Prakash Palgota Vs DCIT (ITAT Bangalore)
Summary: The assessee, proprietor of Icon Fashion and engaged in the wholesale trade of readymade garments, challenged the assessment for AY 2022–23 in which the Assessing Officer made an addition of ₹89,00,638 under section 69C based on search material found in the case of supplier J. M. Jain LLP, where entries under the name “Kalyan Creations, Hubli” carried the assessee’s PAN and were treated as unaccounted purchases. The assessee contended that its purchases were recorded in its books and that there was no independent evidence establishing delivery of goods, payment of money or the alleged transactions, while the Department relied on SAP data and statements of persons connected with the supplier. The Tribunal noted that the material relied upon against the assessee principally consisted of the PAN mentioned against “Kalyan Creations, Hubli”, and that the assessee had not been given an opportunity to cross-examine the partners of J. M. Jain LLP or confronted with corroborative material establishing the alleged unaccounted sales. Following the coordinate Bench decision in Mr. Vikas Kumar, ITA No. 212/Visakhapatnam/2025 for AY 2022–23, dated 25 July 2025, the Tribunal held the ₹89,00,638 addition unsustainable and directed its deletion; the proposed application of section 115BBE consequently could not survive. The Tribunal also considered the ₹1,43,066 disallowance under section 40(a)(ia) relating to interest payments of ₹4,76,888 and found that the assessee had obtained Form 15G from the concerned recipients; accordingly, the disallowance for alleged non-deduction under section 194A was deleted. Grounds 1 to 4 and 12 were dismissed as general or premature, grounds 6 to 11 were allowed, ground 5 was allowed, and the assessee’s appeal was partly allowed.
Third-Party Data and PAN Mention Alone Cannot Prove Unaccounted Purchases: Bangalore ITAT Deletes ₹89 Lakh Addition
The assessee, proprietor of Icon Fashion, was engaged in the wholesale trade of readymade garments. Following a search on its supplier, J.M. Jain LLP, the Department found SAP data allegedly recording both accounted cheque sales and unaccounted cash sales. The supplier was stated to have used disguised customer names for cash transactions. Although the entries relating to the assessee appeared under the name “Kalyan Creations, Hubli,” they contained the assessee’s PAN. On this basis, the AO treated ₹89 lakh as unexplained purchases and made an addition under Section 69C, which the CIT(A) confirmed.
The Bangalore ITAT observed that the only direct link between the assessee and the disputed entries was the mention of its PAN against the name of another concern. The assessee was not granted an opportunity to cross-examine the partners or other persons of J.M. Jain LLP whose statements were relied upon. There was also no corroborative evidence establishing the delivery or despatch of goods to the assessee, payment of money by the assessee, or recording of the disputed transactions in the assessee’s books.
The Tribunal held that the addition rested merely upon third-party records, untested statements and conjecture. The CIT(A) had also failed to provide independent reasons and had merely endorsed the AO’s conclusions. Following the coordinate Bench decision in Vikas Kumar v. ITO involving identical search material and the same supplier, the ITAT deleted the ₹89 lakh addition under Section 69C. Consequently, the proposed taxation under Section 115BBE also could not survive.
The AO had additionally disallowed ₹1.43 lakh under Section 40(a)(ia), being 30% of interest payments of ₹4.77 lakh, for alleged failure to deduct tax under Section 194A. The Tribunal found that the assessee had obtained valid Forms 15G from the recipients and was therefore not required to deduct tax at source. The corresponding disallowance was also deleted, and the assessee’s appeal was partly allowed.
List of Cases Discussed / Relied Upon
- Mr. Vikas Kumar, ITA No. 212/Visakhapatnam/2025, AY 2022–23, dated 25 July 2025 — coordinate Bench decision relied upon by the assessee and followed by the Tribunal on identical facts concerning transactions with J. M. Jain LLP.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. Shri Prakash Palgota (the assessee/appellant) has filed this appeal against the appellate order dated 25 September 2025 passed by the National Faceless Appeal Centre (NFAC), Delhi [the learned CIT(A)], for assessment year 2022–23. By that order, the learned CIT(A) dismissed the assessee’s appeal against the assessment Income Tax Officer, Karnataka-W-011- 1, Hubli [the learned Assessing Officer].
