. AO could not rely upon statement and the data seized from the third party specially when Directors have already retracted the statements and no incriminating documents found was provided to the assessee. Lastly, the entries in the books of third account cannot be relied upon. 9. On the other hand, ld. DR submitted that the ledger entries were very specific which clearly mentioned the name of the assessee. The details of various transactions were not explained by the assessee before the ld. AO or before the ld. CIT(A). The statement only corroborated to the ledger found in the various softwares. Thus, providing cross examination was not compulsorily under these circumstances and they were other circumstantial evidences. Once it is found that there were unaccounted cash sales, therefore, the cash sale has to be added. 10. After considering the rival submissions and on perusal of the relevant material placed on record, we find that the entire premise of the addition made by the ld. AO was that some software were found during the search and Ratnakala Group, wherein there were some unaccounted transactions which were cash transactions. Once such account was the purchases made in cash from the assessee. Based on this information, the ld.AO has added the entire sales on the sale of patala diamond to Ratankala. First of all, it is now matter of record that out of these unaccounted sales which has been added by the ld. AO, ITA No.721/Mum/2025 and others R.C.Gems 7 substantial part was accounted in the books of the assessee which has been verified and finding of fact has been given by the ld. CIT (A). Thus, entire sales could not have been added as unaccounted sales. Even if it is admitted that there are certain unaccounted sales of diamonds, then there were also purchases of diamond which has been sold in cash to Ratnakala Group. In such a scenario, the entire sales could not have been added, because purchases have not been doubted at all by the ld. AO. Without purchases, sales cannot be affected. Another important fact here is that assessee’s total turnover/sale to other parties is in hundreds of crores and sale to this party is very less and out of which most of the sales has been accounted for. Accordingly, in such a situation only the gross profit rate on alleged unaccounted sales can be applied. Here in this case most of the sales made to the same party have been accounted in the books on which assessee had disclosed certain GP rate which has not been disputed. In such a scenario, applying same GP rate is reasonable which can be applied on the sales which are alleged to be unaccounted. Accordingly, the observation and the finding of the ld. CIT (A) for applying GP rate of such sales is upheld. Accordingly, the appeal of the Revenue is dismissed. 11. In so far as cross objection by the assessee challenging that the balance addition sustained by the ld.CIT(A) could not have been made based on various proposition, the same are not accepted for the reason that there was a definite material found from the search of Ratnakala Group that there were certain unaccounted purchases made by them from the assessee. On ITA No.721/Mum/2025 and others R.C.Gems 8 this point we agree with the order of the Ld. CIT(A). Accordingly, the cross objections raised by the assessee are dismissed. 12. In the result, all the appeals of the Revenue as well as Cross Objections of the assessee are dismissed. Order pronounced on 22nd April, 2025. Sd/- (GIRISH AGRAWAL) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 22/04/2025 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// "