STYLE QUOTIENT JEWELLERY PRIVATE LIMITED ,PUNE V. CIT(A) NFAC, DELHI

ITA 1699/PUN/2025

AI Insights

The case involves Style Quotient Jewellery Pvt Ltd, a company engaged in trading precious metals and jewelry, which filed an appeal against the order of the CIT(A) / NFAC concerning the assessment year 2016-17. The company declared a total loss in its return, which led to a scrutiny under CASS focusing on the genuineness of sundry creditors and sales promotion expenses. The Assessing Officer disallowed significant claims due to lack of substantiation and non-compliance with TDS provisions. The CIT(A) / NFAC modified the Assessing Officer's decision by estimating the income at 8% of turnover instead of disallowing all questioned purchases. The Tribunal's decision affirmed the CIT(A)'s approach, emphasizing the assessee's failure to provide necessary documentation and compliance.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 838355 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2026
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 21-07-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHILPA N C
• Assessee Lawyers: TARAK J. TRIVEDI
• Keywords: Set aside; TDS
• Section: 142(1); 133(6); 44AD; 40(a)(ia)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND Ms. ASTHA CHANDRA, JUDICIAL MEMBER ITA No.1699/PUN/2025 Assessment year : 2016-17 Style Quotient Jewellery Pvt Ltd. 694, PNG House, Laxmi Road, Kunte Chowk, Narayan Peth, Pune – 411030 Vs. ACIT, Circle 6, Pune PAN: AAUCS6492B (Appellant) (Respondent) Assessee by : Shri Tarak J. Trivedi Department by : Smt Shilpa NC, Addl.CIT Date of hearing : 17-02-2026 Date of pronouncement : 19-02-2026 O R D E R PER R.K. PANDA, V.P: This appeal filed by the assessee is directed against the order dated 29.05.2025 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2016-17. 2. Facts of the case, in brief, are that the assesse is a private limited company engaged in the business of trading in all kinds of precious metals like gold, diamond, silver as well as gold jewellery, etc. It filed its return of income on 30.11.2016 declaring total loss of Rs.1,89,22,350/-. The case was selected for limited scrutiny under CASS to ascertain the genuineness of sundry creditors and claim of sales promotion expenses. Accordingly, statutory notice u/s 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was issued and served Printed from counselvise.com 2 ITA No.1699/PUN/2025 on the assessee. Subsequently, notice u/s 142(1) of the Act was also issued in response to which the assessee filed certain details. 3. During the course of assessment proceedings the Assessing Officer asked the assessee to furnish the details of sundry creditors. From the details submitted by the assessee, the Assessing Officer noted that an amount of Rs.1,33,22,499/- was shown under ‘trade payables’. He, therefore, issued notice u/s 133(6) of the Act to 12 sundry creditors, the details of which are as under: Printed from counselvise.com 3 ITA No.1699/PUN/2025 4. However, in most of the cases, no reply was received from the sundry creditors and in 5 cases, the notices were returned unserved. The Assessing Officer, therefore, asked the assessee to prove the genuineness of purchases / expenses and sundry balance. He specifically asked the assessee to produce the above mentioned parties along with purchase order, bills, GRN, VAT return establishing genuineness of purchases, statements of bank accounts establishing trail of funds, copies of returns filed along with balance sheets, Profit and Loss Account, computation of income, tax audit reports etc to establish the genuineness of the parties. However, no response was received from the side of the assessee. The Assessing Officer further noted that the auditors in their audit report in Form No.3CA at Sl No.1 has made certain qualifications. They have remarked that the balance of Rs.6.99 lakhs disclosed in Note 6 to the accounts under Current Liabilities is not reconciled. The Assessing Officer therefore asked the assessee to furnish the reconciliation of the said balance of Rs.6.99 lakhs. However, no reconciliation was furnished by the assessee. This, according to the Assessing Officer, casts serious doubts on the character of sundry credit balances. Since most of the sundry creditors have either been unreachable or chose not to participate in the enquiry and since the assessee made no efforts to claim the genuineness of the expenses by furnishing bills of purchases with relevant supporting documents and did not establish trail of funds, the Assessing Officer disallowed an amount of Rs.3,85,60,697/- being unsubstantiated claim of expenses by disallowing the purchases, the details of which are as under: Printed from counselvise.com 4 ITA No.1699/PUN/2025 5. While doing so, he further noted that the holding company i.e. P N Gadgil Jewellers Pvt Ltd had chosen not to reply to the notice. In absence of any reconciliation statement, the Assessing Officer also made addition of Rs.6.99 lakhs to the total income of the assessee. 