No Separate Section 69C Unexplained Expenditure Addition Allowed After Accepting Section 44AD Income Without Supporting Evidence: ITAT:

The ITAT Ahmedabad deleted the Section 69C addition made towards alleged unexplained expenditure in the income of Shantilal Mafaji Kachchhava, holding that the Assessing Officer (AO) failed to provide the assessee with the incriminating evidence supporting the alleged cash purchases. It also noted that the assessee had declared income under the presumptive taxation scheme under Section 44AD, which the Revenue had accepted.

Shantilal Mafaji Kachchhava (assessee) had declared an aggregate income amounting to Rs 4.91 lakh for the Assessment Year 2023-24. The AO selected the case for scrutiny under CASS after receiving information from the Investigation Wing, which reported that M/s. Mangalam Micro Devices had made unaccounted cash sales to various parties. A search and survey operation was conducted on the premises linked to Ram Ratna Group of Vadodara, wherein the officials found incriminating evidence. According to the information received, the entity had allegedly made cash sales of Rs 3.13 lakh to M/s. S. M. Enterprises, a proprietorship concern of the assessee.

Accordingly, during the assessment proceedings, the AO treated the alleged cash purchases as unexplained expenditure under Section 69C of the Income Tax Act and made an addition of the same to the assessee's income. The assessment was completed, declaring the total income at Rs 8.05 lakh. The assessee thereafter filed an appeal before the Commissioner of Income Tax (Appeals), which, after analysing the facts of the case, sustained the impugned addition. Subsequent to this, the assessee approached the Income Tax Appellate Tribunal (ITAT), Ahmedabad.

Before the Tribunal, the assessee denied having any transaction with M/s. Mangalam Micro Devices and argued that the AO had not provided any supporting documents, evidence or statements relating to the alleged transaction. The assessee also contended that since the income declared under Section 44AD had been accepted, the separate addition was unjustified.

After considering the submissions, the Tribunal observed that "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."

Accordingly, the ITAT deleted the addition of Rs 3.13 lakh and allowed the assessee’s appeal.