Kapoor Watch Company Pvt. Ltd. vs DCIT

ITA No. 5640/Del/2025 [Assessment Year 2017-18] [Assessee’s appeal]

151.

Sanction for issue of notice:- Specified authority for the purposes of Section 148 and Section 148A shall be,-

(i)

Principal Commissioner or Principal Director or Commissioner or Director, if three years or less than three years have elapsed from the end of the relevant assessment year;

(ii)

Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year:

Provided that the period of three years for the purposes of clause (i) shall be computed after taking into account the period of limitation as excluded by the third or fourth or fifth provisos or extended by the sixth proviso to sub-section (1) of Section 149.

“10.

The impugned notice is also liable to be set aside on the ground that it was issued without the approval of the authority specified under Section 151 of the Act. Since the impugned notice was issued beyond the period of three years from the end of the relevant assessment year, thus, in terms of Section 151(ii) of the Act, the same was required to be approved by the Principal Chief Commissioner or Principal Director General or where there is no such authority, by Chief Commissioner or Director General. The determination of the specified authority for grant of approval under Section 151 of the Act depends on whether the notice under Section 148 of the Act has been issued after the expiry of three years from the end of the relevant assessment year or within the said period."

ITA No. 6825/Del/2025 [Assessment Year 2017-18] [Revenue’s appeal]

ITA No. 5642/Del/2025[Assessee’s apepal]

ITA No.6827/Del/2025 [Revenue’s appeal]

[Assessment Year 2019-20]

Kapoor Watch Company Private Limited A.Y. 2019-20 Appeal No- CIT (A), Delhi- 27/10978/2018-19

of undisclosed cash profit being 10% of the cash amount and the non-genuine sales are shown to have been recorded at lower values. I find that it has merely been presumed by the AO without any evidence (much less authentic) that 10% of the cash amount representing undisclosed cash profits were retained by the appellant in cash.

5.11.

The provisions of section 69A of the Act reads as under:

"Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year."

5.12.

In the above section, it can be noted that that the addition under section 69A of the Act can be made only if the following precedent conditions exist:

(i)

Ownership: The assessee must be found to be the owner of the money, bullion, jewellery, or other valuable article during the relevant financial year. Ownership here is not about mere possession; it means having full rights over the asset, such as the right to possess, enjoy, transfer, or use the asset for one's own benefit. The Supreme Court has clarified that mere possession does not amount to ownership if the person does not have legal rights over the asset. For example, a thief or a carrier of goods is not considered the owner under this section;

(ii)

Not Recorded in Books: The asset must not be recorded in the books of account maintained by the assessee. If the asset is already accounted for, Section 69A cannot be applied;

(iii)

Unsatisfactory Explanation: The assessee must either offer no explanation or an explanation that is not satisfactory to the Assessing Officer regarding the nature and source of the asset. The explanation must be credible and supported by evidence; otherwise, the addition can be made.

5.13.

Section 69A of the Act is a deeming section and it is applicable only when all the aforesaid conditions are cumulatively found to exist. One of the important conditions to trigger the applicability of section 69A of the Act is that the assessee is found to be the owner of money, bullion, etc. or other valuable article in the financial year. The initial burden is on the Assessing Officer to establish that the assessee is the owner of the unexplained asset. This must be based on facts and evidence, not mere suspicion or presumption. Once ownership and non-recording are established, the burden shifts to the assessee to provide a satisfactory explanation for the asset's source. If the explanation is reasonable and supported by evidence, no addition should be made. If not, the addition under Section 69A is justified.

5.14.

However, in light of the statement of Sh. Pramod Sahu, it can nowhere be seen or inferred that 10% of the cash amount representing undisclosed cash profits were retained by the appellant in cash.

5.15.

Section 69A of the Income Tax Act mandates that before any addition can be made for unexplained money, bullion, jewellery, or other valuable articles, ownership must be established as a matter of fact. There is no legal presumption that the assessee is the owner of such assets simply because they are found in their possession or are unaccounted for in the books. The law requires concrete evidence to prove that the assessee is the owner of the unrecorded asset. Ownership cannot be assumed based on suspicion, conjecture, or the mere fact that the asset is unaccounted for in the books. The Assessing Officer must bring on record clear and convincing evidence that demonstrates the assessee's ownership of the asset in question. This may include documents, statements, or other material evidence directly linking the asset to the assessee.

5.16.

Section 69A cannot be invoked based on suspicion, assumptions, or surmises; the Assessing Officer (AO) must establish, as a matter of fact, that the assessee is the owner of the unexplained money, bullion, or valuable article. The burden of proof lies squarely on the AO to demonstrate ownership with credible evidence, not on the assessee to disprove mere allegations or conjectures.

5.17.

I rely upon the decision of Supreme Court in the case of D.N. Singh vs. CIT: [2023] 150 taxmann.com 301. The Hon'ble Apex Court reiterated that the provisions of section 69A of the Act are applicable only if the assessee is found to be the owner of the money, bullion, jewelry or other valuable articles. The Court held that where the assessee was mere carrier supplying goods/ Bitumen from consignor i.e. oil marketing companies to consignee i.e. road construction department, he could not be said to be owner for purpose of section 69A of the Act.

5.18.

Further, the Apex Court, in Para 26 and 27, while interpreting the provisions of section 69A, observed that

'Section 69 and Section 69A, apart from being close neighbours, do bear resemblance with one another. Section 69 deals with unexplained investment. Section 69A deals with unexplained money, bullion, jewellery or other valuable articles. Section 69A was inserted by Amending Act 5 of 1964 and it came into effect w.e.f. 1-4-1964. Both sections require that the subject matter of the provisions, viz., investments in the case of section 69 and money, bullion, jewellery or other valuable articles in the case of section 69A are not recorded in the Books of Account. That is, in a case where Books of Accounts are maintained. In the case of investments under section 69, necessarily, the Law-Giver contemplates the Assessing Officer finding that the assessee had made the investments. In the case of section 69A, the assessee must be found to be the owner of the money, bullion, jewellery or other valuable articles. In both cases, if the assessee is able to offer an explanation for the nature and the source for the investments and money, bullion, jewellery or other valuable articles, respectively, and it is not found unsatisfactory, there can be no deemed income under either section.'

5.19.

The decision of Delhi High Court in the case of CIT vs. Anoop Jain: 268 Taxman 427 also held that one of the essential conditions in Section 69A of the Act is that the assessee should be the "owner of the money" and it should not be recorded in his books of accounts. The relevant extracts of the decision are reproduced as under:

"37.

This Court has again examined the evidence in some detail. There are certain facts that stand out which showed that the aforementioned amounts received by the Assessee as POs did not belong to him. The Assessee was only a conduit through whom the amounts were floated. One of the essential conditions in Section 69A of the Act is that the Assessee should be the "owner of the money" and it should not be recorded in his books of accounts. This was a pre-condition to the next step of the Assessee offering no explanation about the nature and source of the acquisition of such money."

5.20.

The Hon'ble High Court of Rajasthan in the case of Mangilal Agarwal vs. ACIT: 300 ITR 372 held that the primary onus of establishing ownership of any asset before making any addition is on the Revenue. The Court expounded the principles in the following terms:

"11.

It may also be noticed here that section 69A cannot be invoked merely on the basis that a person is found in possession of any valuable article but it is only on his being further found to be the owner of such money, bullion, jewellery, or other valuable articles that section 69A can be invoked for raising presumption. This basic link is missing through the proceedings resulting the Tribunal affirming the orders of the CIT(A) and the Assessing Officer cannot be sustained..." (emphasis supplied)

5.21.

The Delhi Bench of the Tribunal (Third Member) in the case of Ms. Reena H. Mirchandani vs. ACIT: [2000] 66 TTJ 91 also held that in order to invoke section 69A of the IT Act, it is necessary to prove that the assessee must be shown to be the owner of the asset. The section contemplates an acquisition of the asset by the assessee and the same being owned by him, before that asset is taken into account as income of the assessee from undisclosed sources.

5.22.

Hence, I find that the assessee cannot on suspicion and surmises be deemed to be the owner of the unexplained moneys, bullion, etc. The addition under section 69A of the Act can be made only on the basis of concrete evidences found.

5.23.

The apparent is the real unless the contrary is proved and the onus to prove the contrary is on the person who alleges so [refer CIT vs. Daulat Ram Rawatmull: [1973] 87 ITR 349 (SC)]. The assessing officer had failed to discharge his burden/ onus in this regard. The assessing officer cannot first make certain assumption and thereafter apply the deeming provisions based on such assumption.

5.24.

It is settled law that suspicion, howsoever, strong cannot take place of proof and that assessment under the Act has to be made on the basis of material/evidence and not on the basis of assumptions/presumptions: J.J. Enterprises v. CIT 254 ITR 216 (SC). Assam Tea Co. V. ITO: 92 ITD 85 (Asr.) (SB)

5.25.

The Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT: 37 ITR 288 held that no addition could be made on the basis of conjectures, suspicion and surmises. In this case, since the circumstances relied upon by the assessing officer were found to be matters of pure conjecture, suspicion and surmises, the addition made in such circumstances was held to be unsustainable.

5.26.

The Supreme Court in the case of 37 ITR 271 (SC) Uma Charan Shaw & Bros. Co. v. CIT held 'Taking into consideration the entire circumstances of the case, we are satisfied that there was no material on which the Income-tax Officer could come to the conclusion that the firm was not genuine. There are many surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof in these matters.'

5.27.

To the same effect is the decision of Supreme Court in the case of Omar Salay Mohamed Sait vs. CIT [1959] 37 ITR 151 (SC) wherein the Hon'ble Court again held that on no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises. The relevant extracts of the order of the Supreme Court are reproduced as under:

"The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this court."

5.28.

The additions made on mere presumptions could not be sustained and there must be something more than mere suspicion to support the addition as per decision of the five judges of the Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills v. CIT: 26 ITR 775. In that case, the Supreme Court held that the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. The Court held that on the facts of the case, the ITO and the Appellate Tribunal erred in estimating the gross profit rate on sales of the assessee without any material and on pure guess and suspicion.

