ACIT-17(1), MUMBAI, BKC, KAUTILYA BHAVAN vs. KAPADIA BROS. , KAPADIA BUILDING,MANDVI

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ITA 3297/MUM/2026Status: DisposedITAT Mumbai15 October 2026AY 2022-2311 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the order of the CIT(A) and dismissed the Revenue's appeal. The Tribunal noted that the facts of the present case were identical to those in previous decisions by coordinate Benches of the ITAT in the cases of Vikas Kumar Chhajer (ITA No. 212/Viz/2025) and Kapadia Bros. (ITA No. 878/Mum/2026), which arose from the same search conducted in the J. M. Jain Group involving the "JSK" server. The Tribunal found that the additions were of the same nature, based on Excel sheets retrieved from the "JSK" server of the J. M. Jain Group. The seized documents were retrieved from the possession of a third party, and the AO had mechanically relied upon the information provided by the Investigation Wing without establishing any direct nexus. Furthermore, no stock discrepancy, unaccounted purchases, delivery challans, supplier confirmations, bank entries, or other incriminating material were found in the assessee's case. The Tribunal concluded that the additions made by the AO were based purely on uncorroborated third-party evidence and were not sustainable. No new facts or documents were presented by the Revenue to rebut the CIT(A)'s findings. Therefore, the grounds raised by the Revenue were dismissed, and the order of the CIT(A) deleting the additions was upheld. The cross-objection filed by the assessee was dismissed as infructuous.

What were the facts?

The Revenue filed an appeal against the order of the CIT(A)/NFAC for Assessment Year 2022-23, challenging the deletion of additions made by the Assessing Officer (AO). The assessee, Kapadia Bros., a partnership firm, had its case selected for scrutiny based on CRIU information. This information stemmed from a search and seizure action on M/s J. M. Jain LLP, where a parallel server named "JSK" revealed transactions of various customers, including the assessee, not recorded in their books. The AO made additions totaling Rs. 19,44,66,110/- under Sections 69A and 69C, including GP ratio on unrecorded purchases, commission on unaccounted sales/purchases, and unexplained capital introduced. The CIT(A) deleted these additions.

What were the issues?

1. Whether the assessment order is infirm solely because the assessee was not granted an opportunity to cross-examine third parties, when additions were based on seized evidence and not merely oral statements (Section 132)? 2. Whether the CIT(A) misapplied the ratio of Andaman Timber Industries vs. CCE (SC) by treating non-grant of cross-examination as fatal, even when additions were based on documentary electronic evidence? 3. Whether the CIT(A) exceeded his jurisdiction by declaring the assessment order infirm on procedural grounds, without examining the merits of additions made under Sections 69C and 69A, and ignoring that the data was seized during a valid search under Section 132 and constituted incriminating material? 4. Whether the CIT(A) was justified in deleting additions merely because the seized material belonged to a third party, without appreciating the assessee's failure to rebut its contents? Assessee's Contention: The assessee denied entering into unrecorded purchase transactions. The AO mechanically relied on information from the Investigation Wing without establishing a direct nexus. No stock discrepancy, unrecorded purchases, delivery challans, supplier confirmations, bank entries, or other incriminating material were found in the assessee's possession. The additions were based purely on uncorroborated third-party evidence. Revenue's Contention: The Revenue argued that the assessment order is infirm solely on procedural grounds and that the additions were based on seized evidence, not oral statements. They contended that the CIT(A) misapplied the Andaman Timber Industries judgment and exceeded jurisdiction by not examining the merits of additions made under Sections 69C and 69A, despite the data being seized during a valid search. The Revenue also argued that the CIT(A) was not justified in deleting additions simply because the seized material belonged to a third party, without considering the assessee's failure to rebut it.

Which sections of the Income-tax Act were involved?

Section 132,Section 69A,Section 69C,Section 143(3),Section 144B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI

Before: SANDEEP GOSAIN & SHRI BIJAYANANDA PRUSETH

For Respondent: Shri Madhur Agrawal
Pronounced: 15.10.2026

Heard together (2 matters)

ITA 3297/MUM/2026
CO 211/MUM/2026

Read from the judgment's own cause title. This page is filed under one of them.

PER SANDEEP GOSAIN, JUDICIAL MEMBER:

This appeal has been filed by the Revenue against the order of the Ld. CIT(A)/NFAC bearing DIN: ITBA/NFAC/S/250/2025-26/1085173705(1), dated 27.01.2026, for the Assessment Year 2022-23. The assessee has also filed a cross- objection.

First, we shall take up the appeal filed by the Revenue i.e. ITA 2. 3297/MUM/2026. The Revenue has raised the following grounds of appeal: 1. Whether on the fact and in the circumstances of the case and in law, the Ld. CII(A) erred in holding that the assessment order is infirm solely on the ground that the assessee was not granted opportunity to cross-examine third parties, despite the additions being based on seized evidence and not merely on oral statements? 2. Whether on the fact and in the circumstances of the case and in law, the Ld. CIT(A) misapplied the ratio of Andaman Timber Industries vs. CCE (SC) by treating non-grant of cross-examination as fatal even when the additions were based on documentary electronic evidence? 3. Whether on the fact and in the circumstances of the case and in law, the Ld. CIT(A) exceeded his jurisdiction by declaring the assessment order infirm on procedural grounds, without examining the merits of additions made u/s 69C and 69A and ignoring that the said data was seized during a valid search u/s 132 and constitutes incriminating material? 4. Whether on the fact and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting additions merely because the seized material belonged to a third party, without appreciating that the assessee failed to rebut the contents of such seized material? 5. The appellant craves leave to add, substitute, modify, alter, delete or amend all or any ground of appeal either before or at the time of hearing.

