DCIT CENTRAL CIRCLE 1(1) AHMEDABAD, AHMEDABAD vs. MUKESH MOHANLAL VAGHELA, MUMBAI

& 1414/Ahd/2024 Assessee: Ratnajyot Steel and Pipes Pvt Ltd Asst. Year : 2021-22 - 3– 4) The CIT(A) has erred in holding the income from undisclosed scrap sales as business income, thereby holding that provisions of section 115BBE is not applicable.”

“1. The learned CIT(A) has erred in not holding that the notice issued u/s. 143(2) of the Act is bad in law, illegal and void-ab-initio. The learned CIT (A) has erred in not holding that the assessment order passed by AO u/s. 143(3) of the Act is bad in law, illegal and null and void.

2. The learned CIT(A) has erred in confirming the addition of Rs. 90,24,083/-(addition made by the AO of Rs. 8,15,80,033/-) u/s. 69A on account of unaccounted income. This Rs.8.15 consists of am0unt of 2 years, AY 2021-22 and 2022-23. CIT(A) considered @ 40% of Rs.2.17 Cr. pertaining to AY 2021-22, whereas for AY 2022-23, the Assessing Officer himself considered unaccounted sale of Rs. 6 Cr. (Rs.8.15 Cr. – Rs.2.17 Cr.) and added 9% of Rs……… 3. The learned CIT(A) has erred in not holding that the assessment order passed by AO is in gross violation of principles of natural justice.

“1. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.2,60,68,413/- (substantive basis) u/ 69, r.w.s. 115BBE of the Act on account of unexplained and unaccounted income without considering the facts that during the assessment proceedings no evidences were submitted by the assessee in respect of Nil incremental net genitive peak for the year under consideration.

2. In the facts and on the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.1,33,71,725/- (substantive basis) u/s 69C r.w.s. 115 BBE of the Act on account of unexplained expenses & 1414/Ahd/2024 Assessee: Ratnajyot Steel and Pipes Pvt Ltd Asst. Year : 2021-22 - 4– without considering the facts that during the assessment proceedings no evidences were submitted b y the assessee in respect of Nil incremental net negative peak for the year under consideration.”

& 1414/Ahd/2024 Assessee: Ratnajyot Steel and Pipes Pvt Ltd Asst. Year : 2021-22 - 5–

10.1 The Assessing Officer has made addition on account of entries reflected in ledger “Mukeshbhai R.J.” appearing in the diaries seized from the residence of Shri Prakash Mishrimal Sanghvi. The Assessing Officer has made addition on protective basis in the assessee's case in respect of the debit and credit entries appearing in the ledger 'Mukeshbhai R.J.'. The entries appearing in the said ledger are added on substantive basis by the Assessing Officer in the assessment order in the case of Shri Mukesh Vaghela. Since the assessee failed to provide any satisfactory explanation or corroborative evidence regarding the nature and source of these cash transactions, the Assessing Officer held that the provisions of section 69A were applicable and accordingly treated the amount of Rs.2,60,68,413/- as unexplained and unaccounted income of the assessee on a protective basis. Similarly, the cash expenses amounting to Rs.1,33,71,725/- were treated as unexplained expenditure under section 69C and added to the total income of the assessee on a protective basis.