5.29.

In this regard, I also draw support from the judgement of Hon'ble Punjab and Haryana High Court in the case of CIT vs. Jawaharlal Oswal and Ors. 382 ITR 453 (P&H) which in Para 30 held as under:

"30...One cannot be oblivious to the fact that such a large gift received from a foreign country is bound to raise suspicion but cannot disregard the fact that suspicion and doubt cannot replace proof or translate into reasons, much less reasons for invoking a deeming provision to hold that gifts represent the income of the assessee, particularly in the absence of relevant facts."

5.30.

I rely upon the judgement of the jurisdictional Delhi High Court in the case of CIT vs. Vivek Aggarwal: ITA No. 66 of 2014 where the assessee purchased property for consideration of Rs.3.70 lakhs. During the course of block assessment proceedings, the assessing officer rejected the transaction value and referred matter to DVO who in his report valued property at Rs.10.65 lakhs. Accordingly, addition of Rs.6.95 lakh was made to the assessee's income. On appeal, the Tribunal, however, set aside the said addition. On further appeal preferred by the Revenue, the Hon'ble Court held that in the absence of any incriminating evidence with respect to payment over and above the reported amount, it could not be concluded that transaction relating to property in question was undervalued, and, therefore, the impugned order deleting addition was to be confirmed.

5.31.

In the case of CIT vs. Ved Prakash Choudhary: 169 Taxman 130, the facts before the Delhi High Court were that pursuant to a search at the residence of the assessee, two Memorandum of Understanding (MoUs) were recovered, which were entered into by assessee with 'R' and 'M' for purchase of agricultural land. In terms of the MoUs, assessee had paid certain amount as part consideration. However, before the assessing officer, the assessee denied having made any payment and further 'R' and 'M' also denied having received any amount. The assessing officer however concluded that denial was only to escape payment of tax liabilities and added that amount to income of the assessee as unexplained expenditure.

5.32.

On appeal, the Commissioner (Appeals) as well as the Tribunal deleted the addition on the ground that there was not enough evidence to add that amount in the hands of the assessee, and it appeared from the facts that the property in question was eventually sold by 'R' and 'M' to 'D'.

5.33.

The issue for consideration before the Hon'ble jurisdictional High Court was whether the addition was rightly deleted by the CIT(A)/ ITAT since there was no corroborative evidence to show that there was in fact transfer of money, The Court held the even if there was something wrong with some other transactions entered into, that would not give rise to an adverse inference insofar as the subject MoUs were concerned and dismissed the appeal preferred by the Revenue. The relevant observations of the Court are as under:

"10.

Section 132(4A) of the Act uses the expression 'it may be presumed'. It is not obligatory on the assessing authority to make a presumption. Even if a presumption is required to be made, then, as held in CIT v. S.M.S. Investment Corpn. (P.) Ltd. [1994] 207 ITR 364 (Raj.), the presumption is a rebuttable one and relates to a question of fact. While coming to this conclusion, the Rajasthan High Court relied upon an earlier decision rendered by it in CIT v. S.M.S. Investment Corpn. [1988] 173 ITR 393.

12.

Insofar as the present case is concerned, the Assessee had stated that in fact there was no transfer of money between him and Ravi Talwar and MadhuTalwar. On the other hand, Ravi Talwar and MadhuTalwar had denied receipt of any money from the assessee. In the fact of these denials, there ought to have been corroborative evidence to show

the appellant and merely facilitated entry against commission of 0.20% of the transaction amount. However, on perusal of their statement, it could nowhere be found or inferred that the appellant retained portion of undisclosed cash profit being 10% of the cash amount and the non-genuine sales are shown to have been made at lower values. I find that it has merely been presumed by the AO without any evidence (much less authentic) that 10% of the cash amount representing undisclosed cash profits were retained by the appellant in cash.

Findings

5.42.

Since the transaction is related to FY 2021-22 from M/s RSM Soft Tech Solutions Pvt Ltd and not in AY 2019-20, therefore, no addition on this account was made in the AO order for AY 2019-20. Hence, no finding in respect of this.

5.43.

Thus, in view of the above discussion, in respect of sales aggregating to Rs. 16,22,000, I have held as under:

S.No	Name of the buyer	Sale Amount	Findings w.r.t. undisclosed cash profits	Findings w.r.t. undisclosed cash commission
1	Supertrans Prop, Rishikant Sahu	22,00,000/-	Addition is deleted in the absence of any evidence	Action of AO that commission expenditure was paid in cash is upheld. However, discussion regarding % of commission in later part of order
2	Vipra Exim. Prop. Nilam Gulabchand Sahu	8,00,000/-	Addition is deleted in the absence of any evidence	Action of AO that commission expenditure was paid in cash is upheld. However, discussion regarding % of commission in later part of order
3	Universal Export (Prop.) Amod Sahu	19,10,000/-	Addition is deleted in the absence of any evidence	Action of AO that commission expenditure was paid in cash is upheld. However, discussion

DATE	NAME	AMOUNT
24.07.2020	Rajesh Uttamchandani	5,00,000
21.12.2020	G. Shiv Prasad	108,000
04.06.2022	Nimpa Global Private Limited.	75,00,000
21.07.2019 & 27.08.2019	Naveen Arya	735,000 12,00,000
12.10.2021	Deep Overseas	11,00,000
19.08.2021	Uplift Marketing & advertising	444,928
22.09.2021	Hemant Singh Bhutan	681,000
18.10.2021	Rajaraman Santhanam	135,00,000
22.12.2021	Vishal Chitkara	25,00,000
08.12.2021	Gautam Khanna/ Anuj Khanna	585,000
30-12-2021	Tarun Narula	292,000

AVAILING CREDIT ENTRIES THROUGH BANKING CHANNELS IN THE GARB OF ADVANCE PAYMENTS FROM VARIOUS INDIVIDUALS/ENTITIES AMOUNTING TO RS. 1,88,28,475/-

5.44.

In para 6 of the assessment order, the AO has stated that the appellant company has received advance from the parties which was lying in their books of accounts for substantial time period and invoices were generated at different dates spread over large time gaps variating from one month to more than a year. The AO further stated that the number of advances in most of the cases are substantial and even more than 100% of value. Apart from this, certain instances have also been found where stocks were lying in books and advances have been taken but invoices are issued after a substantial time lag which is unusual and unjustified.

5.45.

Details of advance as referred by the AO in the assessment order is tabulated as under:

DATE	NAME	AMOUNT
24.07.2020	Rajesh Uttamchandani	5,00,000
21.12.2020	G. Shiv Prasad	108,000
04.06.2022	Nimpa Global Private Limited.	75,00,000
21.07.2019 & 27.08.2019	Naveen Arya	735,000 12,00,000
12.10.2021	Deep Overseas	11,00,000
19.08.2021	Uplift Marketing & advertising	444,928
22.09.2021	Hemant Singh Bhutan	681,000
18.10.2021	Rajaraman Santhanam	135,00,000
22.12.2021	Vishal Chitkara	25,00,000
08.12.2021	Gautam Khanna/ Anuj Khanna	585,000
30-12-2021	Tarun Narula	292,000

5.46.

Further on the perusal of the balance sheet of the appellant company, it was found that the advances from customers amounting to Rs. 1,88,28,475/- was outstanding as on 31.03.2019. Accordingly, AO has drawn inference and made addition of Rs. 18,82,848/- @ 10% on such advances.

5.47.

With regard to the above, the appellant company has submitted that advance received from various parties is either adjusted against sales made to such parties or refunded to them. Further in some cases advance is duly reflecting in books of accounts till date for adjustment against sale on future date at the time of availability of particular stock for which such advance is accepted. The appellant company has also furnished the complete breakup along with remarks in respect of total advances of Rs. 1,88,28,475/- outstanding as on 31.03.2019. The details furnished by the appellant company were at Pages 4.14(B) of its written submissions.

FINDINGS

5.48.

I note that the AO has placed reliance on some of the instances that there is a lag between advance payment received and generation of invoice issued to the person which is tabulated as under: -

24.07.2020	Rajesh Uttamchandani	5,00,000
21.12.2020	G. Shiv Prasad	108,000
04.06.2022	Nimpa Global Private Limited.	75,00,000
7.2019 & 27.08.2019	Naveen Arya	735,000 12,00,000
12.10.2021	Deep Overseas	11,00,000
19.08.2021	Uplift Marketing & advertising	444,928
22.09.2021	Hemant Singh Bhutan	681,000
18.10.2021	Rajaraman Santhanam	135,00,000
22.12.2021	Vishal Chitkara	25,00,000
08.12.2021	Gautam Khanna/ Anuj Khanna	585,000
30-12-2021	Tarun Narula	292,000

5.49.

In this regard before me, the appellant has submitted that most of the instances on which AO has placed his reliance do not pertain to the year under appeal and the appellant company has not received any advances from such party during the year. The submission given by the appellant were at Pages 4.14(B) of its written submissions. On perusal of the submission given by the appellant, it has been found that the advances were received from various parties in the normal course of the business and the same were either adjusted against the sales or refunded back or written off which was recorded in the books of accounts. It could nowhere be found or inferred that the appellant retained portion of undisclosed cash profit being 10% of the advances. It has merely been presumed by the AO without any evidence (much less authentic) that 10% of the cash amount representing undisclosed cash profits were retained by the appellant in cash on advances.

5.50.

I have already discussed above the provisions of section 69A of the Act, the legal position that there can be no presumption that the assessee was owner of the money, bullion, etc. which was not recorded in the books of accounts- the same has to be established as a matter of fact. The assessee cannot on suspicion and surmises be deemed to be the owner of the unexplained moneys, bullion, etc.

5.51.

In view of the above discussion, I find that with respect to advances received from various customers, no evidence or statement has been brought on record by the AO which could satisfy me that 10% of the advance amount representing undisclosed cash profits were retained by the appellant in cash and justify the addition of Rs. 18,82,848/- in respect of advances of Rs. 1,88,28,475/-

5.52.

