ROCKY MENGHRAJMAL LAKHWANI,AHMEDABAD vs. WARD 7(2)(1), AHMEDABAD, AHMEDABAD

ITA 1601/AHD/2026Status: DisposedITAT Ahmedabad07 October 2026AY 2020-217 pages
AI SummaryAllowed

What were the facts?

The assessee, Rocky Menghrajmal Lakhwani, engaged in firecracker trading as 'Rocky Traders', filed an appeal against the order of the CIT(A), NFAC, Delhi. This order upheld the reassessment initiated under Section 147 of the Income Tax Act, 1961, for Assessment Year 2020-21. The Assessing Officer (AO) made additions of ₹3,96,000 under Section 69C for alleged unexplained cash purchases and ₹2,075 under Section 69A for alleged cash receipt. These additions were based on information gathered during search and survey proceedings in the Ambica Fireworks Group. The CIT(A) confirmed these additions, stating the assessee failed to prove the source of investment. The assessee had declared income under Section 44AD and provided ledger, computation, Form 26AS, and bank documents, disputing the alleged cash payments and lack of independent corroborative evidence.

What did the Tribunal hold?

The Tribunal held that the foundation of the impugned additions was alleged entries in third-party records. The assessee had specifically requested the relied-upon material and an opportunity for cross-examination, but the record did not demonstrate that the specific seized document was furnished or that effective cross-examination was afforded. The Tribunal found that the AO had not brought any independent corroborative evidence on record to establish the actual incurrence of the alleged expenditure of ₹3,96,000. There was no demonstrated cash trail, bank withdrawal, transportation evidence, stock discrepancy, or independent confirmation. Similarly, the addition of ₹2,075 under Section 69A was based on the same third-party information without independent evidence of possession or ownership of unexplained money. The Tribunal noted that the assessee had offered income under Section 44AD, and in such circumstances, an isolated allegation of unrecorded purchase cannot automatically be treated as unexplained expenditure unless the department first establishes the factum of such expenditure and its nexus with the assessee by reliable evidence. The Tribunal concluded that the primary burden of establishing the alleged undisclosed transactions was not discharged by the AO. Consequently, the additions under Section 69C and Section 69A, and the consequential application of Section 115BBE and penalty under Section 271AAC, could not be sustained. The findings of the CIT(A) were set aside, and the additions were deleted.

What were the issues?

1. Whether the reassessment proceedings under Section 147 are valid, considering the reopening was based on vague third-party information without establishing a live nexus, and no specific seized documents were furnished or inspection granted (mixed law and fact)? 2. Whether the principles of natural justice were violated by not supplying the specific seized documents, denying inspection, and not providing an opportunity for cross-examination of persons whose statements were relied upon (mixed law and fact)? 3. Whether the addition of ₹3,96,000 under Section 69C is sustainable, given the department's alleged failure to discharge the primary burden of proving the expenditure and the lack of independent corroborative evidence such as cash trail, bank withdrawal, transport evidence, or stock discrepancy (mixed law and fact)? 4. Whether the addition of ₹2,075 under Section 69A is sustainable without evidence of possession, ownership, or unexplained money, based solely on unverified third-party entries (mixed law and fact)? 5. Whether the confirmation of additions under Section 115BBE and initiation of penalty under Section 271AAC are valid in the absence of valid additions (law)? Assessee's Contentions: The reassessment was bad in law due to vague information and lack of nexus. No specific seized documents were provided, and no opportunity for inspection or cross-examination was given, violating natural justice. Additions under Sections 69C and 69A were not supported by independent corroborative evidence, and the burden of proof was wrongly shifted. Entries in third-party books are not conclusive without verification. Declaring income under Section 44AD means selective addition of purchases is unsustainable without rejection of turnover. The additions under Section 115BBE and penalty under Section 271AAC are unsustainable. Revenue's Contentions: The Ld. Sr. DR relied upon the orders of the Ld. CIT(A) and the AO.

Which sections of the Income-tax Act were involved?

Section 147,Section 250,Section 69C,Section 69A,Section 44AD,Section 115BBE,Section 271AAC

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD

Before: SHRI RAHUL CHAUDHARY, JUDICIALMEMBER &SHRI GANGADHAR PANDA

For Appellant: Shri Amit Sukhwani, AR
For Respondent: Ms. Madhulika Satpute, Sr. DR
Hearing: 06.08.2026Pronounced: 07.10.2026

PER GANGADHAR PANDA - ACCOUNTANTMEMBER:

The captioned appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (hereinafter referred to as “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi dated 23.02.2026 under Section 250 of the Income Tax Act, 1961 arising out of the Assessment Order, dated 28.02.2025 completed under Section 147 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] for the Assessment Year 2020-21. 2. The assessee has raised the following grounds of appeal:

“1. General Ground The order passed by the Learned Commissioner of Income Tax (A

The order continues below.

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