10.2 The Ld. CIT(A) deleted these additions by observing as under:- “4.1 The appellant has filed this appeal against the addition made by the AO towards Unexplained Income u/s. 69A and Unexplained Expenditure u/s. 69C of the Act. The appellant has raised these grounds for A.Y.2021-22 challenging the addition of Rs.2,60,68,413/- and Rs.1,33,71,725/- on account of Unexplained Income and Expenditure. 4.2 The AO has elaborately dealt with the above ground in para 6 of the assessment order. The AO has made addition on account of entries reflected in ledger 'Mukeshbhai R.J." appearing in the diaries seized from the residence of Shri Prakash Mishrimal Sanghvi. The AO has made addition on protective basis in the appellant's case in respect of the debit and credit entries appearing in the ledger 'Mukeshbhai R.J.'. The entries & 1414/Ahd/2024 Assessee: Ratnajyot Steel and Pipes Pvt Ltd Asst. Year : 2021-22 - 6– appearing in the said ledger are added on substantive basis by the AO in the assessment order in the case of Shri Mukesh Vaghela. The AO has considered the explanation offered by the appellant but has rejected the same on the following grounds: a) Shri Prakash Sanghvi has accepted that the entries reflected in the seized diaries were regularly maintained by him and contained the details of cash transactions of him, his family members and group companies. b) Shri Mukesh Vaghela is one of the Directors in Ratnajyot Steel and Pipes Pvt Ltd which is also one of the entities of Ratnamani Group. c) The seized diaries contain details of transactions of Shri Mukesh Vaghela which is matching with the transactions of Shri Mukesh Vaghela and were verified by the A0 from the submissions filed by Shri Mukesh Vaghela. d) R. J. in the ledger name "Mukeshbhai R. J." means Ratnajyot which represents Ratnajyot Steel and Pipes Pvt. Ltd., the appellant. 4.3 I have carefully considered the submissions made by the appellant and the reasons given by the AO in the assessment order. ln the assessment order the AO has held the ledger 'Mukeshbhai R.J.' as pertaining to Shri Mukesh Vaghela. There are regular transactions of debit and credit under the ledger 'Mukeshbhai R.J.' and addition for the credits appearing in the ledger is made by the AO as Unexplained Income u/s.69A in the case of Shri Mukesh Vaghela on substantive basis. Similarly, addition for total debits appearing in the ledger is made by the AO as Unexplained Expenditure u/s.69C in the case of Shri Mukesh Vaghela on substantive basis. Both these additions are made by the AO in the case of the appellant on protective basis since the name of the appellant is also appearing in the ledger name. …….

4.5 The appellant next contended that the AO has made additions on substantive basis in the case of Shri Mukesh Vaghela for entries appearing in the Iedger 'Mukeshbhai R.J,' and therefore there is no requirement to make protective addition in the appellant's case. 4.6 The appeals preferred by Shri Mukesh Vaghela have been decided by the undersigned and appellate order dated 26.04.2024 is passed in the case of Shri Mukesh Vaghela. Therefore, the view taken while disposing off the appeal in the case of Mukesh Vaghela will be applicable to the appellant's case.

& 1414/Ahd/2024 Assessee: Ratnajyot Steel and Pipes Pvt Ltd Asst. Year : 2021-22 - 7– 4.7 ln this regard, it is stated that the undersigned has already confirmed herein above while dealing with the appeals for A.Y.2013- 14 to 2020-21 that the ledger 'Mukeshbhai RJ' pertains to Shri Mukesh M. Vaghela wherein substantive addition was made. I have also confirmed the additions made by the A0 for the ledger 'Mukesh Ratnajyot / Mukeshbhai RJ' in A.Y.2013-14 to 2020-21 as discussed in detail at Para No. 5 of the appellate order dated 26.04.2024. Further, it was observed from the assessment orders for A.Y.2013-14 to 2020- 21 in the case of Shri Mukesh M. Vaghela that the AO had given benefit of telescoping to the appellant and made addition only in respect of net negative incremental peak for each year. The A0 had calculated net negative incremental peak for A.Y.2013-14 to 2421-22 and reproduced the same in show cause notices issued for 4.Y.2013-14 to 2020-21. The A0 had also reproduced the calculations of year-wise net negative incremental peak in the assessment orders for A.Y.2013-14 to 2020-21 and made addition in respect of only the negative incremental peak. From the calculations reproduced by the AO in the assessment orders for the above years in the case of Shri Mukesh M. Vaghela, it was seen that the net negative incremental peak for A.Y.2021-22 was NIL as per the calculations made by the AO herself. Therefore, following the method adopted by the AO for A.Y.2013-14 to 2020-21, since the incremental net negative peak for the A.Y.2021-22 was NlL, the addition on account of Unexplained Income u/s. 69A of Rs.2,60,68,413/- and Unexplained Expenditure u/s.69C of Rs.1,33,71 ,725/- in the case of Shri Mukesh M. Vaghela was deleted by the undersigned. 4.8 In view of the above, it is stated that since, the substantive addition made in the hand of Shri Mukesh M. Vaghela has been adjudicated by the undersigned for AY 2021-22, therefore, the protective addition made in the case of the appellant does not survive. 4,9 ln view of the above, addition made by the AO for Rs.2,60,68,413/- & Rs.1,33,71,725/- on account of Unexplained Income u/s. 69A and Unexplained Expense u/s. 69C is deleted in the assessee's case.”