Further, as regard the commission expenditure paid in cash, no evidence has been found regarding any commission paid by the appellant to the parties from whom advances were received. In the absence of any evidence that any cash has been paid by the appellant to these parties and the same has been received back in form of entry, no addition of commission expenditure paid in cash could be made in the hands of the appellant merely on the basis of assumptions and presumptions.

RTGS entries received through entities in which CBI inquiry is pending amounting to Rs. 6,91,24,988/-

(a)

Sales made to M/s Mahalaxmi Enterprises, M/s D.S. Traders, M/s Supertex International and M/s PFT Services

5.53.

In the Para 8.7 of the assessment order, the AO has stated that during the search proceedings, documents were found at the office premise situated at J-34, Lower Ground Floor, South Extension Part-1, New Delhi (Annexure A3). On perusal of the same, it is found that a CBI enquiry was initiated against the assessee for which notice dated 12.02.2021 bearing number 471/RC0062020A0005/CBI/ACB/LKO was received on the phone of the key persons of the assessee company via WhatsApp communication dated 12.02.2021 wherein details of funds received from entities M/s Mahalaxmi Enterprises, M/s D.S. Traders, M/s Supertex International and M/s PFT Services. During post search proceedings, analysis of the transactions made by the assessee with the above said entities namely M/s Mahalaxmi Enterprises, M/s DS Traders, M/s Supertex International and M/s PFT Services was carried out. Summons were issued to these entities through speed post as well as through registered email. 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with="" with="" with="" with="" with="" with="" with="" with="" with="" with="" with="" with="" with="" with="" with="" with="" with="" with="" with="" with="", " ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," ," M/s D.S. Traders, M/s Supertex International and M/s PFT Services. During post search proceedings, analysis of the transactions made by the assessee with the above said entities namely M/s Mahalaxmi Enterprises, M/s DS Traders, M/s Supertex International and M/s PFT Services was carried out. Summons were issued to these entities through speed post as well as through registered email. However, all the summons returned undelivered with postal remark as <no such persons="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside="" reside=""

Name of the Entity	AY	Total receipt	Salary	HP	PGBP	CG	Other source	GTI
MAHALAXMI ENTERPRISES (ABJFM3207H)	2019-	0	0	0	97,238	0	0	97,238
	2020-21	0	0	0	65,176	0	0	65,176
D S TRADERS (AAOFD4287G)					Non-filer
SUPERTEX INTERNATIONAL (ADOFS2797R)
PFT Services Proprietor NEESHU (BGGPN6458N)

5.54.

Further AO stated, Exercise of physical verification was also carried out at the available addresses of the above said entities but no such entities were found at the available addresses. It is pertinent to mention here that, on perusal of ITR details, it was gathered that three of the entities were not filing ITRs and the income declared in the ITR of M/s Mahalaxmi Enterprises was also nominal. ITR profile of the entities are given below:

Findings

5.56.

I note that the AO has placed reliance on CBI Enquiry and non existence of M/s Mahalaxmi Enterprises, M/s D.S. Traders, M/s Supertex International and M/s PFT Services. In this regard, before me, the appellant has submitted details of transactions with M/s Mahalaxmi Enterprises, M/s D.S. Traders, M/s Supertex International and M/s PFT Services which were at Pages 4.14(C) of its written submissions.

5.57.

On perusal of the same, I note that the appellant has filed various documentary evidences in form of ledgers, PAN, GST certificate, tax invoices along with item register and payment proof etc. It was further stated that sales made by the appellant company were during the ordinary course of business and the same is duly supported by the documentary evidences After consideration of the AO order and submissions of the appellant, I find that in the assessment order, the AO has merely alleged that the M/s Mahalaxmi Enterprises, M/s D.S. Traders, M/s Supertex International and M/s PFT Services was non-filers so have no creditworthiness on the basis of ITR filing status. Merely on this ground, the AO has doubted the genuineness of the sales made by the appellant-company to M/s Mahalaxmi Enterprises, M/s D.S. Traders, M/s Supertex International and M/s PFT Services and treated this as non-genuine transactions. I find that on the basis of allegations made by the AO in the assessment order; it could nowhere be established/found in the form of any documentary evidence to establish that the appellant made cash sales and then routed a part of the consideration through banking channels in form of entry through the above discussed parties. Therefore, no evidence to establish the same has been brought on record by the AO except mere presumptions and assumptions that CBI Inquiry is going on. Even the documentary evidences produced by the appellant such as KYC of buyers, tax invoices etc. have not been doubted by the AO. There has been no evidence of any cash involvement or routing of cash sale consideration found in this respect.

5.58.

I find force in the submission of the appellant that once it has submitted the entire documentary trail in respect of parties, non-receipt of summons issued u/s 131 of the Act by such parties cannot be made a basis to make addition in the hands of assessee. I find that in the watch business, hundreds of customers visit the showrooms of the appellant and the appellant cannot be practically expected to verify the physical premises of its customers.

5.59.

Further, the appellant cannot verify whether buyers are filing ITR and their creditworthiness. The appellant cannot run its business, if the appellant asked to every customer to furnish ITR/prove creditworthiness before purchasing the watch. This would result in impossible situation to carry out the business by the appellant. Without

5.53.

In the Para 8.7 of the assessment order, the AO has stated that during the search proceedings, documents were found at the office premise situated at J-34, Lower Ground Floor, South Extension Part-1, New Delhi (Annexure A3). On perusal of the same, it is found that a CBI enquiry was initiated against the assessee for which notice dated 12.02.2021 bearing number 471/RC0062020A0005/CBI/ACB/LKO was received on the phone of the key persons of the assessee company via WhatsApp communication dated 12.02.2021 wherein details of funds received from entities M/s Mahalaxmi Enterprises, M/s D.S. Traders, M/s Supertex International and M/s PFT Services. During post search proceedings, analysis of the transactions made by the assessee with the above said entities namely M/s Mahalaxmi Enterprises, M/s DS Traders, M/s Supertex International and M/s PFT Services was carried out. Summons were issued to these entities through speed post as well as through registered email. However, all the summons returned undelivered with postal remark as ,<left address="" without="" etc.

5.54.

Further AO stated, Exercise of physical verification was also carried out at the available addresses of the above said entities but no such entities were found at the available addresses. It is pertinent to mention here that, on perusal of ITR details, it was gathered that three of the entities were not filing ITRs and the income declared in the ITR of M/s Mahalaxmi Enterprises was also nominal. ITR profile of the entities are given below:

Name of the Entity	AY	Total receipt	Salary	HP	PGBP	CG	Other source	GTI
MAHALAXMI ENTERPRISES (ABJFM3207H)	2019-	0	0	0	97,238	0	0	97,238
	2020-21	0	0	0	65,176	0	0	65,176
D S TRADERS (AAOFD4287G)					Non-filer
SUPERTEX INTERNATIONAL (ADOFS2797R)					Non-filer
PFT Services Proprietor NEESHU (BGGPN6458N)					Non-filer

5.55.

Accordingly, on the basis of above information and enquiry of Ms DS Traders, the AO inferred that the appellant had obtained sale consideration from M/s Mahalaxmi Enterprises, M/s D.S. Traders, M/s Supertex International and M/s PFT Services of Rs. 6,91,24,988/- for which enquiry is pending before CBI and the firm is not filing Income Tax Return and its address cannot be verified, so the assessee had failed to prove the credit worthiness of these entities so these transaction are Non Genuine.

Findings

5.56.

I note that the AO has placed reliance on CBI Enquiry and non existence of M/s Mahalaxmi Enterprises, M/s D.S. Traders, M/s Supertex International and M/s PFT Services. In this regard, before me, the appellant has submitted details of transactions with M/s Mahalaxmi Enterprises, M/s D.S. Traders, M/s Supertex International and M/s PFT Services which were at Pages 4.14(C) of its written submissions.

5.57.

On perusal of the same, I note that the appellant has filed various documentary evidences in form of ledgers, PAN, GST certificate, tax invoices along with item register and payment proof etc. It was further stated that sales made by the appellant company were during the ordinary course of business and the same is duly supported by the documentary evidences After consideration of the AO order and submissions of the appellant, I find that in the assessment order, the AO has merely alleged that the M/s Mahalaxmi Enterprises, M/s D.S. Traders, M/s Supertex International and M/s PFT Services was non-filers so have no creditworthiness on the basis of ITR filing status. Merely on this ground, the AO has doubted the genuineness of the sales made by the appellant-company to M/s Mahalaxmi Enterprises, M/s D.S. Traders, M/s Supertex International and M/s PFT Services and treated this as non-genuine transactions. I find that on the basis of allegations made by the AO in the assessment order; it could nowhere be established/found in the form of any documentary evidence to establish that the appellant made cash sales and then routed a part of the consideration through banking channels in form of entry through the above discussed parties. Therefore, no evidence to establish the same has been brought on record by the AO except mere presumptions and assumptions that CBI Inquiry is going on. Even the documentary evidences produced by the appellant such as KYC of buyers, tax invoices etc. have not been doubted by the AO. There has been no evidence of any cash involvement or routing of cash sale consideration found in this respect.

5.58.

I find force in the submission of the appellant that once it has submitted the entire documentary trail in respect of parties, non-receipt of summons issued u/s 131 of the Act by such parties cannot be made a basis to make addition in the hands of assessee. I find that in the watch business, hundreds of customers visit the showrooms of the appellant and the appellant cannot be practically expected to verify the physical premises of its customers.

5.59.

Further, the appellant cannot verify whether buyers are filing ITR and their creditworthiness. The appellant cannot run its business, if the appellant asked to every customer to furnish ITR/prove creditworthiness before purchasing the watch. This would result in impossible situation to carry out the business by the appellant. Without prejudice to above discussion, it is pertinent to mention here that seller cannot be penalised for non-compliance on part of buyer.

5.60.

Furthermore, no evidence in respect of the above discussed party have been found on the basis of which it could be inferred that the appellant retained portion of undisclosed cash profit being 10% of the cash amount and the non-genuine sales are shown to have been recorded at lower values. It has merely been presumed by the AO without any evidence (much less authentic) that 10% of the cash amount representing undisclosed cash profits were retained by the appellant in cash.

