Shantilal Mafaji Kachchhava Vs ITO (ITAT Ahmedabad)
Section 69C Addition Deleted Where Presumptive Income Accepted and Adverse Evidence Not Supplied
Alleged Cash Purchase Could Not Be Sustained Without Confronting Evidence
The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has deleted an addition of ₹3,13,928 under Section 69C concerning an alleged unaccounted cash purchase. The Tribunal found that the Assessing Officer had neither supplied the incriminating evidence to the assessee nor reproduced it in the assessment order.
The Tribunal also considered that the assessee had declared income under the presumptive taxation scheme of Section 44AD, which the Revenue had accepted.
It held that, when the assessee categorically denied the transaction, the Assessing Officer was required to confront him with the material relied upon. The addition could not stand on the assessment record before it.
Case Details
The decision was delivered in Shantilal Mafaji Kachchhava v. ITO, Ward-1, Palanpur, ITA No. 2256/AHD/2026.
The cause title and factual discussion identify the relevant year as Assessment Year 2023-24. The order was pronounced on 16 October 2026 by Accountant Member Narendra Prasad Sinha and Judicial Member Sanjay Kumar.
The assessee challenged the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 15 April 2026, which had sustained the disputed addition.
Search Findings Form Basis of Allegation
The assessee filed his return on 5 October 2023, declaring total income of ₹4,91,150. His case was selected for complete scrutiny under CASS.
The Assessing Officer received information from the Investigation Wing concerning a search and survey conducted at the premises of the Ram Ratna Group, Vadodara.
During those proceedings, certain evidence concerning M/s. Mangalam Micro Devices was seized. According to the information received, that concern generated cash through unaccounted cash sales to various parties.
The information attributed cash sales of ₹3,13,928 to M/s. S. M. Enterprises, the assessee’s proprietorship concern.
The Assessing Officer consequently sought an explanation concerning the alleged transactions.
Assessee Denies Transactions with Supplier
During assessment, the assessee denied having any transaction with M/s. Mangalam Micro Devices.
Despite that denial, the Assessing Officer relied on the information concerning the seized evidence and treated the alleged cash purchase as unexplained expenditure under Section 69C.
The assessment was completed under Section 143(3) on 23 February 2025, determining total income of ₹8,05,078 after making the addition.
The assessee appealed before the CIT(A), but the first appellate authority dismissed the appeal. He then approached the Tribunal, challenging the factual foundation of the addition and its compatibility with the accepted presumptive income computation.
Section 44AD and Non-Disclosure of Evidence Raised
Before the Tribunal, the assessee submitted that he had disclosed business income on a presumptive basis under Section 44AD.
He argued that the Department had accepted that income and had neither disputed nor rejected the corresponding gross receipts. A separate addition for the alleged expenditure was therefore challenged.
The assessee also maintained that the evidence allegedly linking him to Mangalam Micro Devices had never been supplied or confronted to him.
According to his authorised representative, the addition rested on presumption rather than material made available for an effective response.
The Departmental Representative strongly supported the findings of the lower authorities.
Duty to Confront Evidence Follows Categorical Denial
The Tribunal noted that the assessee had outrightly denied the alleged unaccounted cash transaction.
It also recorded his contention that no document, statement or other material supporting the allegation had been provided.
The Assessing Officer’s position was that the assessee had not requested the evidence. The Tribunal rejected that approach, holding that the categorical denial made it incumbent upon the Assessing Officer to confront the assessee with the incriminating material.
The opportunity to answer the allegation could not be treated as dependent solely on a specific request for documents.
Assessment Order Did Not Set Out Supporting Material
The Tribunal found further deficiencies in the assessment order.
No incriminating evidence concerning the alleged purchase had been reproduced. Even the date of the alleged cash sale was absent.
Thus, the order did not set out the material necessary to substantiate the disputed expenditure.
The Tribunal also noted that the Revenue had not disputed the assessee’s declaration of income under Section 44AD. It relied on the acceptance of that presumptive computation, together with the absence of demonstrated evidence of unexplained expenditure, in granting relief.
Final Decision
The Tribunal deleted the ₹3,13,928 addition under Section 69C and allowed the assessee’s appeal.