10.3 Since the matters are dealt with solely on protective basis and addition on substantial basis has been made by the Assessing Officer in the case of Mukesh Vaghela and the additions have been adjudicated in the case of Mukesh Vaghela himself by the Ld. CIT(A), and since there was no cross-substitution of any protective addition to substantive addition among the assessee and Shri Mukesh Vaghela by the Revenue Authorities, & 1414/Ahd/2024 Assessee: Ratnajyot Steel and Pipes Pvt Ltd Asst. Year : 2021-22 - 8– we decline to interfere with the order of the Ld. CIT(A) and the protective addition made in the case of the assessee is directed to be deleted.

In the result, Ground No. 1 & 2 of both the Revenue’s appeal stands dismissed.

Ground No.3 – Revenue Ground No. 2 – Assessee Addition made by the AO u/s 69A of the Act – Rs.8,15,80,033/- - Scrap sales 11. The brief facts of this issue are that the assessee company acquired scrap materials of ABG Shipyard during liquidation. During search, an Excel file (Annexure A-3) containing details of cash receipts from scrap sales was seized. Shri Akshay Vaghela admitted that Annexure A-3 records cash transactions and Shri Mukesh M. Vaghela confirmed the file relates to ABG Shipyard scrap dismantling and sale, a joint venture of six partners, and contains cash receipts not recorded in the books. The assessee was given opportunities to explain the cash transactions. In response, it submitted that some amounts were already included elsewhere and certain entries pertained to other assessment years. However, on examination, the Assessing Officer observed cash sales of Rs.8,15,80,033/- for F.Y. 2020-21 (A.Y. 2021-22) unrecorded in the books. In absence of satisfactory explanation, the amount was treated as unexplained income under Section 69A of the Act.

11.1 On appeal before the Ld. CIT(A), the Ld. CIT(A) confirmed an amount of Rs.90,24,083/-, out of Rs.8,15,80,033/- on account of unaccounted and unexplained income, and deleted the remaining amount by observing as under:-

“5.1 In this ground, the appellant has challenged the addition of Rs.8,15,80,033/- made by the AO on the basis of excel file found from the computer data back-up found at the premises being 301-302, 3rd Floor, Shalvik Avenue, Naranpura Cross Road, Ahmedabad. 5.2 The AO has elaborately dealt with this issue in para 7 of the Assessment order. The AO has relied upon the incriminating documents relating to scrap sale in cash in the form of excel sheet found & seized in the PC of Mr. & 1414/Ahd/2024 Assessee: Ratnajyot Steel and Pipes Pvt Ltd Asst. Year : 2021-22 - 9– Akshay Vaghela, Sales Executive in M/s. Ratnajyot Steel and Pipes Pvt. Ltd. The print out of the excel-file were taken and seized as Annexure-A-3 (page No. 1 to 64). 5.3 The AO concluded that the said excel sheet (Annexure A-3) contain the details of cash receipts on account of sale of scrap. The AO has stated that the appellant has accepted that they had made sales in cash and the same were not recorded in the regular books. The AO made an addition in the case of the appellant on account of Unaccounted and Unexplained Income u/s.69A of the Act of Rs.8,15,80,033/-. 5.4 The appellant has filed detailed submissions during the appellate proceedings. The appellant has submitted that the seized pages contain numerous rough working and noting / jotting which may not have actually materialized or happened. The appellant further submitted that the entries in the seized papers are repetitive and not final working. The appellant submitted that the entire sale of scrap of ABG Shipyard Ltd. are duly recorded in the regular books of accounts and the seized pages are rough noting and jotting. It was submitted by the appellant that the entire addition is made based on excel sheet found from Shri Akshay Vaghela, who is sales executive of the Company. The appellant has contended that the AO has made addition merely on the basis of working in excel file without bringing any corroborative material or evidence on record for receipt of cash in support of the working found.