6. The Assessing Officer further noted that the assessee has debited an amount of Rs.2,32,91,178/- under the head ‘advertisement expenses’. He requested the assessee to furnish the details of sales promotion expenses along with the details of TDS. From the details furnished by the assessee, he noted that the assessee in case of certain parties has not deducted tax at source or has deducted tax at the rate less than the prescribed rate. In view of the above, the Assessing Officer computed the disallowance of Rs.20,31,486/- being 30% of the amount of Rs.67,71,619/- on Printed from counselvise.com 5 ITA No.1699/PUN/2025 which the assessee has failed to deduct TDS. Since the expneses paid to one of the companies namely Tools Marcom Pvt Ltd has already been disallowed while disallowing the purchases, the Assessing Officer reduced an amount of Rs.8,47,501/- and accordingly disallowed an amount of Rs.11,83,985/- u/s 40(a)(ia). Thus, the Assessing Officer determined the total income of the assessee at Rs.2,15,21,330/-. 7. Before the Ld. CIT(A) / NFAC it was submitted that the assessee was unable to comply with the notices due to change in the ownership and management structure which affected day-to-day work of the assessee company. It was argued that because of heavy losses the banks refused to invest in industry. Referring to the chronology of events the assessee explained as to how they could not file the requisite details as asked by the Assessing Officer. It was argued that the accounts of the assessee are audited and the auditors have not pointed out any defect. Further the assessee could not communicate with some of the sundry creditors for further compliance due to the circumstances beyond its control. The assessee argued that the disallowance of purchases of Rs.3,85,60,697/- by the Assessing Officer is highly excessive and arbitrary. The disallowance u/s 40(a)(ia) of the Act made by the Assessing Officer was also challenged. Similarly, addition of Rs.6.99 lakhs on account of unreconciled sundry creditors was also challenged. So far as the allegation of the Assessing Officer that the assessee did not give the trail of money is concerned, it was argued that the assessee had made payment to the Printed from counselvise.com 6 ITA No.1699/PUN/2025 larger extent and only Rs.74.56 lakhs was outstanding against purchase of Rs.3.85 crores. 8. Based on the arguments advanced by the assessee, the Ld. CIT(A) / NFAC taking a holistic view directed the Assessing Officer to estimate the income @ 8% of the turnover and further directed to make addition of Rs.10,30,490/- u/s 40(a)(ia) of the Act over and above the net income @ 8%. The reasons given by the Ld. CIT(A) / NFAC read as under: Printed from counselvise.com 7 ITA No.1699/PUN/2025 Printed from counselvise.com 8 ITA No.1699/PUN/2025 Printed from counselvise.com 9 ITA No.1699/PUN/2025 9. Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: 1. In law and in the facts and circumstances of the appellant's case, the hon'ble CIT(A) has erred in concluding book results as not reliable and adopting a holistic approach by considering net income @ 8% of turnover based on the benchmark rate provided in section 44AD. Thus, the said order is bad in law and deserves to be annulled. 2. In law and in the facts and circumstances of the appellant's case, the hon'ble CIT(A) has erred in not adjudicating the specific grounds raised against the addition of ₹3,85,60,697 and ₹6,99,000, which were originally made by the ld. A.O. on account of unsubstantiated purchases and unreconciled liabilities, which clearly demonstrated unreasonable and unwarranted action without basis and on pure assumption or presumption as the outstanding balance were substantially low, thereby depriving the appellant of a clear finding on merits. Thus, the order passed in violation of the judicial discipline deserves to be quashed. 3. In law and in the facts and circumstances of the appellant's case, the hon'ble CIT(A) has erred in confirming the addition of ₹10,30,490 under section 40(a)(ia) of the Income-tax Act, 1961, by partially disallowing expenses on the ground of short or non-deduction of TDS, without appreciating that TDS had been duly deducted or the provisions were not Printed from counselvise.com 10 ITA No.1699/PUN/2025 applicable in certain cases. Disregarding the fact that appellant was subject to statutory audit and tax audit where in no adverse remarks w.r.t non-compliance of TDS were made by the auditors. Thus, the disallowance confirmed needs to be reworked and relief be granted to the appellant. 4. The appellant craves leave to add, alter, modify, amend or delete any of the above grounds of appeal. 10. The assessee has also raised an additional ground. However, the Ld. Counsel for the assessee at the time of hearing could not substantiate the admissibility of the additional ground for which the same is dismissed. 11. So far as the remaining grounds are concerned, the Ld. Counsel for the assessee submitted that due to change in management, the assessee could not give the requisite details as called for by the Assessing Officer. However, since the turnover of the assessee during the year was Rs.13,74,53,284/-, therefore, the provisions of section 44AD of the Act are not applicable. He submitted that when the accounts of the assessee are audited u/s 44AB as well as under the Companies Act and since the auditors have not pointed out any defect in the books of account, therefore, adoption of profit @ 8% by applying the provisions of section 44AD of the Act by the Ld. CIT(A) / NFAC is not justified. He accordingly submitted that the book results be accepted and the order of the Ld. CIT(A) / NFAC be set aside. 