The decision rests on the combined circumstances of accepted presumptive income, categorical denial of the transaction and failure to disclose or reproduce the adverse evidence. The relief was granted outright; the Tribunal did not restore the matter for further verification.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 15.04.2026 for the Assessment Year (A.Y.) 2022-23 in the proceeding u/s 143(3) of the Income Tax Act [hereinafter referred as “the Act”].
2. The brief facts of the case are that the assessee has filed his return of income for A.Y. 2023-24 on 05.10.2023 declaring total income of Rs.4,91,150/-. The case was selected for complete scrutiny under CASS. The AO had received an information from the Investigation Wing that in the course of search and survey action conducted at the premises of one Ram Ratna Group of Vadodara, certain incriminating evidences in respect of M/s. Mangalam Micro Devices were seized. It transpired that M/s. Mangalam Micro Devices was involved in generation of cash through unaccounted cash sales. As per information available M/s. Mangalam Micro Devices had made unaccounted cash sales to different parties and during the year cash sales of Rs. 3,13,928/- was made to M/s. S. M. Enterprises, the proprietorship concern of the assessee. In the course of assessment, the AO had inquired about the transaction of the assessee with M/s. Mangalam Micro Devices, which was denied by the assessee. The AO, however, on the basis of evidence seized from M/s. Mangalam Micro Devices had treated the cash purchase of Rs.3,13,928/- as unexplained expenditure of the assessee and accordingly made the addition. The assessment was completed u/s. 143(3) of the Act on 23.02.2025 at total income of Rs. 8,05,078/-.
3. Aggrieved with the order of the AO, the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.
4. Now, the assessee is in second appeal before us. The following grounds have been taken in this appeal:
1. The learned CIT(A) erred both in law and on facts in confirming the addition of Rs. 3,13,928/-made by the Ld. AO under section 69C of the Act, despite the Appellant having filed the return of income under section 44AD of the Act. The income declared under the presumptive taxation scheme has been duly accepted by the Department and the corresponding gross receipts have neither been disputed nor rejected. In the absence of any rejection of receipts, no separate addition towards alleged unexplained expenditure could have been sustained. The impugned addition under section 69C being unwarranted deserves to be deleted.
2. The Appellant reserves the right to add, alter, amend, or modify any of the grounds of appeal during the course of the appellate proceedings.
5. Shri Sunil Maloo, the Ld. AR of the assessee explained that the assessee had filed its return of income u/s. 44AD of the Act and has disclosed income on presumptive basis. Considering this fact, no addition u/s. 69C of the Act could have been made in respect of any unexplained expenditure. The Ld. AR further submitted that the assessee had denied having any transaction with M/s. Mangalam Micro Devices and the evidences available with the AO was never confronted to the assessee. According to the Ld. AR, the AO had made the addition on mere presumption.
6. Per contra, Shri Tapan Kumar Chattergee, the Ld. Sr. DR strongly supported the order of the lower authorities.
7. We have considered the rival submissions. It is evident from the assessment order that the assessee had denied having any unaccounted cash transaction with M/s. Mangalam Micro Devices. The assessee had also contended that no document, material evidence or statement in respect of the alleged transaction was provided to him. According to the AO, the assessee did not request for such evidences. When the assessee had out rightly denied the transaction, it was incumbent upon the AO to confront the assessee with the incriminating evidences available with him. In the present case, the AO has neither confronted the assessee with any incriminating evidences available with him nor any such evidence has been reproduced in the assessment order. Even the date of cash sale is not appearing in the order. Further, the fact that the assessee had disclosed his income under the presumptive scheme u/s. 44AD of the Act, has also not been disputed by the Revenue. When the income disclosed on the basis of presumptive scheme u/s. 44AD of the Act was accepted by the Revenue, no addition in respect of any expenditure could have been made by the AO. As already mentioned earlier, no evidence in respect of any unexplained expenditure is appearing in the assessment order. Therefore, the addition of Rs.3,13,928/- as made by the AO on account of unexplained expenditure is deleted.
8. In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 16/10/2026 at Ahmedabad.