5.5 The appellant, in the alternate, submitted that the sales amount considered by the AO based on seized papers is wrong and the appellant submitted detailed working with reference to the seized papers. The appellant has submitted date-wise working of the scrap sales for FY 2020- 21 relevant to A.Y.2021-22 based on the dates noted in the seized pages being page nos. 39 to 50 of Annexure A-3 The appellant has also submitted a detailed chart explaining the basis on which the AO has made addition in the case of the appellant. The appellant has submitted that the actual sales as per seized pages for the year under consideration is only Rs.2,17,18,610/- as against the sales of Rs.8,15,80,033/-considered by the AO. To support this claim, the appellant submitted detailed working giving the following:- a. Sales noted on the seized pages referred by the AO while making the addition b. Corresponding serial no. in the date-wise chart submitted by the appellant. The appellant reconciled that all the amounts noted in the seized pages is considered in the date-wise chart.

& 1414/Ahd/2024 Assessee: Ratnajyot Steel and Pipes Pvt Ltd Asst. Year : 2021-22 - 10– c. If the date related to subsequent year, the said fact is noted against the relevant entry from the seized pages. d. Relevant seized pages (Annexure A-3). 5.6 I have carefully considered the submissions made by the appellant and working submitted for the sale of scrap on the basis of seized pages. On perusal of the records, it appears that the AO has miscalculated the sales figure for the year under consideration. It is seen from the submission that the AO has made addition of Rs. 2,23,40,710/- on the basis of page no. 8 of Annexure A-3 and on verification of page no. 8 of Annexure A-3 it is observed that the total of all the sales noted on this page does not add up to Rs.2,23,40,710/- The total sales noted on this page is only Rs. 1,02,67,510/-, Out of these, few entries are pertaining to F.Y.2021-22 relevant to A Y 2022- 23 as can be seen from the dates written against the sales entry. The appellant has submitted page-wise and amount-wise chart and reconciled the same with the date-wise chart prepared for the current year i.e. A.Y.2021-22 which is verified from the seized pages. 5.7 The appellant has also submitted copy of assessment order for A.Y.2022- 23 and it is seen that similar addition on account of scrap sale is made by the AO in the assessment order for A.Y.2022-23. 5.8 Thus, the correct figure of sales for the current year ie. A.Y.2021-22 is calculated at Rs.2,17,18,610/- as against the amount of Rs.8,15,80,033/- considered by the AO. However, I am not in agreement with the submissions of the appellant that the seized pages contain only rough noting and jotting and that the actual sales is recorded in the regular books of the appellant. The seized pages printed from the excel file are meticulously maintained. Date-wise and party-wise details of sales are recorded in these seized pages. Similarly, details of expenses incurred in cash out of such cash sales are also recorded in the seized pages. Thus, such meticulously maintained details cannot be simply termed as rough noting and jotting. The noting made are elaborate and complete details like date, name of party, item details, quantity, rate, amount, etc. are mentioned in the seized pages. Therefore, the AO's finding that the appellant has carried out unaccounted sales during the year is confirmed for the year under consideration. On the basis of detailed working submitted, such unaccounted sales for the current year i.e. A.Y. 2021-22 is calculated at Rs.2,17,18,610/-. 5.9 The appellant has made without prejudice submissions that the total sales cannot be considered as income. The appellant has contended that the entire sales cannot be added to the total income and only the profit on such sales should be added. The appellant has submitted that the seized pages also contained noting in respect of expenses incurred. The appellant has submitted that addition, if any, be made only in respect of profit arising out & 1414/Ahd/2024 Assessee: Ratnajyot Steel and Pipes Pvt Ltd Asst. Year : 2021-22 - 11– of such scrap sales. The appellant submitted that the AO has made additions in respect of scrap sales in A.Y.2022-23 and adopted a Net Profit rate of 9% while making addition in the assessment order for A.Y.2022-23. 5.10 I have considered the submissions of the appellant and the assessment order passed by the AO in the appellant's case for A.Y.2022-23. It is seen that the seized pages contain noting of expenses incurred and the AO has made addition only in respect of net profit on such unaccounted scrap sales in A.Y.2022-23. It is seen that the AO has adopted two different approaches for making additions in different years. The AO should use a consistent approach while making additions arising out of same issue in the case of appellant. Considering the facts and circumstances of the case, the addition made by the AO for the entire scrap sales as per seized pages is unjustified. Therefore, following the principle of consistency, addition should be made only in respect of profit arising from such unaccounted scrap sales.