2.1. All the grounds raised by the Revenue are interrelated and interconnected and relates to challenging the order of the Ld. CIT(Appeals) in deleting the additions made by the AO under Sections 69A and 69C of the Act. Therefore, we have decided to adjudicate these grounds through the present consolidated order.

3.

We have heard the counsels for both the parties, perused the material placed on record, the judgments cited before us, and the orders passed by the Revenue Authorities. The assessee is a partnership firm carrying on the business of readymade garments under the name and style of M/s Kapadia Brothers. For the Assessment Year 2022-23, the assessee filed its return of income on 25.10.2022, declaring a total income of Rs. 31,28,970/-. The case of the assessee was selected for 'complete scrutiny' under CASS on the basis of CRIU information.

4.

A search and seizure action under Section 132 of the Act was carried out on 28.05.2022 in the case of M/s J. M. Jain LLP (erstwhile M/s J. M. Jain Proprietorship). During the course of the search, it was found that unaccounted transactions of J. M. Jain were maintained on a parallel server, commonly known among the employees of the J. M. Jain Group as "JSK". It was revealed that the said "JSK" server housed transactions of numerous customers from FY 2020-21 onwards. The data from the "JSK" server was retrieved, and the name of the present assessee surfaced as one of the customers whose transactions were not recorded in the regular books of account. This data formed the basis of the CRIU information.

5.

The case was assessed under Section 143(3) of the Act on 27.03.2024. Aggrieved by the assessment order, the assessee filed a writ petition before the Hon'ble High Court of Bombay vide WP No. 13662 of 2024. The Hon'ble Court remanded the case to the file of the JAO with specific directions. Accordingly, the case was taken up afresh for consideration.

6.

The assessee denied having entered into any purchase transactions that were not recorded in its books of account. The AO was not convinced by the submissions of the assessee. He concluded the assessment by making an addition of Rs. 6,59,81,330/- as income from business and profession by adopting a GP ratio of 9.53% on unrecorded cash purchases of Rs. 69,23,53,941/-. The AO also computed commission at 3% of the total transaction value of unaccounted sales and purchases and made an addition of Rs. 2,07,70,618/- under Section 69C of the Act. Further, the AO made an addition of Rs. 10,45,85,188/- as unexplained money under Section 69A of the Act towards unaccounted capital introduced by the assessee. The total income was determined at Rs. 19,44,66,110/- by an order passed under Section 143(3)/260 read with Section 144B of the Act.

7.

Against the said assessment order, the assessee preferred an appeal, and the Ld. CIT(A) deleted the aforesaid additions. The relevant operative portion of the order is reproduced hereinbelow:

8.

We have considered the facts of the present case and the reasons for deletion of the additions by the Ld. CIT(A), and we find that the Ld. CIT(A) based its findings on the decision of the coordinate Bench of the ITAT in the case of Vikas Kumar Chhajer in ITA No. 212/Viz/2025. It has also been brought to our notice that another coordinate Bench of the ITAT, Mumbai, in the case of Kapadia Bros. in ITA No. 878/Mum/2026, has also upheld the deletion of additions under an identical set of facts arising out of the same search conducted in the case of the J. M. Jain Group involving the "JSK" server.

9.

Since the facts of the present case are identical to those in the cases already decided by the coordinate Benches of the ITAT in ITA No. 212/Viz/2025 and ITA No. 878/Mum/2026, we find that the additions in the present case are also of the same nature and are based on Excel sheets retrieved from the "JSK" server of the same J. M. Jain Group. The seized documents were retrieved from the possession of a third party, and in the present case as well, the AO had mechanically relied upon the information provided by the Investigation Wing without establishing any direct nexus.

10.

Further, no stock discrepancy, unaccounted purchases, delivery challans, supplier confirmations, bank entries, or incriminating material were found in the case of the assessee. Thus, the additions made by the AO were based purely on uncorroborated third-party evidence and, in our view, are not sustainable.

11.

Even otherwise, no new facts, circumstances, or documents have been placed on record by the Ld. DR to controvert or rebut the lawful findings recorded by the Ld. CIT(A). Therefore, we see no reason to interfere with or deviate from the findings recorded by the Ld. CIT(A). Hence, we dismiss the grounds raised by the Revenue and uphold the order of the Ld. CIT(A) deleting the additions.

12.

In the result, the appeal filed by the Revenue stands dismissed.

CO 211/MUM/2026 13. Since we have dismissed the appeal filed by the Revenue, the cross- objection filed by the assessee has become infructuous and is accordingly dismissed as infructuous.

14.

In the net result, both the appeal filed by the Revenue and the cross- objection filed by the assessee stand dismissed.

Order pronounced in the open court on 15.10.2026.

Sd/- Sd/- BIJAYANANDA PRUSETH SANDEEP GOSAIN ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 15.10.2026 RY-SrPS Copy to: ACIT-17(1), MUMBAI, ROOM NO.232, SECOND FLOOR,BKC, 1 KAUTILYA BHAVAN,, MUMBAI-400051, MAHARASHTRA

KAPADIA BROS. , 13, KAPADIA BUILDING, SHERIFF DEVJI 2 STREET, MANDVI, MUMBAI-400003, MAHARASHTRA

3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE

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