2. The assessee is aggrieved and has raised the following grounds of appeal:
1. The learned Commissioner of Income- tax (Appeals), NFAC, Delhi has erred in confirming the assessment order passed by the learned AO u/s 143(3) read with section 144B of the Income Tax Act, 1961. The orders passed are bad in law and such orders are liable to be quashed.
2. The learned CIT(A) has erred in confirming the order of the learned AO concluding the Assessment Proceedings and passing an order u/s 143(3) r.w.s 144B of the Act, 1961 in the absence of incremating material. The order passed is bad in law and is liable to be quashed.
3. The learned CIT(A) has erred in confirming the order of the learned AO which is passed without considering all the submissions and/or without properly appreciating the facts and circumstances of the case and the law applicable.
4. The learned CIT(A) has erred in confirming the order of the learned AO who has relied on certain fictitious presumptions and made statements which are inconsistent, ambiguous, and incorrect. The Assessment order suffers from certain inherent defects which makes the order bad in law and li able to be quashed.
5. The learned Assessing Officer and the learned CIT(A) have erred in law and on facts in disallowing Rs. 1,43,006/- under section 40(a)(ia) on the allegation of non – deduction of tax at source under section 194A on interest payments of Rs. 4,76,888/-, without appreciating that the Appellant had duly obtained and furnished valid Form /15H declarations from all the interest recipients.
6. The learned CITIA) has erred in upholding the addition of Rs. 89,00,638/- made solely on the basis of books of account and statements of an unrelated third party, without any independent enquiry or corroborative evidence linking the alleged income to the Appellant. Reliance on unilateral third- party records, without verification or supporting material, is impermissible in law and renders the addition unsustainable.
7. The learned CIT(A) has further erred in sustaining the addition despite the learned AO’s failure to furnish the primary material drawn, thereby violating the principles of natural justice and rendering the assessment void ab initio. The sustenance of an addition made without providing the Appellant an opportunity to confront or rebut the material relied upon is arbitrary, perverse, and liable to be deleted.
8. The learned CIT(A) has erred in upholding the finding of the learned AO that purchases from M/ s. JM Jain LLP were “suppressed purchases”, without appreciating that the Appellant had duly recorded these purchases in its regularly maintained books of account and supported them with proper documentation. The sustenance of such an addition ignores the factual record and is contrary to settled principles of accounting and income recognition.
9. The learned CIT(A) has further erred in confirming the addition of the entire value of the alleged suppressed purchases as income, instead of restricting the addition, if any, to the gross profit element, as consistently held by judicial authorities. Treating the full purchase value as income results in multiple taxation of the same amount, is excessive and unsustainable in law, and violates the principles of natural justice.
10. The learned CIT(A) has erred in upholding the addition made under section 69C, ignoring the fact that there is no unexplained expenditure in the Appellant’s case, as all expenditures have been duly recorded in the regularly maintained books of account. The invocation of section 69C is therefore unjustified, contrary to law, and liable to be quashed.
11. The learned CIT(A) has further erred in affirming the proposed levy of tax under section 115BBE, without appreciating that such levy presupposes a valid addition under sections 68 to 69D. In the absence of any unexplained expenditure or valid basis for addition under section 69C, the application of section 115BBE is wholly misconceived and unsustainable. The Appellant denies its liability to the said tax demand.
12. The Appellant denies the liability to pay interest u/s 234B, 234C and 234D of the Act. The interest having been levied erroneously is to be deleted.
