ITAT Delhi: Addition for Alleged Bogus Jewellery Purchases Cannot Exceed Gross Profit Ratio When Books and Stock Figures Are Accepted
Case Reference
Vineet Agarwal Vs ACIT (ITAT Delhi)
Assessment Year: 2017-18
Order Date: 05-06-2026
Background and Context
The Delhi Bench of the Income Tax Appellate Tribunal delivered a significant ruling in the matter of Vineet Agarwal Vs ACIT, partially allowing the assessee's appeal for Assessment Year 2017-18. The dispute centred on an addition of Rs. 1,92,47,792/- made by the Assessing Officer on the ground that certain jewellery purchases were bogus in nature. The Commissioner of Income Tax (Appeals), Lucknow had affirmed the Assessing Officer's action, prompting the assessee to approach the Tribunal.
The assessee in this case was an individual engaged in the trading of bullion and jewellery, deriving income from business activities, house property, and interest. The accounts were subject to audit under the Income Tax Act, 1961, and the assessee had originally filed a return of income declaring total income of Rs. 16,88,080/- on 19.09.2017.
Facts of the Case
Assessment Proceedings
During assessment proceedings conducted under Section 143(3) of the Income Tax Act, 1961, the assessee placed before the Assessing Officer all books of account along with quantitative details maintained in the regular course of business. A critical aspect of this case is that the Assessing Officer accepted both the books of account and the quantitative details without invoking Section 145(3) of the Income Tax Act, 1961, which would have otherwise empowered him to reject the accounts and estimate income on a best-judgment basis.
Additionally, the quantitative details pertaining to purchases were independently accepted by the VAT authorities, lending further credibility to the assessee's records.
Despite this, the Assessing Officer proceeded to treat jewellery purchases worth Rs. 1,92,47,792/- as bogus and made a full addition of that amount, completing the assessment at a total income of Rs. 2,09,35,870/-.
Commissioner of Income Tax (Appeals) Order
The matter was carried before the CIT(A-3), Lucknow, whose order was dated 28-10-2025. The first appellate authority upheld the Assessing Officer's action in its entirety, dismissing the appeal filed by the assessee. This led to the second appeal being preferred before the ITAT Delhi.
Grounds of Appeal Before the Tribunal
The assessee raised the following substantive grounds before the Tribunal:
That the CIT(A) committed a manifest error in sustaining the disallowance of Rs. 1,92,47,792/- on account of jewellery purchases allegedly characterized as bogus by the Assessing Officer.
That the disallowance was unsustainable in law and on facts since the said purchases had been incorporated into sales to the extent of Rs. 53,88,946/- (inclusive of gross profit), while the remaining amount of Rs. 1,48,74,451/- had been reflected in the closing stock — and that both the VAT authorities and the Assessing Officer had accepted the quantitative details and books of account.