S P JASWANT KUMAR HUF,COIMBATORE V. NON CORP WARD 1(4), CBE, MAIN ROAD RACE COURSE

ITA 2587/CHNY/2025

AI Insights

The case involves an appeal by S.P. Jaswant Kumar HUF against the order of the CIT(A) which confirmed the addition of Rs.1,02,66,233 to the assessee's income, treating it as unexplained purchases. The Assessing Officer (AO) had earlier made this addition based on a price variance in jewellery purchases from two suppliers, which he suspected to be inflated to reduce taxable income. The Tribunal found that the AO's approach was flawed as it did not consider the nature of transactions and other commercial factors influencing the price variations. The Tribunal also noted that the assessee was not given an adequate opportunity to respond to the pricing allegations during the assessment proceedings.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 847354 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Chennai
• Assessment Year: 2023-2024
• Appeal Filed On: 17-09-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOUTHAMI MANIVASAGAM
• Assessee Lawyers: N.V. LAKSHMI
• Keywords: Set aside; Opportunity of being heard; Additional evidence; Cost of acquisition; Bogus purchase; Application of stay; Bogus
• Section: 143(3)

Judgement Text

" आयकर अपील य अ धकरण, ‘बी’ \u000fयायपीठ, चे\u000fनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI \u0016ी जॉज\u0019 जॉज\u0019 क े, उपा\u001bय एवं \u0016ी एस.आर.रघुनाथा, लेखा सद&य क े सम BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 2587/Chny/2025 & S.P. No: 122/Chny/2025 [in ITA No: 2587/Chny/2025] (नधा\u0019रण वष\u0019 / Assessment Year: 2023-24 S.P. Jaswant Kumar HUF, No. 630, Ground Floor, Shop No.2, Big Bazaar Street, Coimbatore. vs. ITO, Non-Corporate Ward -1(4), Coimbatore. [PAN: AAQHS-5032-Q] (अपीलाथ*/Appellant) (+,यथ*/Respondent) अपीलाथ* क- ओर से/Appellant by : Ms. N.V. Lakshmi, Advocate +,यथ* क- ओर से/Respondent by : Ms. Gouthami Manivasagam, Addl. CIT सुनवाई क- तार ख/Date of Hearing : 06.01.2026 घोषणा क- तार ख/Date of Pronouncement : 24.03.2026 आदेश /O R D E R PER S.R.RAGHUNATHA, AM: This appeal by the assessee is filed against the order of the Learned Commissioner of Income Tax (Appeals) National Faceless Appeal Centre (NFAC), Delhi [‘ld. CIT(A)’] dated 21.07.2025 and pertains to assessment year 2023-24 against the order of the Faceless Assessment Unit, Income Tax Department (AO) passed u/s. 143(3) r.w.s 144B of the Income Tax Act, 1961 (in short ‘the Act’) dated 11.03.2025. Printed from counselvise.com :-2-: ITA. No:2587 /Chny/2025 SP No: 122/Chny/2025 2. The assessee assailing the action of the ld.CIT(A) in confirming the addition of Rs.1,02,66,233/- on account of variation in jewellery purchases treated as bogus by the AO, raised the following concise grounds of appeal: - “1. The Learned CIT(A) erred in sustaining the disallowance of purchase made by the Appellant in a mechanical manner and without application of mind. 2. The Learned CIT(A) erred in sustaining the disallowance of purchase made by the Appellant made on the basis of assumption, conjectures and surmises without any evidence of the purchases being bogus in nature, that too when the quantity of gold purchased by the Appellant is not disputed. 3. The Learned CIT(A) erred in sustaining the disallowance of purchase made by the Appellant without appreciating that disallowance of purchase could not be made merely because the rate of purchase from two different independent suppliers are not identical or similar. 4. Without prejudice to the above ground, the Learned CIT(A) erred in sustaining the disallowance of purchase made by the Appellant without appreciating that the difference in the purchase price is for explainable and genuine reasons only. 5. The Learned CIT(A) failed to appreciate that the amount incurred by the Appellant for purchases were wholly and exclusively incurred for the purpose of business. 6 The Learned CIT(A) failed to appreciate that the disallowance of purchases has resulted in double taxation. 7. The Learned CIT(A) erred in ignoring the additional evidence filed by the Appellant by holding that Appellant did not establish as to what prevented him from submitting the same during assessment ignoring the Appellant’s submissions that the Karta was hospitalized during the assessment proceedings. 8. The Learned CIT(A) erred in ignoring the information and documents furnished by the Appellant as not relevant without appreciating that they establish the genuineness of the purchases made by the Appellant. 