5.11 As regards the rate of profit, the appellant has submitted that the profit percentage should be adopted at 9% only as adopted by the AO for A.Y.2022-23. However, from the assessment order for A.Y.2022-23 it is seen that the rate of 9% is applied by the AO to the Total sales including the Accounted and Unaccounted Sales. The AO has thereafter reduced the profit disclosed in the regular books and has derived the unaccounted profit. Thus, in effect the AO has adopted a much higher rate on unaccounted sales and therefore this contention of the appellant to adopt profit @9% on unaccounted sales is rejected.

5.12 The appellant has also made alternate submissions along with calculations. The appellant has submitted alternate working wherein the Profit is calculated based on the method adopted by the AO in the assessment order passed for A.Y.2022-23. As per the said working, the profit on unaccounted sales of Rs.2,17,18,610/- is calculated at Rs.4,03,52,886/- which gives unrealistic results. The profit can never be higher than the sales and thus the method adopted by the AO in the assessment order for A.Y 2022-23 is not correct.

5.13 The appellant has also submitted a chart wherein the profit percentage is calculated based on Unaccounted Profit determined by the AO on Unaccounted Sales for A.Y.2022-23. The percentage of profit on unaccounted sales is calculated at 41.55% on the unaccounted sales for A.Y.2022-23. The appellant has submitted working of unaccounted profit by applying the same rate of 41.55% to the unaccounted sales for A.Y.2021-22 and calculated the profit at Rs.90,24,083/- on unaccounted sales of Rs.2,17,18,610/-. Therefore, the percentage of profit is reasonable and the same is required to be adopted for calculating the profit for A.Y.2021-22.

& 1414/Ahd/2024 Assessee: Ratnajyot Steel and Pipes Pvt Ltd Asst. Year : 2021-22 - 12– 5.14 In view of the above factual matrix of the case, addition of Rs.90,24,083/- on account of unaccounted and unexplained income for A.Y.2021-22 is confirmed. Remaining addition stands deleted. Thus, the ground of appeal no. 4 is partly allowed.”

11.2 Since the Ld. CIT(A) has taken cognizance of the seized material and recomputed the correct figure of sales for the current year i.e. A.Y.2021-22 at Rs.2,17,18,610/- against the amount of Rs.8,15,80,033/- as determined by the Assessing Officer and the re-computation made by the Ld. CIT(A) could not be disputed by the Revenue Authorities before us, the unaccounted sales for the year is considered at Rs.2,17,18,610/- . With regard to the profit determined by the Ld. CIT(A) at 41.55% of the unaccounted sales, we affirm and agree with the rationale given by the Ld. CIT(A).

11.3 We clarify that the substantive addition has been made in the case of Shri Mukesh Mohanlal Vaghela for the same year, the unaccounted sales for the year stands at Rs.2,17,18,610/- and the profit thereof determined at 41.55% of the unaccounted sales stands confirmed in the case of Shri Mukesh Mohanlal Vaghela. With regard to the amount of Rs.1,33,71,725/-, Ld. CIT(A) observed that the he Assessing Officer had also reproduced the calculations of year-wise net negative incremental peak in the assessment orders for A.Y.2013-14 to 2020-21 and made addition in respect of only the negative incremental peak. From the calculations reproduced by the Assessing Officer in the assessment orders for the above assessment years, Ld. CIT(A) observed that the net negative incremental peak for A.Y. 2021-22 in the case of Shri Mukesh M. Vaghela was NIL as per the calculations made by the Assessing Officer herself. Therefore, Ld. CIT(A) held that following the method adopted by the Assessing Officer for A.Y.2013-14 to 2020-21, since the incremental net negative peak for the A.Y.2021-22 was Nil, the addition on account of Unexplained Expenditure u/s.69C of Rs.1,33,71 ,725/- in the case of Shri Mukesh M. Vaghela was accordingly deleted by the Ld. CIT(A) for the impugned assessment year. In light & 1414/Ahd/2024 Assessee: Ratnajyot Steel and Pipes Pvt Ltd Asst. Year : 2021-22 - 13– of the above observations made by the Ld. CIT(A), since the additions with respect to unexplained expenditure were deleted on account of net negative incremental peak for AY 2021-22, we find no infirmity in the order of the Ld. CIT(A) so as to call for any interference. In the result, the appeal filed by the Department is dismissed.

The order is pronounced in the open Court on 19.12.2025 (SIDDHARTHA NAUTIYAL) VICE-PRESIDENT Ahmedabad; Dated 19.12.2025 *btk