3. Briefly stated, the assessee is an individual proprietor of Icon Fashion, having registered business at Hubli and engaged in the wholesale trade of readymade garments. He filed his return of income on 8 October 2022 declaring total income of ₹26,19,740. conducted on 28 May 2022 in the case of one of the assessee’s suppliers, namely J. M. Jain LLP, formerly J. M. Jain Proprietorship. The assessee issued a notice and a further show- cause notice on 6 March 2024, along with statements of the concerned persons, who stated that the supplier had indulged in under- billing of sales invoices. An extract of the relevant information was provided to the assessee. The information was found on the SAP server used for recording transactions between vendors and customers, showing both cheque and cash components. The cheque component was found recorded in the books of the vendor and the customer, whereas the cash component was not recorded in the books of J. M. Jain LLP. The relevant details showed the name of the customer/vendor and referred to Icon Fashion for financial year 2021– 22, though J. M. Jain LLP had camouflaged the name as Kalyan Creation, Hubli. However, the Permanent Account Number was correctly stated. On this basis, it was found that ₹89,00,638 represented unaccounted sales by J. M. Jain LLP to the assessee. The learned Assessing Officer therefore asked the assessee to explain why the said amount, representing alleged unaccounted purchases, should not be added under section 69C of the Act.
4. Before the learned Assessing Officer, the assessee contended that the alleged unaccounted transaction of ₹89,00,638 could not be inferred merely from entries in the books of a third party or from statements made by such third party. It was further concluded that the relevant records did not mention the assessee’s name, but referred instead to Kalyan Creation, Hubli, with which the assessee claimed no connection. The assessee also argued that it was merely because its Permanent Account Number appeared in the records of J. M. Jain LLP, it could not be presumed that the amount represented the assessee’s unaccounted purchases. The assessee maintained that all purchases made from that concern were duly recorded in its books and that no cash purchases, as alleged by the said concern, had been made. Accordingly, the assessee submitted that no addition was warranted in its hands. The learned Assessing Officer rejected the explanation and added ₹89,00,638 under section 69C of the Act.
5. The second issue in the assessment proceedings concerned those parties had furnished Form 15G declarations to the assessee, the learned Assessing Officer held that the assessee had failed to deduct tax at source. Accordingly, he disallowed 30% of the interest expenditure, amounting to ₹1,43,066, under section 40(a)(ia) of the Act.
6. The learned Assessing Officer thereafter passed the assessment order dated 17 March 2024 under section 143(3) read with section 144B of the Income Tax Act, determining the assessee’s total income at ₹1,16,63,444.
7. The assessee preferred an appeal before the learned CIT(A), without success. The learned CIT(A) held that the Assessing Officer had not relied merely on isolated statements, but on structured investigation data, corroborative sales figures, ledgers, and admitted statements of managerial personnel of the supplier. As the assessee could not produce any contrary material, the addition of ₹89,00,638 was sustained. The disallowance of interest for non-deduction of tax at source was also confirmed.
8. Aggrieved, the assessee is in appeal before us. The learned authorized representative, Ms. Suman Lunkar, Chartered Accountant, filed a paper book comprising 302 pages and a case – law compilation containing seven judicial precedents. She also relied on the decision of the coordinate Bench in ITA No. 212/Visakhapatnam/2025 for assessment year 2022– 23, dated 25 July 2025, wherein, on identical facts, the addition arising from transactions with the same party was deleted. She therefore submitted that the issue is squarely covered in favour of the assessee.
9. With reference to ground No. 5, she submitted that the assessee had obtained and furnished valid Form 15G/15H declarations from all interest recipients. Therefore, the assessee could not be treated as an assessee in default, and the disallowance of ₹1,43,066, being 30% of the total interest payment of ₹4,76,888, under section 40(a)(ia) for alleged non- deduction of tax at source under section 194A, was unsustainable in law.
10. The learned Departmental Representative, Shri Pradeep S., Additional Commissioner of Income Tax, strongly supported the orders of the lower authorities. He submitted that, during the search was found showing both accounted and unaccounted sales by that supplier to the assessee. On the basis of that data, corroborated by the statements of the supplier, the Department made the addition. He further submitted that, when the accounted purchases reflected in the same software were found recorded in the assessee’s books, it naturally followed that the unaccounted purchases shown in the same ledger and manner were also correct. Accordingly, he contended that there was no infirmity in the addition sustained by the lower authorities.
