MHAMED NAJEEF,TIRUNELVELI vs. ITO, CC-3(3), CHENNAI

Since the issues involved are common, the appeals for all the assessment years were heard together. Both the parties also argued them together raising similar arguments on the issues. Accordingly for the sake of convenience and brevity, we dispose all the appeals by this consolidated order. We take up the appeal for AY 2021-22 as lead case and the decision taken in this case, will apply mutatis mutandis for other appeals.

Grievance raised by the assessee in all the said appeals relates to the addition made by way of an estimated income derived from unaccounted transactions with M/s.Mohanlal Jewellers Pvt. Ltd. (in short ‘MJPL’).

The brief facts of the case emanating from the records are that the assessee is an individual engaged in retail business of gold jewellery under the name and style of M/s.Sabeena Jewellers. The assessee filed his return of income for A.Y.2021-22 on 02.11.2021 declaring a total income of Rs.4,92,550/-. A search u/s.132 of the Act was conducted on 10.11.2020 in the case of M/s.MJPL and other related persons. During the course of search, certain electronic records including desk-top data and Pen drive containing information from the “J-Pack” accounting software were seized which inter alia contained incriminating material having of bearing on the total income of the assessee. The case of the

The AO observed that statement of certain persons including Shri Rajendra Kothari of MJPL were recorded u/s.132(4) of the Act wherein it was stated that “J-Pack” software inter alia contained details of transactions relating to purchase and sale of gold made outside the regular books of account. On examination of the data retrieved from “J-Pack” software, the AO of the searched person analyzed ledger account in the name of “SAFINA TENKASHI”, which was linked to the assessee. The ledger reflected the transactions of purchase of gold jewellery/ornaments. The AO taking note of the said ledger found the assessee having transaction with MJPL and having regard to the details of the opening and closing balances recorded under the ledger “SAFINA TENKASHI” in the “J-Pack” software of MJPL, AO tabulated the data concerning the assessee which is found at Page No.4 & 5 of the assessment order. The AO, during the course of assessment proceedings, provided copies of the seized ledger named “SAFINA TENKASHI” extracted from “J-Pack” software to the assessee along with the notice u/s.142(1) of the Act dated 22.11.2022 and asked the assessee to provide the reconciliation of the “J-Pack” ledger extract and that of the ledgers maintained in the book of accounts of the assessee- Firm. In response, assessee filed its reply along with ledgers of M/s MJPL in its books, copies of bank statement. On analysis of the assessee’s submission, the AO issued a show cause notice dated 07.03.2023 stating that as to why the gold quantity of 6,690.41 grams for which the assessee had not produced any documentary evidence, should not be considered as unaccounted purchases for the F.Y. 2020-21 and income determined accordingly. The assessee responded to the same on 12.03.2023 by submitting the all the details and ledgers of the transactions made with the MJPL.

Thereafter, the AO verified the transaction recorded in the “J-Pack” ledger pertaining to A.Y.2021-22 made with MJPL recorded in the books of the assessee. The AO is noted to have analyzed the seized material and thereafter

Aggrieved by the order of the AO the assessee preferred an appeal before the ld.CIT(A) by denying the alleged unaccounted transactions with MJPL and questioning reliance on the transactions shown in JPACK software of M/s.MJPL and unilaterally considering the statements given by the searched person, without providing an opportunity to cross examine. However, the Ld.CIT(A) without considering the contention of the assessee, concurred with the action of the AO by passing an order dated 17.11.2025.

Aggrieved by the order of the ld.CIT(A) the assessee is in appeal before us. Assailing the action of the AO as well as Ld.CIT(A), the Ld.AR of the assessee inter alia contended that, the veracity of the entries found in the “J- Pack” software (ledgers with the name of “SAFINA TENKASHI”) were never enquired by the AO independently before concluding the assessment proceedings. The Ld.AR pointed out that impugned additions were solely based on the entries found in the ledger which assessee does not have any control, being found from the premise of third party/MJPL. According to the Ld.AR the ledger software “J-Pack”/ledger with acronym “SAFINA TENKASHI” was admittedly under the control of the employees of MJPL. Hence, whatever entries made therein cannot be used against the assessee to fasten liability over it unless there is corroborative material. According to the Ld.AR the impugned addition was only on speculation.