5.61.

I have already discussed above the provisions of section 69A of the Act, the legal position that there can be no presumption that the assessee was owner of the money, bullion, etc. which was not recorded in the books of accounts- the same has to be established as a matter of fact. The assessee cannot on suspicion and surmises be deemed to be the owner of the unexplained moneys, bullion, etc. In respect of parties to whom sales aggregating to Rs. 49,00,000/-, no evidence has been brought on record by the AO on the basis of which it could be seen or inferred that 10% of the cash amount representing undisclosed cash profits were retained by the appellant in cash.

5.62.

In view of the above discussion, I find that with respect to RTGS received by the appellant-company from M/s Mahalaxmi Enterprises, M/s D.S. Traders, M/s Supertex International and M/s PFT Services aggregating to Rs. 6,91,24,988/-, no evidence or statement has been brought on record by the AO which could satisfy the under signed that 10% of the cash amount representing undisclosed cash profits were retained by the appellant in cash and justify the addition of Rs. 69,12,499/- in respect of RTGS received against sales aggregating to Rs. 6,91,24,988/- by the appellant.

5.63.

Further, as regard the commission expenditure paid in cash, no evidence has been found regarding any commission paid by the appellant to this party. In the absence of any evidence that any cash has been paid by the appellant to this party and the same has been received back in form of entry, no addition of commission expenditure paid in cash could be made in the hands of the appellant merely on the basis of assumptions and presumptions.

TRANSACTION WITH NON-FILERS/ FILERS WITH NIL/ LOW RETURNED INCOME WITH DUMMY EMAIL ID OR FAKE CONTACT NUMBER: RS. 6.99.22.145/-

5.64.

In the assessment order, the AO had stated that certain non-filer entities or entities having NIL/low returned income were identified to whom sae invoices were issued by the appellant using e-mail identity details i.e., [email protected] and dummy contact numbers 9999999999. Further, the AO has also relied upon Inspectors' Report confirming non-existence of some of the few entities.

5.65.

The quantification of sales made to non-filers and entities with low credit worthiness and having dummy contact, as made by the AO, are tabulated as under:

PAN	NAME	Amount
AABCZ0282H	5 STAR INFRACON INDIA PRIVATE LIMITED	50,00,000
BVSPA1731J	SHAMIM AHMAD	65,00,000
AAFCM6361C	MILAP ADVERTISING & MARKETING PRIVATE LIMITED	17,29,000
EVIPK9347D	NEERAJ KUMAR	75,00,000
KIWPS9446E	PARMJIT SINGH	44,88,845
AAECR2817B	REEMA POLYCHEM PRIVATE LIMITED	32,30,000
AAGCD8250Q	LIGGLO MAX PRIVATE LIMITED/DA.FA11 Entertainment Private Limited	38,50,000
BNDPA6320G	ANIL	23,07,800
FOLPS0277P	SHRI PAL	5,99,000
ALKPG5229L	VIKAS GOYAL	7,19,000
AAFCT5131M	TAURUS HOSPITALITY PRIVATE LIMITED	24,51,500
CVMPP8562R	DHEERJ PANDEY	19,10,000
AAOFD4287G	D S TRADERS	2,57,50,000
HOKPK3783R	PARDEEP KUMAR	22,00,000
ANBPB7892H	KULBIR KAUR BHASIN	10,50,000
AJNPG1242L	VIVEK GUPTA`	6,37,000
	TOTAL	6,99,22,145

5.66.

In this regard, before me, the appellant has submitted details of transactions with the above-mentioned parties which are at Pages 4.14(D) of the written submissions.

5.67.

On perusal of the same, I note that the appellant has filed various documentary evidences in form of ledgers, PAN of buyer, Aadhar, tax invoices along with item register and bank statement etc. Further, it has been submitted that there is no statutory requirement to obtain mobile no. and email id in respect of parties to which sales are made. Certain parties are not comfortable to share their personal details such as mobile no and email-id since the software of assessee is such that it cannot generate invoice until mobile no and email id of buyer is punched and therefore in cases where parties do not share mobile no. and email id, assessee punch dummy phone number i.e. 9999999999 and email id i.e. [email protected] in order to complete the invoice. The appellant submitted that it made genuine sales duly recorded in audited books of accounts, subject to GST and payment received through proper banking channel. Merely because, to generate the invoice, dummy mobile number and e-mail id is feeded in the software, it will not make the genuine sales as non-genuine.

5.68.

After consideration of the AO order and submissions of the appellant, I find that in the assessment order, the AO has merely alleged that the certain parties were non-filers or entities with low creditworthiness and these parties have phone number i.e. 9999999999 and email id i.e. [email protected]. Merely on this ground, the AO has doubted the genuineness of the sales made by the appellant-company to these parties and treated these as non-genuine transactions. I find force in the argument of the appellant that merely because the parties have not provided their phone numbers and email-IDs cannot be the ground to doubt the genuineness of sales. Further, it could nowhere be established/ found that the appellant made cash sales and then routed a part of the consideration through banking channels in form of entry through these parties. No evidence to establish the same has been brought on record by the AO except mere presumptions and assumptions. Even the documentary evidences produced by the appellant such as KYC of buyers, tax invoices etc. have not been doubted by the AO. There has been no evidence of any cash involvement or routing of cash sale consideration found in this respect.

5.69.

The appellant cannot be fastened with the burden to verify the identity of the person purchasing the watch and the bank account from which payment is being received. The appellant cannot forcibly ask its clients to provide their mobile number and email IDs against their consent. This would result in impossible situation to carry out the business by the appellant.

5.70.

Further, in case of watch business, the appellant cannot be practically expected to verify the physical premises of its customers. It is the customers who visit the showrooms of the appellant and purchase watches. Hence, adverse inference cannot be drawn merely on the basis of Inspector's Report without any evidence found.

5.71.

Furthermore, no evidence in respect of these parties have been found on the basis of which it could be inferred that the appellant retained portion of undisclosed cash profit being 10% of the cash amount and the non-genuine sales are shown to have been made at lower values. It has merely been presumed by the AO without any evidence (much less authentic) that 10% of the cash amount representing undisclosed cash profits were retained by the appellant in cash.

5.72.

I have already discussed above the provisions of section 69A of the Act, the legal position that there can be no presumption that the assessee was owner of the money, bullion, etc. which was not recorded in the books of accounts- the same has to be established as a matter of fact. The assessee cannot on suspicion and surmises be deemed to be the owner of the unexplained moneys, bullion, etc. In respect of parties to whom sales aggregating to Rs.6,99,22,145, no evidence has been brought on record by the AO on the basis of which it could be seen or inferred that 10% of the cash amount representing undisclosed cash profits were retained by the appellant in cash.

5.73.

In view of the above discussion, I find that with respect to sales made by the appellant-company to parties aggregating to Rs. 6,99,22,145, no evidence or statement has been brought on record by the AO which could satisfy me that 10% of the cash amount representing undisclosed cash profits were retained by the appellant in cash and justify the addition of Rs. 69,92,214/- in respect of sales aggregating to Rs.6,99,22,145/- made by the appellant.

.74. Further, as regard the commission expenditure paid in cash, no evidence has been found regarding any commission paid by the appellant to these parties. In the absence of any evidence that any cash has been paid by the appellant to these parties and the same has been received back in form of entry, no addition of commission expenditure paid in cash could be made in the hands of the appellant merely on the basis of assumptions and presumptions.

TRANSACTION WITH NON-FILERS/FILERS WITH NIL/LOW RETURNED INCOME AMOUNTING TO RS. 26.70.95.206/-

5.75.

In the assessment order, the AO had stated that certain non-filer entities or entities having NIL/low returned income were identified to whom sale invoices were issued by the appellant. Further, the AO has also relied upon Inspectors' Report confirming non-existence of some of the few entities. The AO treated the transactions with these parties as non-genuine and proceeded to add 10% of the total sales made to such parties as undisclosed cash profits.

5.76.

The quantification of sales made to non-filers and entities with low credit worthiness, as made by the AO, are tabulated as under:

FY/Description

Amount of sales

Parties having NIL/low returned income (other than parties covered in Para 8.4)	14,21,68,135/-
Non-Filer Parties (other than parties covered in Para 8.4)	12,49,27,071/-
Total transactions with such parties	26,70,95,206/-

5.77.

In this regard, before me, the appellant has submitted the entire trail of documentary evidence such as sales invoice, identification details in the form of PAN no., GST No., Address, copy of ledger account, payment mostly received through proper banking channel in most of cases, to establish that genuine sales are made to various parties as doubted/alleged by the AO. The details and documents submitted regarding the parties on sample basis are at Pages 4.14(E) of the written submissions.

5.78.

On perusal of the same, I note that the appellant has filed various documentary evidences in form of ledgers, PAN of buyer, Aadhar, tax invoices along with item register and bank statement etc. The appellant submitted that it made genuine sales duly recorded in audited books of accounts, subject to GST and payment received through proper banking channel.

5.79.

After consideration of the AO order and submissions of the appellant, I find that in the assessment order, the AO has merely alleged that the certain parties were non-filers or entities with low creditworthiness on the basis of ITR filing status of these parties. Merely on this ground, the AO has doubted the genuineness of the sales made by the appellant-company to these identified parties and treated these as non-genuine transactions. I find that on the basis of allegations made by the AO in the assessment order; it could nowhere be established/found in the form of any documentary evidence to establish that the appellant made cash sales and then routed a part of the consideration through banking channels in form of entry through the above discussed parties. Therefore, no evidence to establish the same has been brought on record by the AO except mere presumptions and assumptions. Even the documentary evidences produced by the appellant such as KYC of buyers, tax invoices etc. have not been doubted by the AO. There has been no evidence of any cash involvement or routing of cash sale consideration found in this respect.

5.80.

I find force in the submission of the appellant that once it has submitted the entire documentary trail in respect of parties, non-compliance of summons issued u/s 131 of the Act by such parties cannot be made a basis to make addition in the hands of assessee. I find that in the watch business, hundreds of customers visit the showrooms of the appellant and the appellant cannot be practically expected to verify the physical premises of its customers.