9. The Learned CIT(A) erred in sustaining the disallowance made by the Assessing Officer particularly when he has given a categorical finding that the AO has not doubted the entity M/s.Jana Jewellery Works as non-genuine or bogus entity. 10. The Learned CIT(A) failed to appreciate that the Assessing Officer ought not to have casted doubt on the pricing of the purchases made by the Appellant particularly when the said purchases were made from independent third parties. 11. The Learned CIT(A) failed to appreciate that the Assessing Officer had not doubted the sales amount declared by the Appellant and thus, the disallowance of purchase made by the Assessing Officer ought to have been deleted.” Printed from counselvise.com :-3-: ITA. No:2587 /Chny/2025 SP No: 122/Chny/2025 3. The brief facts of the case emanating from the records are that the assessee has filed its return in the status of a Hindu Undivided Family u/s.139(1) of the Act on 26.10.2023 declaring a total income of Rs,22,27,860/- . The return of income of the assessee was processed u/s.143(1) of the Act by accepting the returned income. Subsequently, the case of the assessee was selected for complete scrutiny through CASS. Accordingly the statutory notices were issued to the assessee. During the course of assessment proceedings, the AO observed that the assessee had purchased jewellery from two different sources at different prices per gram within the impugned year. A smaller quantity of jewellery of 424.54 grams was purchased from BM Jewellers at Rs.4,946.53 per gram, while a much larger bulk quantity of 58,327.56 grams was purchased from Jana Jewellers Works at Rs.5,122.54 per gram. The difference in price of Rs.176.01 per gram raised suspicion in the mind of the AO, as bulk purchases typically attract lower rates due to economies of scale. This discrepancy suggested a possible artificial inflation of purchase cost aimed at reducing the taxable income. Thereafter, a show cause notice dated 01.03.2025 was issued by proposing an addition of Rs.1,02,66,233/- on account of bogus purchases. As no reply was filed by the assessee in response thereto, the AO proceeded to complete the assessment vide order dated 11.03.2025 by making an addition of Rs.1,02,66,233/- on account of bogus purchases. 4. In arriving at the aforesaid addition, the AO computed a variance in the purchase price amounting to Rs.1,02,66,233/- (Rs.176.01 per gram multiplied by 58,327.56 grams) and treated the same as unexplained, thereby adding it to the total income of the assessee. 5. Being aggrieved by the assessment order dated 11.03.2025 passed u/s.143(3) r.w.s 144B of the Act, the assessee carried the matter in appeal before the ld.CIT(A). The assessee challenged the action of the AO in treating the purchases amounting to Rs.1,02,66,233/- as unexplained and consequently making an addition to the total income. During the course of the Printed from counselvise.com :-4-: ITA. No:2587 /Chny/2025 SP No: 122/Chny/2025 first appellate proceedings, the assessee submitted copy of the purchase invoices of M/s.B.M.Jewellery, bank statement highlighting payments, copy of the purchase invoices, sales invoices and bank statement highlighting payments. After perusing the submissions furnished by the assessee, the ld.CIT(A) confirmed the additions made by the AO by holding as under: - “7.2.5. Considering the above facts and the submissions of the appellant, there appears no reason to deviate from the finding given by the AO and thus, the disallowance of Rs.1,02,66,233/- made by the AO on account of price variance is upheld. Therefore, the grounds of appeal nos 1,2,3,4,5, & 6 raised by the appellant are dismissed”. 6. Aggrieved by the impugned orders of the ld.CIT(A), the assessee preferred an appeal before us. 7. Before us, when the appeal was taken up for hearing, the ld.AR for the assessee assailed that the ld.CIT(A) has erred in confirming the addition of Rs.1,02,66,233/- on account of variation in jewellery purchases treated as bogus by the AO. The ld. AR submitted that the assessee a Hindu Undivided Family (HUF), is engaged in the business of manufacturing, wholesale and retail trading of bullion and jewellery, along with providing job work services for custom jewellery conversion. The AO made an addition of Rs.1,02,66,233/-, on the grounds that the jewellery purchases from two different suppliers, M/s.B.M.Jewellery and M/s.Jana Jewellery Work, were inflated and treated as bogus. The ld.AR contends that the AO’s decision is not based on a valid reasoning or substantial evidence and is, therefore, erroneous. 