The Ld.AR taking us through the assessment order showed us that even though assessee contested the entries which were recorded in the ledger of MJPL (“J-Pack” software) the AO did not make any inquiry to summon Shri Rajendra Kothari or Suresh Khatri to establish the allegation that assessee had

The Ld.AR relied on the decisions of this Tribunal rendered in the case of Kasthoori Raja Dhanush vs ACIT (ITA Nos.3188 to 3192/Chny/2024) in support of his contention that mere entry in the ledger bearing the name of “SAFINA TENKASHI” cannot be said to pertain to that of assessee and such entries cannot represent alleged transaction with the assessee. According to Ld.AR, no material whatsoever has been bought on record to establish any such nexus between the said ledger and the assessee. The Ld.AR further alleged that the issue relating to the nature of entries recorded in the “J-Pack” software has been examined by this Tribunal in the case of MJPL wherein, according to him it was held that the mechanism of recording entries in the “J- Pack” software does not by itself, establish the nature, authenticity or taxability of the underlying transactions recorded therein. Hence, even if assessee has recorded certain transaction which tallies with the entries found in J-Pack ledger of MJPL, that cannot be the basis for drawing adverse inference for entries which are not recorded in its book vis a vis that of the entries found in J-Pack ledger of MJPL as unaccounted transactions. Hence according to assessee, the entries maintained by the 3rd party in their application software alone cannot be held to be conclusive proof against the assessee, hence, it would be unsafe to fasten addition in the hands of assessee. Therefore, the Ld AR pleaded for deleting the addition.

The ld.AR also relied on the coordinate bench decision in the case of M/s.Indomal Jewellery v.ITO in ITA No.2948 to 2952/Chny/2025 dated 05.06.2026, wherein the Tribunal in a set of identical facts and issues, deleted the additions by holding as under:

Per contra the Ld.DR fully supported the action of both the Ld.CIT(A) as well as the AO and does not want us to interfere with the impugned action of the Ld.CIT(A).

Heard both parties and perused the material placed before us. We note that, a search action was conducted on 10.11.2020 at the premises of the MJPL, in the course of which, a pen drive was found which contained accounts maintained in “J-Pack” software. The facts available on record shows that MJPL had admitted that the accounts maintained in its software contained both their unaccounted and accounted transactions and also offered additional income across several years with reference to the details and ledgers found therefrom. It is further observed that “J-Pack” software also contained ledgers of the parties with whom MJPL inter alia had unaccounted transactions and one of the

We find that the impugned addition hinges on the entries of ledger extract of “SAFINA TENKASHI” in the books of MJPL maintained in J-Pack software and the statements of Shri Kothari and Suresh Khatri of MJPL. The assessee has denied the unaccounted transactions before the ld.CIT(A) stating that the ledger found in MJPL records as “SAFINA TENKASHI” and asserted that it has purchased only 424.29 gms of gold from MJPL (AY 2021-22), and filed relevant evidence like bills/invoices, books of account and payments made through banking channel. However, the AO didn’t accept the denial of unaccounted purchases because out of the gold issued weighing 7,114.7 gms as per J-Pack ledger, only gold weighing 424.29 gms was accounted in the books of the assessee, hence according to AO, balance gold 6,690.41 gms needs to be treated as unaccounted purchases. Failure of the assessee to reconcile the unmatched entries; and failure to prove that it didn’t carry out unaccounted transaction with MJPL; are noted to be the reasons assigned to reject the assessee’s denial of carrying out any unaccounted transaction with MJPL. We do not agree with the reasoning given by the AO for fastening the liability/addition for the following reasons.

We agree with the Ld.AR that, the assessee cannot be expected to prove a negative. Instead, the onus lay on the Revenue to substantiate the unmatched entries with some independent tangible material, if they were seeking to use the same against the assessee. According to us, the entries found in “J-Pack” application software which was seized from the premises of MJPL, could have been explained by MJPL alone. The case of the Revenue is that Shri Kothari of MJPL had claimed these entries to be unaccounted for, and thus it was rightly added in the hands of the assessee. On the other hand, the Ld.AR has submitted that, the statement given by Shri Kothari could have been in the context of the books of account of the MJPL and not the assessee. The Ld.AR submitted that, the Shri Kothari who was an employee of MJPL could not have

