Third-Party ERP Entries Alone Cannot Justify Section 69 Addition: ITAT Deletes Jewellery Purchase Addition

Jiten Basantilal Jain Vs ITO (ITAT Ahmedabad)

Third-Party ERP Entries Alone Cannot Justify Section 69 Addition: ITAT Deletes Jewellery Purchase Addition

The Ahmedabad ITAT deleted addition of ₹16.05 lakh made under Section 69 against a jewellery trader, holding that uncorroborated entries found in third-party ERP software during search on another group cannot, by themselves, establish unexplained investments or purchases.

The assessee, proprietor of M/s Mahalaxmi Jewellers, had filed return under presumptive taxation scheme of Section 44AD. During search proceedings on the Tirth Gold group, certain alleged unaccounted transactions were found recorded in AUG-ERP software maintained by the searched entities. Based solely on such third-party digital data and statements recorded during search, the Assessing Officer alleged that the assessee had made unaccounted purchases from Tirth Gold and its sister concerns and accordingly made addition under Section 69 read with Section 115BBE.

Before the Tribunal, the assessee consistently denied having any transactions with Tirth Gold and produced declaration from Tirth Gold itself confirming absence of any sales to the assessee during the relevant year. GST registration details, ledger accounts and bank statements were also furnished. The assessee further argued that being covered under Section 44AD, maintenance of detailed books under Section 44AA was not mandatory.

The ITAT observed that the Revenue failed to bring any corroborative evidence such as invoices, payment proofs, independent enquiry results or bank trail linking the assessee with the alleged transactions. The Tribunal also noted that statements relied upon by the AO did not specifically implicate the assessee and effective cross-examination opportunity was not provided.

Holding that the authorities had mechanically relied upon third-party software data while overlooking documentary evidence produced by the assessee, the Tribunal concluded that suspicion and borrowed information alone cannot sustain addition under Section 69. Accordingly, the entire addition was deleted.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This is an appeal filed against the order dated 12-11-2025 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2023-24.

2. The grounds of appeal are as under:-

“1. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in failing to appreciate that the assessment order passed u/s 143(3) r.w.s. 144B is bad in law, arbitrary, and based on mechanical reliance on third-party data without independent application of mind.

2. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in confirming the addition of Rs. 16,05,350/- as unexplained investment u/s 69 r.w.s. 115BBE of the Act, despite the appellant’s categorical denial any of transaction with M/s Tirth Gold and submission of declaration from the said party confirming no transaction.

3. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in relying solely on third-party digital data (AUG-ERP software) seized during search on M/s Tirth Gold, without any corroborative evidence such as invoices, payment proofs, or independent enquiry linking the appellant the alleged transactions. to

4. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in disregarding the applicability of presumptive taxation u/s 44AD, under which the appellant had filed return of income, and wrongly invoked section 44AA to allege failure to maintain books of accounts.

5. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in treating alleged entries in third- party software as conclusive evidence against the appellant, despite the fact that mere suspicion, presumption, uncorroborated or third-party information cannot form the basis of addition.

6. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in sustaining the addition without granting effective opportunity of cross-examination of the persons whose statements were relied upon, thereby violating principles of natural justice.

7. On the facts and circumstances of of the case as well as law on the subject, the Ld. CIT(A) has erred in sustaining the addition Rs. 16,05,350/- solely on the basis of alleged third-party data from M/s Tirth Gold, even though no search or seizure u/s 132 was conducted in the appellant’s case and no incriminating material was found from the appellant’s premises.

8. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in failing to consider and appreciate the detailed submissions and corroborative evidence furnished by the assessee in support of the claim made.

9. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in invoking provisions of section 115BBE of the Act.

10. On the facts and circumstances of the case as well as law on the subject, the Ld. CIT(A) has erred in sustaining the initiation of penalty proceedings u/s 271AAC(c) of the Act.

11. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.

Total tax effect Rs. 12,59,757/-”

3. The assessee is an individual engaged in the business of gold and jewelery and provided services like repairs and jewellary under the proprietorship concern M/s. Mahalaxmi jewelers. The assessee filed return of income u/s. 139(4) of the Act for the assessment year 2023-24 on 25-11-2023 declaring total income of Rs. 4,15,060/- based on the information gathered during the search and seizure operations launched on 13-09-2023 in the case of Tirth Gold at Surat and Rajkot. The assessee’s case was selected for compulsory scrutiny u/s. 143(3) of the Act. The Assessing Officer observed that the assessee has entered into unaccounted purchase transactions with M/s Tirth Gold and its sister concern during the year under consideration. The statutory notices were issued and the assessee filed detailed submissions. The Assessing Officer observed that Mr. Pradip Purshottam Bhuava of Tirth Ornaments Pvt. Ltd. is controlling by way of in a jeweler of bullion firm by the name of Tirth Gold. The Tirth Gold has several sister concerns of the same name at Rajkot, Ahmedabad, Bangalore and Delhi. During the search proceeding Lakhia Vasan Partner has given a statement which was recorded u/s. 132(4) of the Act on 15-09-2023. Taking cognizance of the search as well statement of the directors, the Assessing Officer has held that he said Tirth Gold, Surat, Tirth Gold, Rajkot, Tirth Gold Delhi and Tirth Gold Ahmedabad and Tirth Gold Bangalore maintaining its books of account containing both accounted as well as its unaccounted transactions in the specified software which do not correspond to the transactions reported in their respective ITR 5 and GST return. After taking cognizance of the assessee’s details, the Assessing Officer held that though the assessee has filed copy of declaration of non-selling with Tirth Gold, it is found to be non-maintainable in the light of the information gathered including the statements of Shri Pradip P. Bhuva and Shri Anup Kirtibhai Joshi. Thus, the Assessing Officer made addition of Rs. 16,05,350/- in respect of unaccounted purchases transactions with Tirth Gold and its sister concern as unaccounted investment u/s. 69 of the Act.