8. The crux of the AO’s allegation lies in the price variation per gram of jewellery purchased from the two suppliers. The AO compared the price per gram of jewellery from M/s.B.M.Jewellery and M/s.Jana Jewellery Work. The ld.AR submits that this comparison is fundamentally flawed, as the AO failed to consider the significant transactional differences between the two suppliers. The nature of transactions with M/s.B.M.Jewellery and M/s.Jana Printed from counselvise.com :-5-: ITA. No:2587 /Chny/2025 SP No: 122/Chny/2025 Jewellery Work were different, and such a generalized comparison of prices is not reasonable, especially when the pricing in each case could be influenced by various factors like volume, type of jewellery, and specific business arrangements. 9. Additionally, the ld.AR highlights that the AO did not take into account the documentary evidence provided by the assessee. These documents were submitted in support of the purchases and to demonstrate the genuineness of the transactions. The ld.AR further points out that during the proceedings before the ld.CIT(A), additional evidence was submitted, but it was rejected on the grounds that it was not relevant. This rejection is disputed by the ld.AR, who argues that the additional documents were indeed essential to proving the legitimacy of the purchases and should not have been disregarded without proper examination. Moreover, the issue regarding the pricing of the purchases was raised by the AO for the first time in the show-cause notice, which was issued late in the assessment proceedings. This raises procedural concerns, as no earlier notice or questionnaire addressed the specific issue of pricing, and the assessee was not given an adequate opportunity to respond to this allegation during the course of the assessment. 10. Furthermore, during the course of the hearing, the ld.AR filed a paper book consisting of 70 pages, which contained detailed records of the purchase transactions, including invoices, and other supporting documents that were crucial to establishing the legitimacy of the transactions. The ld.AR contends that these records were vital for the case, and their submission should have been duly considered by the lower authorities. 11. The ld.AR also emphasizes that the appellant’s business has consistently maintained stable gross profit (GP) and net profit (NP) ratios over time, which further supports the argument that the purchases were legitimate. The stability in these ratios underscores the regular and genuine nature of the appellant’s transactions. Printed from counselvise.com :-6-: ITA. No:2587 /Chny/2025 SP No: 122/Chny/2025 12. In light of the above, the ld.AR respectfully submits that the addition made by the AO is based on incorrect assumptions, flawed comparisons, and an improper rejection of the evidence provided. The ld.CIT(A) erroneously upheld the AO’s findings without considering the relevant facts, evidence, and the inconsistencies in the comparison of the purchase prices. Therefore, the ld.AR prays that the addition of Rs.1,02,66,233/- on account of the alleged bogus purchases be deleted. 13. Per contra, the ld. DR on the other hand, strongly relied on the impugned order of the ld.CIT(A) and that of the AO and prayed for confirming the addition by dismissing the appeal of the assessee. 14. We have heard the rival submissions and perused the material available on record, including the orders of the lower authorities and the paper book filed by the assessee. At the outset, it is an admitted position that the assessee is engaged in the business of manufacturing and trading of bullion and jewellery. It is further not in dispute that the assessee has effected purchases from two parties, viz., M/s.B.M. Jewellery and M/s.Jana Jewellery Works. The Assessing Officer has neither disputed the quantity of purchases nor pointed out any defect in the books of account maintained by the assessee. It is also an undisputed fact that the sales declared by the assessee have been accepted. 