5.81.

Also, in respect of the Inspector's Reports relied by AO, I observe that in case of retail watch business operated by shops and showroom, the appellant cannot be practically expected to verify the physical premises of its customers. It is the customers who visit the showrooms of the appellant and purchase watches. Hence, adverse inference cannot be drawn merely on the basis of Inspector's Report without any evidence found.

5.82.

Further, the appellant has contended that for seller, there is no statutory requirement under the Income Tax Law to verify the ITR and creditworthiness of the buyer. The appellant cannot run its business, if the appellant asked to every customer to furnish ITR/prove creditworthiness before purchasing the watch. This would result in impossible situation to carry out the business by the appellant. Furthermore, making the payment of purchase price of watch, the buyer can take the funds from family sources or out of capital investment or many other sources in that case, buyer may not require to file their income tax return. Without prejudice to above discussion, it is pertinent to mention here that seller cannot be penalised for non-compliance on part of buyer.

5.83.

Further the appellant company has contended that without prejudice to above submission, Luxury watches are swiftly becoming a new passion among the wealthy, especially for younger buyers, these timepieces symbolize a mix of status, enjoyment, and exclusivity. Collectibles, once viewed as personal keepsakes, are now gaining recognition as serious investment opportunities. Among these, luxury watches are one of the most sought-after, reflecting both their aesthetic appeal and long-term value in the growing collectibles market.

5.84.

Luxury goods in India have witnessed a steady rise in demand as the country's younger population expands. India's luxury watch market has expanded over the period of time and expanded due to the growing desire for status symbols.

5.85.

Many luxuries watch brands, including Panerai, Rolex, Audemars Piguet, and Omega, have increased their presence in the Indian market. The shift towards premium watches also reflects changes in consumer behaviour, with buyers opting for high-end, durable, and unique timepieces as a reflection of their success and lifestyle.

5.86.

As the cost of purchasing high-end watches in India becomes more competitive with global markets, more Indians are making their luxury purchases domestically instead of traveling abroad.

5.87.

In India people are living beyond one's means i.e. spending more money than one earns, often relying on credit or debt to maintain a lifestyle that exceeds their income by using credit card and availing various finance scheme offered by various finance institution. It's a common issue globally, but in India, factors like social pressure to keep up with trends and a desire for material possessions can contribute to this behavior, easy access to credit and following luxury trends.

5.88.

Furthermore, no evidence in respect of the above discussed parties have been found on the basis of which it could be inferred that the appellant retained portion of undisclosed cash profit being 10% of the cash amount and the non-genuine sales are shown to have been made at lower values. It has merely been presumed by the AO without any evidence (much less authentic) that 10% of the cash amount representing undisclosed cash profits were retained by the appellant in cash.

5.89.

I have already discussed above the provisions of section 69A of the Act, the legal position that there can be no presumption that the assessee was owner of the money, bullion, etc. which was not recorded in the books of accounts- the same has to be established as a matter of fact. The assessee cannot on suspicion and surmises be deemed to be the owner of the unexplained moneys, bullion, etc. In respect of parties to whom sales aggregating to Rs. 26,70,95,206/-, no evidence has been brought on record by the AO on the basis of which it could be seen or inferred that 10% of the cash amount representing undisclosed cash profits were retained by the appellant in cash.

5.90.

In view of the above discussion, I find that with respect to sales made by the appellant-company to certain parties aggregating to Rs. 26,70,95,206/-, no evidence or statement has been brought on record by the AO which could satisfy the under signed that 10% of the cash amount representing undisclosed cash profits were retained by the appellant in cash and justify the addition of Rs. 2,67,09,521/- in respect of sales aggregating to Rs. 26,70,95,206/- made by the appellant.

5.91.

Further, as regard the commission expenditure paid in cash, no evidence has been found regarding any commission paid by the appellant to these parties. In the absence of any evidence that any cash has been paid by the appellant to these parties and the same has been received back in form of entry, no addition of commission expenditure paid in cash could be made in the hands of the appellant merely on the basis of assumptions and presumptions.

5.92.

On perusal of the above submission, I found the AO has wrongly and arbitrarily made the addition of 10% on the basis of sample data which even do not pertain to AY 2019-20. The AO has taken the sample data for the AY 2020-21 to AY 2023-24 and on the basis of inference drawn from such data, the AO has taken the similar view for the year under appeal and made the addition in totally arbitrary manner. It cannot be stated by way of generalization that the result of any one year can be treated as the basis of assessment in another year. Mere presumption cannot be made the basis for any assessment.

5.93.

The allegation of the AO that the profit on these sales is suppressed by 10% which was earned in cash is also unfounded and baseless since the G.P. has already declared by the company on sales.

5.94.

Further, the appellant has contended that in the FY 2018-19, the appellant-company has recorded sales of Rs. 218,44,33,787/- and recorded a Gross Profit of 18.26% at the entity level. Further, in respect of sales amounting to Rs.42,98,80,814/-on which the AO has alleged that appellant has earned extra cash profit of 10% on such sales, it has been submitted by the appellant that the correct sales amount (excluding GST) was Rs.32,64,16,212/- instead of Rs. 42,98,80,814/-.

5.95.

Further, the appellant has contended that in the assessment order, while comparing the variance in sale data, the AO has cherry-picked the instances of sale of certain models of watches that too for the AY 2020-21 to AY 2023-24. While holding that the sale value varied from 9% to 11% when compared for genuine and non-genuine sales, the AO has not made any comparison for the watches sold in the AY 2019-20. Hence, drawing inference for the AY 2019-20 based on the instances of AY 2020-21 to AY 2023-24 was not the correct methodology and approach adopted by the AO. This appears that the rate of suppression of 10% adopted by AO was arbitrary, ad-hoc, presumptive and not based on any reasonable basis. Hence, the addition made by AO by adopting arbitrary rate of suppression of 10% fails on this account as well. Further, the comparison of G.P. percentage on non-genuine sales vis-à-vis the total sales was made which is tabulated below:

AY	Total sales	Corrected sales with non-genuine parties	% of GP on non-genuine sales	% of GP on total sales	% of non-genuine sales to total sales	Difference in GP	Difference in GP on weighted average basis for last 4 years
2020-21	2,42,39,92,968	46,66,00,251	14.65%	18%	19.25%	3.35%	0.65
2021-22	2,24,37,98,477	35,00,65,751	13.29%	17.57%	15.60%	4.28%	0.76
2022-23	3,38,19,28,032	32,97,14,603	21.85%	22.78%	9.75%	0.93%	0.25
2023-24	4,50,46,10,488	28,22,05,070	24.45%	23.03%	6.26%	-1.42%	-0.51
						1.79	1.15

5.96.

On perusal of the above, I find that the considering the difference in G.P. based on weighted average basis for 4 years (i.e. AY 2020-21 to 2023-24) for which the data was considered by AO, the average difference in G.P. on non-genuine sales vis-a-vis the total sales was just 1.15% which is normal and a common practice in business world. Thus, the above further supports that there was no basis for AO to assume that suppression of 10% was made by the appellant without any basis and merely on surmises and conjectures.

"6 The AO has not pointed out any specific defect or discrepancy in the account books maintained by the assessee. Admittedly, the assessee had been maintaining regular books of accounts, which were duly audited by an independent chartered accountant. As noted by CIT(A), the financial results were fully supported by the assessee with vouchers and course of business and are duly audited, free from any qualification by the auditors, should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. The onus is upon the Revenue to show that either the books of accounts maintained by the assessee were incorrect or incomplete or method of accounting adopted by him as such that true profits of the assessee cannot be deducted therefrom."

appeal, and cost structure. The pricing and resultant margins on the sale of luxury watches are influenced by various factors, most of which are outside the direct control of the retailer. These include but are not limited to the brand and lineage of the watch, the model, its international pricing strategy, limited edition status, prevailing demand and supply in the market, rarity or exclusivity of the model, condition of the watch, and specific preferences or customizations requested by clients. Retailer margins in this sector can range widely and therefore there is a differential GP w.r.t sale of each article.

7.5.

The appellant has further contended that another key factor contributing to margin variability is the role of customer negotiation in determining the final sale price. Luxury watches buyers, especially high-net-worth individuals (HNWIs), often engage in significant price discussions and expect personalized deals, bundled offerings, or loyalty discounts. Given the high ticket size of each transaction, even small changes in discounting can lead to considerable variation in margins. Furthermore, in many cases, value-added services such as after-sales service, extended warranties, insurance coverage, buyback guarantees, and complimentary accessories are bundled into the sale, which also affect the final realized GP.

7.6.

Further, the appellant has contended that it is also relevant to mention that the luxury watch business is heavily reliant on brand positioning and customer relationships. Retailers may at times consciously reduce margins on certain sales in order to maintain long-term relationships with premium customers or to enhance their brand presence in a competitive market. For instance, in order to acquire clientele who are known collectors or influencers, a retailer may choose to sell select pieces at lower margins or even at breakeven, with a view to upselling in future transactions or to gain referrals and visibility. Such strategic pricing decisions, though not immediately profitable, are a standard commercial practice in luxury segments and have to be factored in while evaluating the overall profitability and margin trends of the assessee.

7.7.

Further, it must be emphasized that luxury watch retailers also face a range of inventory management challenges. Certain models may remain unsold for extended periods, leading to capital blockage, insurance and storage costs, and the risk of obsolescence. In order to rotate inventory or to mitigate the carrying cost of aged stock, retailers may be required to offer significant discounts, resulting in lower-than-average GP on such sales. This again contributes to an overall margin pattern that is inherently inconsistent and transaction-specific.

7.8.

Luxury watches are high-value, aspirational products, often purchased for status, fashion, investment, or gifting purposes. The lifecycle of a luxury watch in the retail segment does not always follow a linear or predictable path. Unlike fast-moving consumer goods, where turnover is rapid and pricing power is more controlled, luxury watch inventory faces challenges such as:

1.