It is settled that presumption set out in section 132(4), 132(4A) and 292C is only against the searched person which in this case is MJPL. Hence, contents of the material seized from the possession of the MJPL viz. entries in J-Pack application software seized from MJPL, can be presumed to be true only qua MJPL. Likewise, the statement of Shri Kothari recorded on the basis of material found in his possession can be used as valid evidence in the income tax proceedings of MJPL. Thus, said presumption cannot be extended to the assessee, unless the assessee was afforded an opportunity to cross-examine him. It is well settled in law that such 3rd party material or statement cannot be treated as conclusive proof against an assessee, unless there is other corroborative material linking the same to the assessee. Hence, we thus agree with the assessee that the contents of J-pack software, which was unilaterally maintained by that party (MJPL) cannot be straight away used adversely against the assessee, without any corroborative material evidence. It is noted that assessee was able to substantially reconcile the entries out of the total entries found in the J-Pack application software. Insofar as the unmatched entries are concern, the assessee had contended that, these could have been mistakenly entered by Shri Rajendra Kothari in the software under the name of assessee. To support his contentions, he referred to certain contra entries, which suggest that when Shri Kothari identified the entries which were wrongly posted to the name of the assessee, he would pass a contra entry to transfer it to the correct head, which this Tribunal in identical facts and circumstances

According to us, ordinarily any unmatched entries with the books of 3rd party raises a suspicion against the assessee, then AO to enquire and bring corroborative evidence against assessee, especially when assessee has denied such transaction. However, the AO despite assessee’s denial has not enquired about the veracity of such entries found in the ledger of MJPL and has refused to allow cross-examination of the makers of statement on behalf of MJPL. Such an omission on the part of AO in the given facts of the case vitiates the adverse view taken against the assessee that it indulged in unaccounted transaction with MJPL and the addition made is fragile for violation of natural justice.

In our considered view, once the assessee had categorically denied having entered into any unaccounted transactions with M/s.MJPL and specifically disputed the correctness and authenticity of the entries appearing in the J-PACK application software, the burden shifted upon the AO to establish the veracity of such entries by conducting an independent enquiry. In such circumstances, the AO ought to have examined Shri Rajendra Kothari, who was responsible for maintaining the impugned records, so as to ascertain the true nature and correctness of the unmatched entries. Equally, the assessee ought to have been afforded an effective opportunity to cross-examine Shri Rajendra Kothari and Shri Suresh Khatri, particularly when their statements were sought to be relied upon for fastening tax liability upon the assessee. This assumes greater significance in the present case since the assessee had denied having undertaken any unaccounted transactions with MJPL and the confirmation of accounts furnished by MJPL did not establish the existence of the alleged undisclosed transactions.

In these circumstances, we are of the considered opinion that the impugned addition cannot be sustained merely on the basis of the entries contained in the J-Pack software. The assessee has neither admitted the correctness of the disputed entries nor accepted the contents of the J-Pack ledger insofar as they relate to the alleged unaccounted transactions. In the absence of any independent corroborative evidence establishing that the unmatched entries represented actual transactions undertaken by the assessee, the Revenue cannot seek to fasten liability solely on the basis of records maintained by a third party. It is a settled principle that entries recorded in the books or electronic records of another person, by themselves, do not constitute conclusive evidence against the assessee unless supported by cogent and independent material. Such corroborative evidence is conspicuously absent in the present case.

We also find that the Co-ordinate Bench of this Tribunal, in the case of M/s.Indomal Jewellery v. ITO in ITA Nos. 2948 to 2952/Chny/2025, order dated 05.06.2026, while dealing with an identical set of facts and circumstances, held that an addition towards alleged unaccounted transactions, merely on the basis of entries appearing in third-party documents seized during the course of search, without any independent corroborative evidence establishing the assessee's involvement, is not legally sustainable. The Tribunal categorically observed that third-party records, in the absence of cogent and corroborative material linking the assessee with the alleged transactions, cannot, by themselves, constitute sufficient evidence for making an addition under the provisions of the Act.

In the present case, the Revenue has also failed to bring on record any independent or corroborative material to establish that the impugned transactions represented the undisclosed income of the assessee. The addition has been made solely on the basis of entries found in third-party records, without any supporting evidence demonstrating their authenticity or nexus with the assessee. Therefore, in the present facts and circumstances of the case