4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.

5. The ld. A.R. submitted that the assessment does not arise from any search or seizure under Section 132. No incriminating material was found from the appellant’s premises. The entire addition of 16,05,350/- is based solely on alleged data from M/s Tirth Gold. The assessee has declared income under Section 44AD as turnover is below 1 crore. Under this scheme, the assessee is not required to maintain books of account. The AO in his order produce on page no 4 with para 4 as under-

“In this regard, the assessee ‘s attention drawn towards the section 44AA of the IT Act under the provisions of which, assessee is required to maintain books of accounts. However, the assessee has failed to do so.”

The ld. A.R. submitted that the assessee is declaring income under Section 44AD at the prescribed rate or higher. In this case, the benefit of the presumptive scheme is available, which exempts them from the requirement to maintain detailed books of accounts under Section 44AA, regardless of whether their total income exceeds the basic exemption limit. The ld. A.R. submitted that the A.O. is totally producing order in mechanical manner without applying the facts and mind. Thus, invocation of Section 69 is legally untenable. The ld. A.R. further submitted that the alleged entries in the Software , maintained by third party of Tirth Gold and not by the assessee, do not amount to proof of actual transactions in the absence of corroborative evidence such as bills or invoices. The AO relied primarily on the statement of, a third party, and the ledger entries to make the additions. On plain reading of the statement of oath of various person it was observed that all statements did not specifically identify the transactions as relating to the assessee, and no specific questions were asked to them on this aspect. Importantly, the assessee was not confronted with this statement. The AO by recording order made a story telling unit to lengthen the order by making story of some 4 to 5 entities to whom assessee is not concerned. The table of Purchase and Sales data depicts is reflection of mechanical process of AUG-ERP software and your assessee had no relation with the process and also unaware of the Act. On page No 15 of the said order A.O. on comments of the Unaccounted Purchase and Unaccounted Sales repeat and cut paste the commentary without specifically mentioning parties detail, without detail investigation and makes his mind with borrowed information. Moreover, the AO has specifically not mention in the order that from which sister concern assessee was indulge that show total negligence of corroborative evidence hence order is bad in law. No direct evidence linking appellant with alleged transactions: The alleged purchases of 16,05,350/- are based on unverified third-party software data without invoices, payment proofs, or confirmations. The addition is based on assumptions and conjecture. Although the AO claims opportunity was given via VC on 11.03.2025, the appellant was not effectively able to cross-examine the key person. This violates principles of natural justice as held in Andaman Timber Industries v. CCE (2015) taxmann.com (SC). The assessee filed a written declaration from M/s Tirth Gold confirming no transactions, which was disregarded by the AO without justification. The AO misconstrued the appellant’s statement offering to consider sales under presumptive taxation as an admission. The assessment was completed without due application of mind. A consistent judicial principle is that additions to income cannot be made solely on the basis of suspicion, presumption, or uncorroborated third-party information/entries. The Assessing Officer must conduct independent inquiries to link the seized material to actual undisclosed income of the assessee and bring concrete material on record. Further, additions were based on surmises and conjectures without legally admissible evidence. The A.O. had confirmed the additions based solely on the assumption and presumption and findings without independent corroboration. Thus, the impugned additions under sections 69 lacked a sound legal basis. The ld. A.R. relied upon the following decisions:-

i) CIT v. P.K. Noorjehan (Supreme Court)

ii) Allahabad High Court in ITO v. Daya Chand Jain Vaidya:

iii) Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC)

iv) Mahendra Lalka vs. DCIT (ITAT Lucknow):

v) Anoop Kumar Soni vs. DCIT (ITAT Delhi):

vi) Surender Kumar Jain vs. DCIT (ITAT Delhi):

vii) Rucha Consultancy LLP vs. DCIT (ITAT Mumbai):

viii) CIT v. Odeon Builders (P) Ltd (Supreme Court):

6. The ld. D.R. relied upon the assessment order and the order of the CIT(A).

7. Heard both the parties and perused all the relevant material available on record. At page 91 of the paper book, the assessee has given the details that the assessee Tirth Gold has not made any sales to Mahalaxmi Jewelers for the assessment year 2023-24. This is a declaratory certificate Tirth Gold properly. From the GST registration certificate as well as bank statement, it cannot be made out by the Revenue that the assessee had made any purchase as per the said Tirth Gold. The assessee has given all the details of GST Registration Certificate ledger accounts, bank statement as well as the declaration of the said party Tirth Gold. These details were totally overlooked and the Assessing Officer solely relied upon the statement which also does not specifically point out that the assessee was involved into undisclosed purchases/investment. Therefore, the addition made by the Assessing Officer and confirmed by the CIT(A) does not sustain.

8. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 15-05-2026