Harmil Hiteshkumar Jhaveri Vs ITO (ITAT Ahmedabad)
Section 69A Addition Based on Third-Party Records Requires Verified Nexus: ITAT Orders Fresh Examination
The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) restored a disputed addition of ₹36,73,978 under Section 69A of the Income-tax Act, 1961 to the Assessing Officer for fresh examination. The addition concerned alleged transactions with Tirth Gold recorded in material seized from that third party. The Tribunal held that the identity, nature and connection of the seized entries with the assessee required proper verification, along with an effective opportunity to examine and rebut the evidence.
The assessee had filed his return on 31 July 2023, declaring total income of ₹6,12,490. His case was selected for scrutiny under CASS. The Assessing Officer made an addition of ₹36,73,978 as unexplained money under Section 69A, relying on records seized from Tirth Gold.
The assessee challenged the addition, contending that he was not engaged in the jewellery or bullion business and had undertaken no transactions with Tirth Gold. He maintained that no corresponding money had been received or recorded in his books or bank accounts. According to him, the addition rested on rough notings and digital records found with a third party, without independent corroboration.
CIT(A) sustained addition for lack of rebuttal evidence
The CIT(A) confirmed the addition after considering the assessment record, the assessee’s submissions and the remand report. It observed that the seized entries and digital records reflected unaccounted sales attributable to the assessee.
The CIT(A) held that the assessee had not produced credible documentary evidence to rebut the seized data. It referred to the absence of supporting invoices, confirmations, stock records, quantitative details or a reconciliation demonstrating that the entries did not relate to him.
It also rejected the request for cross-examination, treating it as a procedural plea unsupported by material showing that the statements relied upon were factually incorrect.
Connection between seized entries and assessee requires verification
The Tribunal identified the principal issue as whether the addition could be sustained without adequately establishing a nexus between the third-party entries and the assessee.
It observed that the assessee’s failure to furnish rebuttal evidence did not remove the need to examine whether the entries specifically pertained to him and whether reliable corroborative evidence supported the alleged transactions.
The Tribunal held that the mere existence of entries in third-party records required careful examination of their identity, nature and connection with the assessee before sustaining an addition under Section 69A.
Opportunity to examine and rebut third-party evidence
The assessee had specifically complained that the material relied upon had not been supplied and that an effective opportunity for cross-examination had been denied.
The Tribunal observed that where statements or third-party material formed a material basis for an adverse finding, the assessee must receive a reasonable opportunity to examine and rebut that evidence in accordance with the principles of natural justice and applicable law.
Matter restored to Assessing Officer
The Tribunal set aside the CIT(A)’s order on the disputed addition and restored the issue to the Assessing Officer for de novo adjudication.
The Assessing Officer was directed to supply the relevant seized material and documents, examine the evidentiary nexus between the entries and the assessee, and verify the nature of the alleged transactions with Tirth Gold. Where a statement was relied upon against the assessee and cross-examination was legally warranted, an appropriate opportunity was to be provided.
Accordingly, the appeal was allowed for statistical purposes. The Tribunal did not finally delete the addition on merits; its sustainability will be determined after the directed fresh examination.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order dated 01.12.2025 passed by the National Faceless Appeal Centre(NFAC), Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2023-24.
2. The Assessee has raised the following grounds of Appeal: –
1. Addition on account of unexplained transaction with Tirth Gold as unexplained money u/s 69A of the Act – Rs.36,73,978/-
1. The learned CIT(A) has grievously erred in confirming the addition of Rs.36,73,978/-made by AO of the NFAC as unexplained money u/s. 69A of the Act being alleged sales made to Tirth Gold and/or consideration paid to the said party for purchase on the basis of observations/findings given in the appellate order and without proper consideration and appreciation of the facts of the case.
2. The learned CIT(A) has grievously erred in law and on facts in confirming the addition of Rs.36,73,978/- However, in view of the facts, explanations and evidences filed during the course of assessment and appellate proceedings, the impugned addition of Rs.36,73,978/- made by the AO and confirmed by the learned CIT(A) is wholly unjustified and bad in law and thus requires to be deleted.
3. The learned CIT(A) has grievously erred in law and on facts in not appreciating the fact that not only the AO failed to evaluate the material/evidences filed by the appellant in support of his case in fair and judicious manner but his observations/finding in the assessment order for making the addition is also not relevant to the facts of the appellant’s case.
4. The learned CIT(A) has erred in law and on facts in not appreciating the fact that the impugned addition is merely on surmises, conjectures and personal presumption which is evident from the fact that AO himself is not sure about the transaction in question i.e. Whether it is a sale or purchase by the appellant while making the addition as unexplained money u/s. 69A of the Act. Hence, the addition in question deserves to be deleted.
5. The learned CIT(A) has erred in law and on facts in failing to consider the fact that the AO has solely relied up on the material/records found/seized from a third party being rough noting/jotting without bringing on record any cogent material/evidences in support of the impugned addition.
6. The learned CIT(A) has grievously erred in law and on facts in failing to consider the fact that AO has violated the principle of natural justice and equity by failing to provide necessary material/evidences, statements of third parties recorded by the department and their cross examination for rebuttal before making the addition.
In view of the above, the addition of Rs.36,73,978/- on account of alleged transaction with Tirth Gold as unexplained money u/s 69A of the Act requires to be deleted.