Product Obsolescence New collections are released periodically by luxury brands. Once a new design or upgraded version enters the market, older models—even if unsold and new—begin to depreciate in perceived value. Retailers are left with inventory that needs to be sold at a markdown to recover investment.

2.

Market Sensitivity to Brand Perception and Trends Consumer preferences shift rapidly, driven by trends, celebrity endorsements, or changes in lifestyle preferences. A model that was in high demand at launch may quickly lose favor, necessitating clearance at discounted prices.

3.

Inventory Turnover Constraints: Due to the high-ticket value of luxury watches, the turnover ratio of inventory is naturally lower than in mass-market retail segments. Unsold inventory ties up significant capital, incurs storage and insurance costs, and contributes to business risk.

4.

Seasonal and Cyclical Demand: Peak demand typically occurs during festivals, wedding seasons, or specific celebratory occasions. During lean periods, stock movement slows down, and retailers resort to promotional offers to maintain liquidity.

7.9.

I also note that the appellant adopted various sales strategies to ensure liquidity, optimize inventory, and remain competitive. These strategies directly affect the GP reported in books:

1.

Festive Discounts Major Indian festivals (Diwali, Eid, Christmas, etc.) and international sales periods (New Year, Black Friday) are peak times for promotional pricing. Discounting 10-30% on MRP is not uncommon, directly reducing the GP on such sales.

2.

Bulk Order or Corporate Discounts When orders are placed in bulk—such as by corporates for gifting to employees or clients—retailers offer substantial volume-based discounts, resulting in thinner margins.

3.

Stock Clearance Sales Watches from older collections or discontinued lines are sold at markdowns, often at or below cost price. The intent here is not to make profit but to rotate stock, free up working capital, and minimize the risk of further depreciation.

4.

Friends and Family or Referral Discounts Retailers frequently offer preferred pricing to loyal customers, family references, or walk-ins referred by influencers. These sales, though strategic in nature (building goodwill and customer loyalty), are done at reduced margins or nil profit.

5.

Defective or Display Pieces Watches that have minor cosmetic flaws, were used as display pieces, or were returned after trial may not be eligible to be sold as "brand new." These are often sold at a deep discount and are typically booked at nil GP or even at a loss to recover some value.

6.

Sale of Dead Stock or Obsolete Items Certain watches remain unsold for multiple years, become unfashionable, or get technologically outdated (especially smart or hybrid watches). These are considered dead stock. In such cases, the only option is to liquidate them below purchase cost.

7.

Damaged Returns or Customer Exchanges: A watch returned due to minor damage or for being out-of-box is often sold at book value or below. The business may choose not to mark up such sales in order to preserve customer goodwill.

7.10.

Further, it is submitted that watches, being high-value items, require capital investment. Prolonged holding leads to sunk costs. To reduce carrying costs, the appellant adopts a "cost recovery" approach, even if it means selling below the original purchase price. This is done in order to rotate inventory or to mitigate the carrying cost of aged stock, retailers may be required to offer significant discounts, resulting in lower-than-average GP on such sales. This again contributes to an overall margin pattern that is inherently inconsistent and transaction-specific.

7.11.

The appellant also submitted that this strategy helps to free up capital for new inventory, improve liquidity to meet other operational expenses, reduce storage, insurance, and opportunity costs and prevent further depreciation in value due to obsolescence.

Example:

- A Rolex watch purchased at ₹5,00,000 in 2021, which remained unsold by 2025. The market demand has shifted and similar models are now available at ₹4,00,000. The appellant chooses to sell it at ₹4,00,000. Though the gross loss on such sale is Rs.1,00,000 but the capital of Rs.4,00,000 is recovered which is further utilized to purchase new watches, reduce capital cost and make high G.P. on sale of new watches purchased.

7.12.

This strategy is adopted to maintain freshness of stock and relevance of display mainly on account of arrival of new models or collections, brand requirements to showcase latest products, internal policy to limit average holding period.

7.13.

Further, the appellant submitted that the luxury watch industry, being a highly specialized and discretionary segment, has been influenced by global economic cycles, consumer behaviour, product exclusivity, brand control, and shifts in market preferences over the past several years, and particularly after the onset of the COVID-19 pandemic.

7.14.

It was also submitted by the appellant that before the COVID-19 pandemic, the luxury watch market in India witnessed an era of unregulated expansion. Luxury watches such as Rolex, Audemars Piguet, Omega, TAG Heuer, and others were widely distributed through an extensive network of authorized and unauthorized dealers. Many of these brands were available at multi-brand outlets, grey market platforms, and through parallel importers. Further, the brands also had little oversight over pricing and positioning of their products in India. This resulted excessive supply relative to demand as the volume of watches available in the retail market exceeded actual consumer demand leading to price war among dealers (including the appellant) to clear their inventory, often resulting in discounted sales. Thus, earlier, the appellant faced a range of inventory management challenges. Certain models which remained unsold for extended periods, leading to capital blockage, insurance and storage costs, and the risk of obsolescence were sold at cost or at loss to clear the stock and free the working capital to purchase new watches in trend. In the support of the above contention, the appellant has submitted below table:

AY	Total sales	Sales with negative GP	% of sales with negative G.P. of total sales	Sales with 0%-5%	% of sales with 0%-5% G.P. of total sales	Sales with 5%-10%	% of sales with 5% - 10%G.P. of total sales
2017-18	1,56,86,43,964	22,38,04,409	14.27	25,44,98,254	16.22	31,94,97,527	20.37
2018-19	1,77,58,52,578	8,31,46,590	4.68	14,13,58,688	7.96	45,10,41,370	25.40
2019-20	2,18,44,33,787	8,30,51,201	3.80	12,82,16,858	5.87	41,61,51,188	19.05
2020-21	2,42,39,92,968	9,70,43,993	4.00	8,71,71,557	3.60	27,05,76,248	11.16
2021-22	2,24,37,98,477	4,59,68,898	2.05	3,67,16,267	1.64	9,05,64,223	4.04
2022-23	3,38,19,28,032	1,57,93,613	0.47	1,47,04,055	0.43	4,90,42,192	1.45
2023-24	4,50,46,10,488	1,78,51,765	0.40	9,54,458	0.02	7,04,47,579	1.56

7.15.

On perusal of the above, I find that the percentage of watches sold with negative G.P. was 14.27% of total sales in AY 2017-18 which has drastically reduced to 2.05% in the AY 2020-21 and 0.47% in AY 2022-23. In same way, the appellant has further contended that this is because after post COVID-19 pandemic, the brands have tightened their distribution channels to ensure product exclusivity and maintain premium pricing. With reduced global supply and increased brand control, many iconic models from Rolex and Audemars Piguet have seen price appreciation. The appellant, being an authorized dealer of several global luxury watch brands, has benefitted from this consolidation. It was also submitted that now among the youth and working professionals, luxury consumption—especially watches—has become a status symbol and a perceived marker of success. Social media, celebrity endorsements, and influencer culture have reinforced the desirability of such products. As a result, it can be seen that there was been huge increase in sales of the appellant-company which further reduced the need of distress selling of watches to clear the inventory in later years. Hence, none of these practices reflect any intention to suppress profits or manipulate income; instead, they represent the commercial flexibility exercised by a prudent businessman in the best interest of his business continuity and competitiveness. On careful consideration of above factual submissions, I am of the considered opinion that the contention of the appellant carry substantial force and the appellant has been able to reasonably justify low GP sale in the year under consideration.

7.16.

It is also submitted by the appellant that it is the prerogative of the businessman at what profit he decides to sale his goods including whether he chooses to sell a particular product at a higher or lower margin, or even at a loss, based on prevailing market conditions, inventory strategy, customer relationship management, or other factors relevant to the unique commercial setting of his enterprise. It is possible that the same watch is sold at different prices to different customers. It may be on account of various reasons such as in the festival season, discount is given to the customers, when the model of the watch becomes old, the same is sold at discount, when any watch model loses its popularity, it is sold at discount, sometimes, defective watches are received and the same are also sold at discount. I find that the Courts have consistently held that an AO cannot justifiably put itself in the arm-chair of the businessman and decide whether a particular business decision was to be taken or not. A taxpayer is free to conduct business in the manner most suitable to it and the commercial or business expediency is to be seen from the taxpayer's point of view. Courts have repeatedly emphasized that income tax authorities must not step into the shoes of a businessman and second-guess his motives or decision-making logic unless the same is found to be sham or collusive.

7.17.

In the context of the present case, it has been rightly submitted by the appellant that the same watch may be sold at different prices to different customers for valid commercial reasons. For instance, in festive seasons or during promotional campaigns, businesses commonly offer discounts to attract footfall and boost sales volumes. Such pricing strategies are routine and constitute a legitimate business practice across industries, particularly in consumer-facing sectors like retail. Similarly, when a particular model of a luxury watch becomes old or is being phased out by the manufacturer, it tends to lose appeal in the eyes of discerning customers, thereby necessitating discounting in order to liquidate the stock. There are also instances where a product loses popularity due to the emergence of newer models or changing fashion trends, prompting businesses to offer markdowns to maintain inventory turnover.

7.18.

Furthermore, retailers may sometimes receive defective or cosmetically imperfect watches from suppliers, which, while being functionally sound, do not qualify for sale at full price. These may be sold at reduced prices to recover costs and minimize inventory losses. None of these practices reflect any intention to suppress profits or manipulate income; instead, they represent the commercial flexibility exercised by a prudent businessman in the best interest of his business continuity and competitiveness.

7.19.

It is pertinent to refer here to the landmark judgment of the Hon'ble Supreme Court in the case of CIT v. A. Raman & Co. [1968] 67 ITR 11 (SC), where it was held that "it is not for

"30.

...One cannot be oblivious to the fact that such a large gift received from a foreign country is bound to raise suspicion but cannot disregard the fact that suspicion and doubt cannot replace proof or translate into reasons, much less reasons for invoking a deeming provision to hold that gifts represent the income of the assessee, particularly in the absence of relevant facts."

"The law does not oblige a trader to make the maximum profit that he can out of his trading transactions. Income which accrues to a trader is taxable in his hands; income which he could have, but has not earned, is not made taxable as income accrued to him. ... ... ..."

