ASSISTANT COMMISSIONER OF INCOME-TAX, AHMEDABAD vs. MAHESHKUMAR RAJANIKANT MANDALIA, AHMEDABAD

ITSSA 38/AHD/2023Status: DisposedITAT Ahmedabad08 September 2026AY 2017-20189 pages
AI SummaryDismissed

What did the Tribunal hold?

Regarding Ground No. 1, the Tribunal held that the amount of sales represents gross realization and cannot automatically be regarded as income without considering the cost of goods sold. The seized Excel sheet contained entries for cash purchases, indicating that unaccounted sales were part of trading activity with corresponding costs. The Tribunal found no infirmity in the CIT(A)'s approach of restricting the addition to the profit element embedded in unaccounted sales, as taxes are levied on real income. The Revenue's contention that the entire unaccounted sales should be assessed as income was rejected as it would disregard the cost of goods sold. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground. Regarding Ground No. 2, the Tribunal held that the addition under Section 69C is not attracted merely because expenditure is not recorded in regular books; the source of expenditure must be examined. In this case, the seized Excel sheet reflected both unaccounted cash sales (Rs. 1,91,26,455) and cash purchases (Rs. 87,23,105), with sales substantially higher than purchases. The Tribunal found that the availability of cash from unaccounted sales constituted a relevant circumstance for the source of expenditure. The assessee's explanation that cash purchases were funded by unaccounted cash sales was supported by the seized material. Taxing the same unaccounted business activity twice was deemed incorrect. The Tribunal upheld the CIT(A)'s deletion of the addition, dismissing the Revenue's ground.

What were the facts?

The Revenue is in appeal against the order of the CIT(A) for Assessment Year 2017-18, concerning proceedings under Section 153A of the Income Tax Act. A search and seizure action was conducted on the assessee, Maheskumar Rajanikant Mandalia, on February 7, 2020. The assessee, engaged in manufacturing and trading of gold, diamond, platinum, and silver articles, had filed a return for AY 2017-18 declaring Rs. 23,82,200. Following the search, a return under Section 153A was filed on January 20, 2021, declaring Rs. 24,21,810. Incriminating documents, including an Excel sheet, were seized. The Assessing Officer (AO) made additions based on these documents, completing the assessment on September 13, 2021, at a total income of Rs. 3,29,62,740. The CIT(A) partly allowed the assessee's appeal.

What were the issues?

1. Whether the CIT(A) erred in calculating the profit margin at 20% on unaccounted cash sales and deleting an addition of Rs. 1,53,01,156 out of Rs. 1,91,26,445, given the assessee's alleged failure to reconcile cash sales in the seized Excel sheet with the cash book. The Revenue argued that the entire unaccounted sales of Rs. 1,91,26,455 should be considered income. The assessee contended that only a reasonable profit margin should be taxed, as the Excel sheet also contained unrecorded cash purchases, and the CIT(A)'s estimation of 20% profit was higher than the disclosed GP rate of 7.4%. 2. Whether the CIT(A) erred in deleting an addition of Rs. 87,23,105 on account of unexplained cash expenditure under Section 69C, based on the reasoning that net profit of sales was calculated and the source of unexplained purchases was unrecorded sales. The Revenue argued that the assessee failed to produce evidence of the identity of parties from whom gold was purchased. The assessee argued that the unrecorded cash purchases were funded by unrecorded cash sales, which were higher.

Which sections of the Income-tax Act were involved?

Section 153A,Section 143(1),Section 132,Section 69C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD

Before: SHRI NARENDRA PRASAD SINHA & SHRI SANJAY KUMAR

For Appellant: Shri Mehul K Patel, Advocate
For Respondent: Shri Rajesh Kumar Yadav, CIT-DR
Hearing: 19.08.2026Pronounced: 08.09.2026

PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:

This appeal filed by the Revenue is directed against the order of Commissioner of Income Tax (Appeal)-11, Ahmedabad [hereinafter referred to as “CIT(A)”] dated 10.02.2023 for the Assessment Year (A.Y.) 2017-18 in the proceeding u/s 153A of the Income Tax Act [hereinafter referred as “the Act”].

2.

The brief facts of the case are that the assessee had filed his return of income for A.Y. 2017-18 on 31.10.2017 declaring total income of Rs.23,82,200/- which was processed u/s. 143(1) of the Act. The assessee

IT(SS)A No.38/Ahd/2023 ACIT Vs. Maheshkumar Rajanikant Mandalia, AY

The order continues below.

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