12. The Ld. Counsel for the assessee further submitted that the Ld. CIT(A) / NFAC has not adjudicated the specific grounds raised before him challenging the addition of Rs.3,85,60,697/- and Rs.6,99,000/- on account of un-reconciled balance Printed from counselvise.com 11 ITA No.1699/PUN/2025 and estimated the income @ 8% which is not justified. The addition of Rs.10,30,490/- u/s 40(a)(ia) of the Act was also strongly challenged by the Ld. Counsel for the assessee. 13. The Ld. DR on the other hand heavily relied on the order of the Ld. CIT(A) / NFAC. He submitted that the Ld. CIT(A) / NFAC after considering the non- submission of the details as asked by the Assessing Officer and non-production of the parties from whom the purchases were made has estimated the income @ 8%. Therefore, the order of the Ld. CIT(A) / NFAC being a reasoned one, the same should be upheld and the grounds raised by the assessee be dismissed. 14. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that the assessee during the course of assessment proceedings did not prove the genuineness of purchases / expenses and sundry balances. The assessee was unable to produce the parties from whom it has made the purchases nor could file the details such as purchase order, bills, GRN, VAT return establishing genuineness of purchases, statements of bank accounts establishing trail of funds, copies of returns filed along with balance sheets, Profit and Loss Account, computation of income, tax audit reports etc to establish the genuineness of the parties. No efforts were made by the assessee to establish the Printed from counselvise.com 12 ITA No.1699/PUN/2025 purchases to the extent of Rs.3,85,60,697/- from the 8 parties, the details of which have already been reproduced in the preceding paragraphs. It is the settled proposition of law that for accepting any expenses as genuine, the onus is always on the assessee to prove to the satisfaction of the Assessing Officer by producing the relevant details. In the instant case the assessee has neither produced the details nor made any attempt to produce the parties along with various documents as asked by the Assessing Officer. Merely stating that due to change in management the assessee could not file the requisite details before the Assessing Officer cannot be a ground to accept certain purchases whose authenticity remains doubtful. Although the provisions of section 44AD of the Act are not applicable to the facts of the case, however, the Ld. CIT(A) / NFAC in our opinion has considered the rate prescribed u/s 44AD of the Act while adopting the same in the case of the assessee for arriving at a reasonable profit instead of disallowing the entire purchase of Rs.3,85,60,697/- added by the Assessing Officer. Since the Assessing Officer in the instant case has disallowed the entire purchases of Rs.3,85,60,697/- and also made addition of Rs.6,99,000/- on account of unreconciled sundry balances and since the Ld. CIT(A) / NFAC after considering the totality of the facts of the case and inability of the assessee to substantiate the genuineness of the purchases and reconciliation of sundry balances has directed the Assessing Officer to adopt the profit rate of 8%, therefore, we do not find any infirmity in the order of the Ld. CIT(A) / NFAC on this issue. Accordingly, ground Nos.1 and 2 raised by the assessee are dismissed. Printed from counselvise.com 13 ITA No.1699/PUN/2025 15. So far as the disallowance of Rs.10,30,490/- u/s 40(a)(ia) of the Act is concerned, here also, we do not find any infirmity in the order of the Ld. CIT(A) / NFAC. Merely because the accounts of the assessee are audited and the statutory auditor as well as the tax auditor have not passed any comments with respect to non-compliance of TDS provisions, the same in our opinion cannot absolve the assessee from the statutory requirement of deduction of tax at source. Since the assessee in the instant case has failed to deduct TDS u/s 40(a)(ia) of the Act, therefore, in absence of any contrary material brought to our notice, the amount of Rs.10,30,490/- sustained by the Ld. CIT(A) / NFAC under the facts and circumstances of the case is justified. The ground No.3 raised by the assessee is accordingly dismissed. 16. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open Court on 19th February, 2026. Sd/- Sd/- (ASTHA CHANDRA) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 19th February, 2026 GCVSR Printed from counselvise.com 14 ITA No.1699/PUN/2025 आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपील र्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. 4. The concerned Pr.CIT, Pune DR, ITAT, ‘B’ Bench, Pune 5. ग र्ड फ ईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune S.No. Details Date Initials Designation 1 Draft dictated on 17.02.2026 Sr. PS/PS 2 Draft placed before author 18.02.2026 Sr. PS/PS 3 Draft proposed & placed before the Second Member JM/AM 4 Draft discussed/approved by Second Member AM/AM 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS 9 Date on which the file goes to the Office Superintendent 10 Date on which file goes to the A.R. 11 Date of Dispatch of order Printed from counselvise.com "