3. The case of the assessee emanates from scrutiny proceedings initiated to selection under CASS. The assessee had furnished his return of income on 31.07.2023, declaring a total income of Rs.6,12,490/-. The assessment was completed by determining the total income at Rs.42,86,469, after making an addition under section 69A on account of unexplained money. the assessee has now preferred the appeal to contest the said addition, asserting that the assessment has proceeded on conjectures drawn solely from third-party materials without any direct evidentiary nexus, and that the principles of natural justice were not adhered to in the course of the proceedings. The Assessing has erred in law and facts in determining the total income of the assessee at Rs.42,86,469/- by making addition of Rs.36,73,978/- being alleged unexplained sales to Tirth Gold u/s.69A of the Act solely on the basis of material/records found and seized from a third party and observations/findings given in the assessment order. In view of facts and submissions filed and available on record, the impugned addition made by the AO deserves to be deleted.
4. Aggrieved by the Assessment Order, the assessee preferred an appeal before the Ld. CIT(A), who dismissed the appeal of the assessee by observing as follows:
“…On careful examination of the assessment record, submissions, and the remand report, it is observed that the appellant has not furnished any credible, verifiable, or contemporaneous documentary evidence to dislodge the findings recorded in the assessment order. The Assessing Officer has relied upon specific entries and digital records seized from Tirth Gold, which clearly reflect unaccounted sales pertaining to the appellant. These entries form part of material gathered during lawful proceedings, and the appellant has not produced any cogent explanation to demonstrate that the said data does not relate to him. The assertion that no such transactions were undertaken is merely a bald denial, unsupported by books of account, supporting bills, stock records, records, or any reconciliatory statement.
It is significant that, despite repeated opportunities during both assessment and appellate proceedings, the appellant has failed to produce any primary evidence, such as audited trading records, confirmations, purchase or sale invoices, quantitative details, or any material that would rebut the seized data. The reliance placed on general statements of non-involvement in jewellery business cannot override the specific seized material, which carries presumptive evidentiary weight under the Act when left uncontroverted by substantive proof. The request for cross-examination was also not backed by any material suggesting that the statements relied upon were factually incorrect; it was thus a mere procedural plea devoid of supporting substance.
Further, the appellant has not demonstrated that the seized entries were erroneously attributed or that they pertain to any other party. The repeated reproductions of general explanations without documentary support cannot be accepted as satisfactory. The absence of any contemporaneous books, stock ledgers, or financial trail to rebut the transactions recorded in the seized data indicates that the appellant has failed to discharge the burden cast upon him under the statute.
In view of these facts, the addition of Rs 36,73,978 under section 69A, representing unexplained money arising from undisclosed sales to Tirth Gold, is found to be fully justified and well within the framework of law, as rightly concluded by the Assessing Officer. The addition is, therefore, confirmed in entirety.
With reference to the ground challenging the initiation of penalty proceedings under section 271AAC(1), it is noted that the mere initiation of penalty is not an appealable order under the scheme of the Act. Such proceedings remain at a preliminary stage and the Assessing Officer is yet to pass any final order imposing or dropping the penalty. The ground raised is, therefore, premature, and no adjudication is required at this stage. The appellant will be at liberty to contest the matter, if necessary, in accordance with law as and when a final penalty order is passed. The ground is dismissed.
5. We have heard the rival contentions and perused the materials available on records. The principal issue for consideration is whether the addition of Rs. 36,73,978/- made under section 69A of the Act on the basis of material seized from a third party can be sustained without adequately establishing the nexus between the seized entries and the assessee. The assessee has contended that he is not engaged in the jewellery or bullion business, that no transactions were undertaken with Tirth Gold, and that no corresponding money was received or recorded in his books of account or bank accounts. It is further contended that the addition is based on rough notings and digital records found in the possession of a third party, without independent corroboration, and that the assessee was not afforded an effective opportunity to cross-examine the persons whose statements were relied upon.
5.1 We find that the Ld. CIT(A) confirmed the addition on the ground that the assessee failed to furnish credible documentary evidence to rebut the seized material. However, considering the nature of the dispute, it is necessary to establish whether the entries relied upon by the AO specifically pertain to the assessee and whether the alleged transactions are supported by reliable and corroborative evidence. The mere existence of entries in the records of a third party, without proper verification of their identity, nature and connection with the assessee, requires careful examination before an addition can be sustained under section 69A of the Act.
5.2 We also note that the assessee has specifically raised the issue of denial of cross-examination and non-supply of the material relied upon by the AO. Where statements or third-party material form a material basis for an adverse finding, the assessee must be afforded a reasonable opportunity to examine and rebut such evidence, in accordance with the principles of natural justice and the applicable law.
5.3 In view of the above facts and circumstances, we are of the considered view that the matter requires fresh examination by the AO. Accordingly, we set aside the impugned order of the Ld. CIT(A) on this issue and restore the matter to the file of the AO for denovo adjudication. The AO is directed to provide the assessee with the relevant seized material and documents relied upon, examine the evidentiary nexus between the entries and the assessee, and verify the nature of the alleged transactions with Tirth Gold. Where any statement is relied upon against the assessee and cross-examination is legally warranted, an appropriate opportunity shall be provided in accordance with law.
6. In the result, the appeal filed by the assessee is allowed for statistical purposes.
The order pronounced in the open Court on 15.10.2026
