HC Deletes Section 69C Additions on Genuine Diamond Purchases Despite Cash Sales

Case Details: Principal Commissioner of Income-tax vs. Kross Diamonds (P.) ltd. [2026] 186 taxmann.com 345 (Delhi)

Judiciary and Counsel Details

Dinesh Mehta & Vinod Kumar, JJ.
Gaurav Gupta, SSC, Shivendra Singh, Yojit Pareek, JSCs & Surya Jindal, Adv. for the Appellant.
Ram Naresh, Deepak Malik, Shivam Malik, M P.Rastogi, Advs. & Ms Kaushik for the Respondent.

Facts of the Case

The assessee was engaged in the business of dealing in diamonds. The assessee imported diamonds from various countries in accordance with the provisions of the Customs Act, 1962 and other relevant laws.

During the assessment proceedings, the Assessing Officer (AO) noted that the assessee had issued 6,358 cash sale bills of less than Rs. 2 lakhs each aggregating to Rs. 97 crores. He treated the corresponding purchase expenditure of Rs. 97 crores as unexplained on the ground that it was funded by cash from these retail sales and disallowed it.

The CIT(A) deleted the additions. The Tribunal also quashed the additions. The matter reached the Delhi High Court.

High Court Held

The High Court held that the AO had accepted that the purchases were genuine. All purchases were made through banking channels after payment of customs duties and were supported by purchase and import documents. Thus, the source of purchases cannot be said to be unexplained. The AO’s stand that the money in bank accounts had come through cash deposited from retail sales is misconceived. If an assessee is allowed or permitted to sell goods in cash, and there is no non-compliance with any statutory provision, the purchase cannot be disallowed. In any event, the assessee had an opening stock of Rs. 114.62 crores and had imported diamonds worth Rs. 97 crores.

Meaning thereby, he sold the diamonds he had obviously purchased for business reasons. The best case, which the AO could frame against the assessee, was that the identity of the sellers was not known or the persons to whom sales were made were not verifiable, but that by itself did not fall foul of any of the statutory provisions. Thus, the AO’s additions on account of cash sales were to be deleted.