"But, in the present case we are called upon to consider the question whether, when one trader transfers his goods to another trader at a price less than the market price, the taxing authority can take into consideration the market price of those goods, ignoring the real price fetched. As mentioned earlier, the latter question is no more res integra. It is concluded by the decision of this court in A. Raman & Co.'s case (Supra)."

17.

It only remains for us to refer to the observations of the assessing officer to the effect that no one makes a loss in real estate business and that the market perceptions indicate that the prices of the immoveable properties are always on the upward trend. These observations have, inter alia, formed the basis of the additions made by the assessing officer. It was even suggested before us on behalf of the revenue that it is a "notorious practice" prevailing in real estate circles that in all property transactions there is non-disclosure of the full consideration. As pointed out earlier, this cannot per se constitute the basis of the addition, though we must hasten to add that it can very well be a starting point for further investigation. In Lalchand Bhagat Ambica Ram vs. CIT: (1959) 37 ITR 288, the Supreme Court disapproved the practice of making additions in the assessment on mere suspicion and surmises or by taking note of the "notorious practice" prevailing in trade circles. It was observed as under:

"Adverting to the various probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf."

18.

The Tribunal cannot be said to have taken into account irrelevant material or ignored relevant material in arriving at its decision. It seems to have applied the right principles in support of its decision. Its order cannot therefore be termed as perverse.

19.

For the aforesaid reasons we answer the second substantial question of law in the affirmative, in favour of the assessee and against the revenue. The third substantial question of law is answered in the negative, in favour of the assessee and against the revenue.

11.

Unless and until, learned AO gathers any material to be placed on record that the assesses have paid anything more than Rs.8 crore for purchase of the shares worth Rs.12 crores at a discounted price, it is not open for the learned AO to draw an inference that the assesses made payment of Rs.12 crore and thereby bring Rs.4 crore to tax in view of the judgment of the Hon'ble Apex Court in the case of Calcutta Discounts (supra), it is always open for the traders to arrange their business transactions at a mutually agreed terms and the tax authorities cannot substitute the issue price or the market value of the shares whereas the consistent case of the assessee is that they purchased the shares at a discounted price at Rs.8 Crore. With this view of the matter, we do not find any illegality or irregularity in the findings of the learned CIT(A) and according upheld the impugned orders. We find the appeals of the revenue as devoid of merit and are liable to be dismissed, the appeals are dismissed accordingly.

12.

In the result, appeals of revenue are dismissed.

14.

It is trite that the onus to claim that the apparent is not real is one who so claims. Where the Revenue requires the assessee to show as to why there is a difference in the price charged from two customers and the assessee offers some plausible explanation, no addition can be made simply by holding that this explanation is fanciful. There must be some thing concrete to show that the version given by the assessee is incorrect. The AO cannot simply make addition on hypothetical basis by presuming a higher sale price by simply rejecting the assessee's explanation without cogent reasons. If this procedure is resorted, then it would amount to taxing hypothetical income instead of real income, which is obviously impermissible unless an express provision is enshrined in this regard.

15.

Coming back to the facts of the instant case, we find that the assessee tendered explanation in support of charging lower price in respect of some of the flats sold by it. The AO not only simply refused to accept such explanation without any convincing reason but also did not bring any material on record to show that the assessee in fact received higher price than declared. Under such circumstances, we are of the considered opinion that the action of the authorities below in this regard cannot be justified. At the cost of repetition, we mention that the provisions of section 43CA have been inserted with effect from 2014-2015 in respect of transfer of land or building or both which is not a capital asset. It is only during the prevalence of this provision that the Revenue has been discharged from the burden of proving that the sale price of land, or building or both is understated. Straight way, the declared sale consideration can be substituted with the stamp duty value, if it less. In the period anterior to the application of this provision, the burden is squarely on the Revenue to positively show that the sale price charged was actually more than that declared. We are confronted with a situation in which the assessee gave reasons for charging lower price in respect of some of the flats sold, which the AO failed to controvert. In such a situation, there can be no reason to make or sustain any such addition. We, therefore, order for the deletion of this addition in entirety. This ground is allowed."

ITA No. 5641, 5643 and 5644/Del/2025[Assessee’s apepal]

ITA No.6826, 6828 and 6829/Del/2025 [Revenue’s appeal]

[Assessment Years 2018-19, 2020-21 and 2021-22]

ITA No. 5645/Del/2025[Assessee’s apepal]

ITA No.6920/Del/2025 [Revenue’s appeal]

[Assessment Year 2022-23]

Kapoor Watch Company Private Limited A.V.2022-23 Appeal No- CIT (A), Delhi- 27/10097/2021-22 Designs Pvt Ltd. On perusal of the excel sheet, I find that there is no noting in the said excel sheet that the assessee-company has made any cash payment in the FY 2021-22. The excel sheet does not have any dates, no name of the person and appears to be a estimate. The excel sheet does not contain the prices for many works to be performed and at some places the term "discussion" was mentioned, for instance, Elevation, Terrace, Terrace Toilet etc were pending for discussion. Thus, I find that the excel sheet does not conclusively prove that the amounts reflecting therein represents the expenditure incurred over and above the agreed amount under contract dated 27.11.2018.

8.4.

Further, I also note that the said excel sheet nowhere mentions the word 'Cash' and the AO has merely presumed based on surmises, guesswork and conjectures that cash was paid by the appellant-company. There can be no presumption that the assessee has paid any unaccounted cash- the same has to be established as a matter of fact. The AO has not highlighted any credible evidence to substantiate actual payment of cash by the appellant. Hence, I find that the assessee cannot on suspicion and surmises be deemed to have made any cash payment to Enn V Enn Designs Pvt. Ltd. The apparent is the real unless the contrary is proved and the onus to prove the contrary is on the person who alleges so [refer CIT vs. Daulat Ram Rawatmull: [1973] 87 ITR 349 (SC)]. The assessing officer had failed to discharge his burden/ onus in this regard. The assessing officer cannot first make certain assumption and thereafter apply the deeming provisions based on such assumption.

8.5.

It is also settled law that suspicion, howsoever, strong cannot take place of proof and that assessment under the Act has to be made on the basis of material/evidence and not on the basis of assumptions/presumptions:

- J.J. Enterprises v. CIT 254 ITR 216 (SC).

- Uma Charan Shaw & Bros. Co. v. CIT: 37 ITR 271 (SC)

- Omar Salay Mohammad Sait vs. CIT: 37 ITR 151(SC)

- DhirajlalGirdharilal v CIT: 26 ITR 736 (SC)

- Dhakeshwari Cotton Mills Ltd. v CIT: 26 ITR 775 (SC)

- Assam Tea Co. V. ITO: 92 ITD 85 (Asr.) (SB)

- Faqir Chand Chaman Lal v. ACIT: (2004) 1 SOT 914 (Asr.) (Appeal dismissed by P&H High Court in 262 ITR 295 and SLP dismissed by SC in 268 ITR)

- CIT V. Paras Cotton Co.: 288 ITR 211 (Raj.)

13.

Lastly comes the crucial issue as to whether the impugned seized material / 'Excel' sheet (not mentioning the assessees' names) forms a dumb document or not. We make it clear that the department has failed to corroborate the impugned seized document indicating assessee's alleged on money payment over and above the sale price itself. All it has done is to rely on their father's name only. It is nowhere clear as to whether it is an alleged document forming part of the books of account maintained in the regular course of business either by the vendor or vendee side. All it contains therefore is rough notings and jottings only. This tribunal co-ordinate bench's decision Nishan Constructions Vs. ACIT ITA No.1502/Ahd/2015; after considering the hon'ble apex court's landmark decision in Common Cause, Vs. Union of India (2017) 77 taxmann.com 245 (SC) and CBI Vs. V.C.Shukla (1998) 3 SCC 410 (SC) holds that such loose sheets deserves to be treated as a dumb documents only since not revealing full details about the dates containing lack of further particulars and therefore, ought not to be made basis of an addition. Similar other judicial precedents ACIT Vs. Layer Exports P.Ltd., (2017) [184 TTJ 469] (Mumbai) & ITO Vs. Kranti Impex Pvt. Ltd., ITA No.1229/Mum/2013, dt.28-02- 2018 (dealing with a seized document seized not either bearing the taxpayer's name or signature). Shri Neeraj Goyal Vs. ACIT, ITA No.5951/Del/2017, dt.21-03-2018, (Del) (2012) 23 taxmann.com 269] Nagarjuna Construction Co. Ltd., Vs. DCIT, CIT Vs. S.M.Agarwal, [293 ITR 43], CIT Vs. Shri Girish Chaudhary (2008) 296 ITR 619 (Del) also echo the very principle. We accordingly hold that the impugned addition of on-money payment made in both these assessees' hands on the basis of a mere dumb document and not corroborated by any other evidence is not sustainable. We thus direct to delete the impugned identical addition forming subject matter of adjudication in both these cases."

7. VALUATION APPROACH

7.1

There are three broad approaches used for business valuation:

1.

Asset Approach

2.

Market Approach

3.

Income Approach

Asset Approach

The Asset approach methods seek to determine the business value based on the value of it's assets. The aim is to determine the business value based on the fair market value of its assets less its liabilities. The asset approach is based on the economic principle of substitution which adopts the approach of cost to create another business similar to one under consideration that will produce the same economic benefits for its owners.

I have not considered this approach since value of assets and liabilities doesn't represent fair value of the company.

Market Approach

The market approach relies on signs from the real market place to determine what a business is worth. The market approach based valuation methods establish the business value in comparison to similar businesses. The methods rely on the pricing multiples which determine a relationship between the business economic performance, such as its revenues or profits, and its potential selling price.

There is no peer group listed company-in the market. Hence, it is not possible to derive valuation based on market approach.

Income Approach

The Income approach methods determine the value of a business based on its ability to generate desired economic benefit for the owners. The key objective of the income based methods is to determine the business value as a function of the economic benefit. The income approach takes a look at the core reason for running a business - making money. The business value is sought to be established in the present, the expected income and risk must be translated to today. Discounted Free Cash Flow Method is a popular method to do this translation under income approach:

I have considered this approach since the company is operating business.