15. The addition of Rs.1,02,66,233/- has been made by the AO solely on account of variation in the purchase price per gram between the two suppliers. The AO proceeded on the presumption that bulk purchases ought to have been made at a lower rate and, therefore, the higher rate paid to M/s.Jana Jewellery Works represented inflation of purchase cost. 16. In our considered opinion, the aforesaid approach of the AO is untenable both on facts and in law. It is well settled that mere variation in purchase price cannot, ipso facto, lead to the conclusion that the purchases Printed from counselvise.com :-7-: ITA. No:2587 /Chny/2025 SP No: 122/Chny/2025 are bogus or inflated, particularly when the transactions are supported by primary evidence such as purchase invoices, banking channels of payment, and corresponding sales. The pricing of jewellery is influenced by multiple commercial factors including purity, design, craftsmanship, making charges, timing of transaction, credit terms, and business exigencies. The AO has failed to bring any material on record to dislodge the evidence furnished by the assessee or to demonstrate that the purchases were not genuine. 17. Further, it is observed that the AO has not doubted the identity or existence of M/s.Jana Jewellery Works. Once the supplier is accepted as genuine and the payments are effected through verifiable banking channels, the onus shifts upon the Revenue to establish that the transactions are sham or that there is any flow back of funds. No such exercise has been carried out in the present case. 18. We also find that the AO has adopted an arbitrary and ad hoc method for making the impugned addition by applying the average price difference of Rs.176.01 per gram to the entire quantity purchased for the whole year. Such an estimation, in the absence of any comparable market data or independent verification, is devoid of any cogent basis and cannot be sustained. 19. At the same time, we find substance in the contention of the assessee that adequate opportunity was not afforded during the assessment proceedings, as the issue relating to price variation was raised only at the fag end of the proceedings vide show cause notice dated 01.03.2025, followed by completion of assessment on 11.03.2025. The explanation regarding the hospitalization of the Karta further supports the plea of lack of effective opportunity. 20. We further observe that the ld.CIT(A) has confirmed the addition in a summary manner without properly appreciating the evidence placed on record, including the additional evidence filed by the assessee. The impugned Printed from counselvise.com :-8-: ITA. No:2587 /Chny/2025 SP No: 122/Chny/2025 appellate order does not reflect independent application of mind and, thus, cannot be regarded as a reasoned or speaking order. 21. It is also a settled legal position that where sales are accepted, the corresponding purchases cannot be disallowed in entirety unless the same are proved to be non-genuine. In the present case, the Revenue has neither rejected the books of account nor established that the purchases are bogus. Therefore, the addition, as made, leads to an artificial inflation of profits and distortion of the true income of the assessee. 22. However, considering the fact that the assessee has placed reliance on certain additional evidence relating to the impugned purchases, which go to the root of the matter and have not been duly verified by the lower authorities, we are of the considered view that the issue requires fresh examination. 23. In view of the foregoing, we set aside the impugned order of the ld. CIT(A) on this issue and restore the matter to the file of the Assessing Officer for the limited purpose of verification of the additional evidence and supporting documents furnished by the assessee in respect of the impugned purchases. The AO shall afford reasonable opportunity of being heard to the assessee and delete the disallowance based on the outcome of the verification of the additional evidence submitted in accordance with law. The assessee is also directed to extend full cooperation and furnish the requisite details as may be called for by the AO. 24. Accordingly, the grounds raised by the assessee are allowed for statistical purposes. Printed from counselvise.com :-9-: ITA. No:2587 /Chny/2025 SP No: 122/Chny/2025 SA No: 122/Chny/2025: 25. Since, the appeal has been decided by us as above, the stay application filed by the assessee becomes infructuous and hence dismissed. Order pronounced in the court on 24th March, 2026 at Chennai. चे\u000fनई/Chennai, 1दनांक/Dated, the 24th March, 2026 JPV आदेश क- +(त3ल4प अ5े4षत/Copy to: 1. अपीलाथ*/Appellant 2. +,यथ*/Respondent 3.आयकर आयु6त/CIT– Chennai/Coimbatore/Madurai/Salem 4. 4वभागीय +(त(न ध/DR 5. गाड\u0019 फाईल/GF Sd/- (जॉज\u0019 जॉज\u0019 क े) (GEORGE GEORGE K) उपा\u001bय /VICE PRESIDENT Sd/- (एस. आर. रघुनाथा) (S.R.RAGHUNATHA) लेखा सद&य/ACCOUNTANT MEMBER Printed from counselvise.com PRASANNA VANI JETTY Digitally signed by PRASANNA VANI JETTY Date: 2026.03.27 12:34:24 +05'30' "