Unaccounted Gold Purchase Addition Based Solely On Third-Party Software Entries Without Corroborative Evidence Unsustainable: ITAT [Read Order]

The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) deleted the addition of ₹16.05 lakh made towards alleged unaccounted gold purchases after finding that the Assessing Officer (AO) relied solely on third-party software entries and statements without any corroborative evidence linking the assessee to the alleged transactions.

Jiten Basantilal Jain, the assessee, is engaged in the business of gold and jewellery through proprietorship concern Mahalaxmi Jewelers. The assessee filed return of income for Assessment Year 2023-24 declaring total income of Rs. 4.15 lakh. The case was selected for compulsory scrutiny under Section 143(3) based on information gathered during search and seizure operations conducted in the case of Tirth Gold at Surat and Rajkot on September 13, 2023.

During assessment proceedings, the AO alleged that the assessee had entered into unaccounted purchase transactions with Tirth Gold and its sister concerns. The AO relied on entries found in AUG-ERP software and statements recorded during the search proceedings. The AO treated ₹16.05 lakh as unexplained investment under Section 69 of the Income Tax Act and also invoked Section 115BBE.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition made by the AO. Aggrieved by the appellate order, the assessee approached the ITAT.

The assessee argued that no search or seizure was conducted in his case and no incriminating material was found from his premises. The assessee further argued that the addition was made solely on the basis of third-party digital data seized from Tirth Gold without invoices, payment proofs or independent enquiry. The assessee also argued that income was declared under the presumptive taxation scheme under Section 44AD and, accordingly, maintenance of detailed books of accounts under Section 44AA was not required.

The assessee’s counsel further submitted that the AO relied upon statements of third parties without confronting the assessee with such statements or granting effective opportunity of cross-examination. The assessee also furnished GST registration certificate, ledger accounts, bank statements and a declaration from Tirth Gold confirming that no sales were made to Mahalaxmi Jewelers during the relevant assessment year.

The Revenue counsel supported the assessment order and the order passed by the CIT(A).

The single-member bench comprising Suchitra Kamble (Judicial Member) examined the material available on record and the documentary evidence produced by the assessee. The tribunal observed that the declaration issued by Tirth Gold clearly stated that no sales were made to Mahalaxmi Jewelers during Assessment Year 2023-24.

The tribunal further observed that the Revenue could not establish from GST registration certificate or bank statements that the assessee had actually made purchases from Tirth Gold. The tribunal explained that the AO solely relied upon statements and third-party software entries which did not specifically identify the assessee as being involved in undisclosed purchases or investments.

The tribunal pointed out that the documentary evidence furnished by the assessee was completely overlooked by the lower authorities.

The tribunal held that the addition made under Section 69 and sustained by the CIT(A) could not survive in law and allowed the appeal filed by the assessee.

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