ITAT Ahmedabad Restores Rs. 34.50 Lakh Addition Under Section 69A for Fresh Hearing Before CIT(A)
Overview of the Dispute
The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, in the matter of Yashpalsinh Gajendrasinh Vaghela Vs ITO (ITAT Ahmedabad), has set aside a first appellate order and remanded the matter back to the Commissioner of Income Tax (Appeals) [CIT(A)] for fresh adjudication. The central dispute revolves around an addition of Rs. 34,50,000 made under Section 69A of the Income Tax Act, 1961 — treating an entry in a seized handwritten diary as unexplained money attributable to the assessee.
The Tribunal's decision did not examine the merits of the addition. Instead, it focused on a procedural failure at the appellate level — specifically, whether the assessee was accorded a genuine and fair opportunity of being heard before the first appeal was dismissed for non-compliance.
Background: Return Filing and Search Proceedings
The assessee filed his original return of income for Assessment Year 2020-21 on 10/01/2021, disclosing total income of Rs. 4,30,200. Subsequently, a search and seizure operation under Section 132 of the Income Tax Act, 1961 was carried out on 08/02/2024, targeting the PSY and Associated Group of Gandhinagar, including key employees and associates of the group.
Among the materials seized during this search was a handwritten diary, inventorised as Annexure A-6. Page 19 of this diary contained individual partner ledger accounts reflecting cash capital contributions made in M/s Akshar Infrastructure. The entries in this diary attributed the following amounts to the assessee:
- Assessment Year 2019-20: Rs. 34,50,000
- Assessment Year 2020-21: Rs. 12,50,000
On the basis of this seized material, reassessment proceedings were initiated against the assessee for both assessment years.
Assessment Order: Section 69A Addition and Section 115BBE Taxation
By an assessment order dated 29/03/2025, the Assessing Officer concluded that the Rs. 34,50,000 entry reflected an unexplained cash capital contribution and accordingly made an addition of that amount as unexplained money under Section 69A of the Income Tax Act, 1961. The addition was made taxable at the rate prescribed under Section 115BBE of the Act.
The assessee contested the addition primarily on the following grounds:
- Non-partnership status: The assessee maintained that he was not a partner in M/s Akshar Infrastructure during the relevant assessment year, and therefore the diary entry could not be attributed to him.
- Disregard of documentary evidence: The assessee alleged that the Assessing Officer ignored key documents submitted in support of his explanation.
- Reliance on third-party material: The assessment was based on seized material belonging to a third-party group, without affording the assessee any opportunity for cross-examination or a personal hearing.
- Violation of principles of natural justice: The entire assessment process was alleged to have been conducted in contravention of basic procedural fairness.
First Appeal Dismissed for Non-Compliance
The assessee carried the matter before the National Faceless Appeal Centre (NFAC), Delhi — functioning as the CIT(A). However, the first appeal was dismissed on the ground of complete non-compliance by the assessee. The CIT(A) recorded that hearing notices had been duly issued on the following dates:
- 29/05/2025
- 12/09/2025
- 18/11/2025
- 25/11/2025