11. Regarding the interest disallowance, the learned Departmental Representative submitted that the assessee was statutorily required to deduct tax at source on the interest payments, and admittedly no such tax had been deducted. He therefore argued that there was no infirmity in the disallowance made by the learned Assessing Officer and confirmed by the learned CIT(A). Accordingly, he submitted that the assessee’s appeal had no merit.
12. We have carefully considered the rival contentions, perused the orders of the lower authorities, and examined the judicial precedents relied upon by the learned authorized representative.
13. Ground Nos. 1, 2, 3, 4 and 12 are either general in nature or premature and are therefore dismissed.
14. Ground No. 5 concerns the disallowance of interest expenditure of ₹4,76,888 for non- deduction of tax at source, resulting in a disallowance of ₹1,43,066. Having considered the arguments and facts placed before us, we find that the assessee obtained Form No. 15G under the Income Tax Act from the recipients concerned was therefore not required to deduct tax at source on these interest payments. Accordingly, the disallowance made by the learned Assessing Officer and confirmed by the learned CIT(A) under section 194A of the Act is without merit and is deleted. Ground No. 5 of the appeal is allowed.
15. Ground Nos. 6 to 11 relates to the addition of ₹89,00,638 made on the basis of the search conducted by the Income Tax Department in the case of J. M. Jain LLP. The material found during the search indicated that J. M. Jain LLP, a leading garment entity based in regular books of account. It was also found that the entity maintained separate records through an SAP server, showing both cheque and cash components of sales made to customers. The cheque sales were recorded in the regular books, whereas the cash sales were kept outside the books. Shri G. Jain, director of the entity, confirmed this modus operandi and stated that the group routinely generated out-of-book sales. Further investigation revealed that fictitious or masked names were used to conceal the real identity of customers purchasing goods in cash. In the assessee’s case, although the concern was Icon Fashion, the name “Kalyan Creations, Hubli” was used to record the alleged unaccounted sales, while the assessee’s Permanent Account Number was mentioned against that name. On decoding the records, the Department concluded that the sales recorded against “Kalyan Creations, Hubli” were in fact made to Icon Fashion, the proprietary concern of the assessee. The total of such sales was determined at ₹89,00,638. Based on the search material and the statements of the people connected with J. M. Jain LLP, the addition was made in the hands of the assessee.
16. On identical facts, the coordinate Bench in the case of Mr. Vikas Kumar, ITA No. 212/Visakhapatnam/2025 for assessment year 2022– 23, by order dated 25 July 2025, upheld the order of the learned CIT(A). The Bench noted that the Assessing Officer had neither acceded to the assessee’s request for proper copies of the seized material on which adverse inferences were drawn nor allowed cross- examination of the directors of the J. M. Jain group despite a specific request. On that basis, it held that the learned CIT(A) had rightly deleted the addition. Relying on this decision, the learned authorized representative submitted that the present issue is squarely covered in favour of the assessee on identical facts and circumstances.
17. In the present case also, the Income Tax Department found that the books of J. M. Jain LLP referred to an entity named Kalyan Creations, against which the assessee’s Permanent Account Number was recorded. On this basis alone, the Department traced the transaction to the assessee and made the addition. Though J. M. Jain LLP may have stated that these entries represented material relied upon against the assessee is the mention of his Permanent Account Number against Kalyan Creations. We do not find sufficient evidence against the assessee in the absence of an opportunity to cross- examine the partners of J. M. Jain LLP, any corroborative reference to its books establishing that the alleged unaccounted sales were made to the assessee, or any material showing how the goods were delivered or dispatched by J. M. Jain LLP to the assessee or how money is paid by the assessee to the supplier. In the absence of these facts being available and confronted to the assessee, the addition appears to rest merely on conjecture.
18. The learned CIT(A) also did not provide independent reasons for confirming the addition and merely upheld the action of the learned Assessing Officer on the same grounds.
19. Accordingly, respectfully following the decision of the coordinate Bench on identical issues and for the reasons stated above, we hold that the addition of ₹89,00,638 is unsustainable. The learned Assessing Officer is therefore directed to delete the same. Ground Nos. 6 to 11 are allowed.
20. In the result, appeal filed by the Assessee is partly allowed.
Order pronounced in the open court on 24th August, 2026.