Annexure - A

Working of Valuation

2. SOURCES OF INFORMATION

The Management has provided the following details/ documents and I have relied upon the same:

- Audited financial statements for the year FY 2020-21

- Provisional Financial statements as on December 31, 2021

- Present Status of the Company

- I have also relied upon information, including prospective information, provided to me by LRPL's management; a review of financial statements, and other relevant documents; and through outside research

23.

COVID-19 had come as a novel virus and disease resulting in a Pandemic for the entire world. The whole world has faced this phenomenon with differing intensity, mutations and waves, impacting life itself, healthcare systems, livelihood, access to amenities, liberties etc. making it a global health challenge affecting all countries. When COVID-19 virus started spreading in our country, the Union of India proactively notified COVID-19 as a pandemic in order to exercise the responsibility of mitigating the loss of life under Disaster Management Act, 2005 (DMA, 2005). The Ministry of Home Affairs, keeping in view the spread of COVID-19 virus in India vide its letter dated 14-3-2020 decided to treat it as 'notified disaster' for the purpose of providing assistance under the State Disaster Response Fund (SDRF). It has always been considered as a 'disaster' within the meaning of DMA, 2005. Several important steps have been taken by the Central Government under DMA, 2005, as also, the steps taken specifically as Nation's response to COVID-19 Pandemic wherein more comprehensive, multipronged, multi sectoral, whole of society and whole of Government, while at the same time dynamic approach has been adopted, from time to time with the evolving nature of COVID-19 virus during first, second and third surges. Various steps have been taken by the Union of India, to strategies nations response to COVID-19, a once in a lifetime Pandemic inflicted on the entire world, wherein not just the funds of NDRF and SDRF, but even from the Consolidated Fund of India had been utilized. Specific steps have been taken for ramping up the entire health care infrastructure, preparedness, relief, restoration, mitigation and reconstruction, in a very short time to include:-

24.

It goes without saying that COVID-19 Pandemic has caused serious economic disruption. However, the Government both at Central and State level have made herculean efforts to deter it from becoming a matter of economic distress. In order to contain and arrest, the sporadic/rapid spread of the Virus, there have been frequent lock downs, shut downs, declaration of contentment zones, total ban on some activities, partial allowance of in some specific activity and even restraints on number of employees coming to perform those allowable activities. The Real Estate Sector heavily faced the wrath of Pandemic COVID-19 situation when even there were serious labour migrations, stoppage of all forms of construction activities as well as buying and selling of real estate projects which are all undeniable facts. Considering the economy wide impact, the Government of India announced several packages, protecting cheap credit to small and medium business, relaxing the payment of loan dues by extending the period of repayment, exempting payments of certain taxes and fees in many areas and sectors and extending the submission of tax returns from time to time waiver of interest and/or restructuring of loan account. Similarly, various State Governments also declared all such relaxations in various Revenue related matters. The press release dated 30-12-2020 of the Ministry of Finance Department of Revenue, Government of India and the circular dated 11th January, 2022 state all these reliefs etc., keeping in view the challenges faced by taxpayers in meeting the statutory and regulatory compliances due to outbreak of COVID-19. All these situations caused by such COVID-19 Pandemic passing though first, second and third surges somehow come to normalize only after March, 2022 which as such as a phenomenon is irrefutable.

9.11.

In view of the above, I hold that the AO was not correct in calculating the FMV using NAV method. The AO ought to have considered the business position of M/s Luxerati Retail Private Limited and the effect of COVID-19 pandemic and its after-effects on businesses. It was a force majeure event and its impact and implications ought to have been considered while making valuation of shares of a company which is operating a retail store of luxury items and was expected to be severely affected by COVID-19.

9.12.

Further, I also find that in the assessment order, the AO has changed the method of valuation and adopted NAV method for valuing the shares. In this regard, the appellant has submitted that once the assessee has opted one of the prescribed methods of valuation of unquoted equity shares, AO has no right to change the same. In this regard, reliance was placed on the decision of Hon'ble Jurisdictional Delhi High Court in the case of PCIT Vs. Cinestaan Entertainment: 433 ITR 82 dated 01.03.2021 wherein the Court has held as under:

"13.

From the aforesaid extract of the impugned order, it becomes clear that the learned ITAT has followed the dicta of the Hon'ble Supreme Court in matters relating to the commercial prudence of an assessee relating to valuation of an asset. The law requires determination of fair market values as per prescribed methodology. The Appellant-Revenue had the option to conduct its own valuation and determine FMV on the basis of either the DCF or NAV Method. The Respondent-Assessee being a start-up company adopted DCF method to value its shares. This was carried out on the basis of information and material available on the date of valuation and projection of future revenue. There is no dispute that methodology adopted by the Respondent-Assessee has been done applying a recognized and accepted method. Since the performance did not match the projections, Revenue sought to challenge the valuation, Fratelli Wines Pvt. Ltd. vs. ACIT on that footing. This approach lacks material foundation and is irrational since the valuation is intrinsically based on projections which can be affected by various factors. We cannot lose sight of the fact that the valuer makes forecast or approximation, based on potential value of business. However, the underline facts and assumptions can undergo change over a period of time. The Courts have repeatedly held that valuation is not an exact science, and therefore cannot be done with arithmetic precision. It is a technical and complex problem which can be appropriately left to the consideration and wisdom of experts in the field of accountancy, having regard to the imponderables which enter the process of valuation of shares. The Appellant-Revenue is unable to demonstrate that the methodology adopted by the Respondent-Assessee is not correct. The AO has simply rejected the valuation of the Respondent-Assessee and failed to provide any alternate fair value of shares. Furthermore, as noted in the impugned order and as also pointed out by Mr. Vohra, the shares in the present scenario have not been subscribed to by any sister concern or closely related person, but by outside investors. Indeed, if they have seen certain potential and accepted this valuation, then Appellant-Revenue cannot question their wisdom. The valuation is a question of fact which would depend upon appreciation of material or evidence. The methodology adopted by the Respondent-Assessee, accepted by the learned ITAT, is a conclusion of fact drawn on the basis of material and facts available. The test laid down by the Courts for interfering with the findings of a valuer is not satisfied in the present case, as the Respondent-Assessee adopted a recognized method of valuation and Appellant-Revenue is unable to show that the assessee adopted a demonstrably wrong approach, or that the method of valuation was made on a wholly erroneous basis, or that it committed a mistake which goes to the root of the valuation process.

14.

In view of the foregoing, we find that the question of law urged by the Appellant-Revenue is purely based on facts and does not call for our consideration as a question of law."

9.13.

In the instant case while rejecting the valuation report submitted by the assessee, the AO has not brought on record any alternate report of fair market value of shares obtained from the person authorized under rule 11UA(2) and simply proceeded to determine the fair market value on NAV method which is not permissible as has been held by the Hon'ble Jurisdictional Delhi High Court in the case of Cinestaan Entertainment dated 01.03.2021 (Supra). Further the Hon'ble Himachal Pradesh HC in the case of I.A. Hydro-energy Pvt. Ltd. reported in 163 taxmann.com 408 has held as under:

13.

“From the aforesaid extract of the impugned order, it becomes clear that the learned ITAT has followed the dicta of the Hon'ble Supreme Court in matters relating to the commercial prudence of an assessee relating to valuation of an asset. The law requires determination of fair market values as per prescribed methodology. The Appellant-Revenue had the option to conduct its own valuation and determine FMV on the basis of either the DCF or NAV Method. The Respondent-Assessee being a start-up company adopted DCF method to value its shares. This was carried out on the basis of information and material available on the date of valuation and projection of future revenue. There is no dispute that methodology adopted by the Respondent-Assessee has been done applying a recognized and accepted method. Since the performance did not match the projections, Revenue sought to challenge the valuation, on that footing. This approach lacks material foundation and is irrational since the valuation is intrinsically based on projections which can be affected by various factors. We cannot lose sight of the fact that the valuer makes forecast or approximation, based on potential value of business. However, the underline facts and assumptions can undergo change over a period of time. The Courts have repeatedly held that valuation is not an exact science, and therefore cannot be done with arithmetic precision. It is a technical and complex problem which can be appropriately left to the consideration and wisdom of experts in the field of accountancy, having regard to the imponderables which enter the process of valuation of shares. The Appellant-Revenue is unable to demonstrate that the methodology adopted by the Respondent-Assessee is not correct. The AO has simply rejected the valuation of the Respondent-Assessee and failed to provide any alternate fair value of shares. Furthermore, as noted in the impugned order and as also pointed out by Mr. Vohra, the shares in the present scenario have not been subscribed to by any sister concern or closely related person, but by outside investors. Indeed, if they have seen certain potential and accepted this valuation, then Appellant-Revenue cannot question their wisdom. The valuation is a question of fact which would depend upon appreciation of material or evidence. The methodology adopted by the Respondent-Assessee, accepted by the learned ITAT, is a conclusion of fact drawn on the basis of material and facts available. The test laid down by the Courts for interfering with the findings of a valuer is not satisfied in the present case, as the Respondent-Assessee adopted a recognized method of valuation and Appellant-Revenue is unable to show that the assessee adopted a demonstrably wrong approach, or that the method of valuation was made on a wholly erroneous basis, or that it committed a mistake which goes to the root of the valuation process.

14.

In view of the foregoing, we find that the question of law urged by the Appellant-Revenue is purely based on facts and does not call for our consideration as a question of law.”

“Section 56 of the Income-tax Act, 1961, read with rule 11UA of Income Tax Rules, 1962 – Income from other sources – Chargeable as (share premium, valuation of shares) – Assessment Year 2018-19 – Whether Assessing Officer has no jurisdiction to substitute NAV method of assessing valuation of shares, once assessee has exercised option of a DCF valuation method as per rule 11UA(2) – Held, yes [para 19] [in favour of assessee].”

ITA No. 5646/Del/2025[Assessee’s apepal]

ITA No.6921/Del/2025 [Revenue’s appeal]

[Assessment Year 2023-24]