Third-Party Software Entries Alone Cannot Justify Section 69 Addition: ITAT:

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) on 15 May deleted an addition of Rs 16.05 lakh made under Section 69 of the Income-tax Act, 1961, holding that uncorroborated third-party digital data and general statements recorded during search proceedings cannot, by themselves, justify an addition in the hands of the assessee. Judicial Member Suchitra Kamble allowed the appeal filed by Jiten Basantilal Jain against the order passed by the National Faceless Appeal Centre (NFAC). The tribunal pointed out that, “These details were totally overlooked and the Assessing Officer solely relied upon the statement which also does not specifically point out that the assessee was involved into undisclosed purchases/investment.”

The assessee, engaged in the business of gold and jewellery through a proprietorship concern M/s Mahalaxmi Jewellers, had filed a return of income under Section 139(4) declaring income under the presumptive taxation scheme of Section 44AD. The case was selected for compulsory scrutiny based on information gathered during search proceedings conducted in the case of Tirth Gold and its group concerns at Surat and Rajkot.

The Assessing Officer alleged that the assessee had entered into unaccounted purchase transactions with Tirth Gold and its sister concerns on the basis of entries found in AUG-ERP software and statements recorded during the search under Section 132(4). Thus, an addition of Rs 16,05,350/- was made under Section 69 as an unexplained investment and taxed under Section 115BBE. The CIT(A) affirmed the addition.

Before the Tribunal, the assessee contended that no search was conducted in his case and no incriminating material was found on his premises. It was argued that the entire addition was based only on third-party software data without invoices, payment proof, bank trail or independent enquiry linking the assessee to the alleged transactions. The assessee also relied on a declaration from Tirth Gold confirming that no sales were made to the assessee during the relevant assessment year.

“From the GST registration certificate as well as bank statement, it cannot be made out by the Revenue that the assessee had made any purchase as per the said Tirth Gold.”

The Tribunal observed that the Revenue had failed to bring any corroborative evidence on record apart from the general statements and third-party data. It noted that the declaration issued by Tirth Gold, the GST registration certificate, ledger accounts and bank statements furnished by the assessee were completely overlooked by the lower authorities.

Holding that the addition was made merely based on assumptions and unverified third-party information, the ITAT deleted the addition made under Section 69 and allowed the appeal of the assessee.

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