PRAKASH MISRIMAL SANGHVI,AHMEDABAD V. DCIT CC 1(1) AHMEDABAD, AHMEDABAD

MA 112/AHD/2025

AI Insights

The case involves Prakash Misrimal Sanghvi, who filed nine miscellaneous applications seeking modification of a Tribunal order concerning the disallowance of certain business expenses and bad debts for the assessment years 2013-14 to 2021-22. The Tribunal had previously disallowed these claims based on the method of income assessment (net profit basis) and lack of proper documentation for the expenses and bad debts. The Tribunal upheld its original decision, stating that the applications did not demonstrate any mistake apparent from the record that would warrant a change in the original ruling.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 827712 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 month(s) 12 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 09-01-2026
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 28-11-2025
• Other Referred Cases: CIT vs. Reliance Telecom Limited (2021) 133 taxmann.com 41 (SC)
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT
• Assessee Lawyers: S N SOPARKAR; VIJAY MEHTA; ARS
• Keywords: Set aside; Bad and doubtful debts; Unexplained investment; Document seized; Documents seized; Notional interest
• Section: 44AD

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI TR SENTHIL KUMAR, JUDICIAL MEMBER AND SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER MA Nos. 109 to 117/AHD/2025 (In ITA No. 1138 to 1146/Ahd/2024) Assessment Years: 2013-14 to 2021-22 Prakash Misrimal Sanghvi 17, Rajmugat Soc., Naranpura Char Rasta, Naranpura - 380013 [PAN – AAEPS 7266 A] Vs. Deputy Commissioner of Income Tax, Central Circle 1 (1), Ahmedabad - 380009 (Appellant) (Respondent) Assessee by Shri SN Soparkar, Sr. Advocate & Vijay Mehta, ARs Revenue by Shri Abhijit, Sr. DR Date of Hearing 19.12.2025 Date of Pronouncement 09.01.2026 O R D E R PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER: These nine miscellaneous applications are filed by the assessee with a request to modify the common order of this Tribunal in ITA No. 1138 to 1146/Ahd/2024 for the Assessment Years (AYs) 2013-14 to 2021-22. 2. Shri S N Soparkar, Ld. Senior Advocate, appearing for the assesse explained that the assessee had raised grounds regarding allowing commission expense of Rs.1,59,76,100/- and other expense of Rs. 1,88,865/- on the basis of the entries appearing in the seized ledger Shree Commission Khate and Shree Kharch Khaate respectively. Printed from counselvise.com 2 Further, a ground was also raised for allowing bad debts of Rs.2,49,71,000/-. The Ld. Counsel explained that the deduction for commission and other expense was denied in the order of the Tribunal for the reason that the income from the business was quantified on a net profit percentage basis. The deduction for bad debt was denied on the ground that the entries for write-off of the bad debts were not found recorded in the seized diaries and the tally accounts prepared subsequently were rejected. 2.1 The Ld. Sr. Counsel explained that the assessee had derived profit from four different business activities. The profit out of share trading and goods trading activity was upheld @ of 8% and 10% respectively by the Ld. Tribunal, which was on the basis of net profit rate. However, the profit out of money lending (sarafi) and land trading activity was upheld at @ 100% and 13.14% respectively, which were on gross profit rate and not on the basis of net profit percentage. Ld. Sr. Counsel explained that the finding given in the order for confirming the disallowance of commission and other expense was thus not fully correct. The ld. Sr. Counsel submitted that as the commission and other expense recorded in seized diaries were not entertained for the reason that income of the assessee was worked out on net profit basis, there was a mistake in the order as the income from money lending and land trading activity was determined on gross profit basis and not on net profit basis. He, therefore, requested that income from money lending and land trading activity should be worked out on net profit percentage basis. In the alternative, the assessee may be allowed the deduction for commission and other expenses as appearing in the seized diaries. Printed from counselvise.com 3 2.2 As regarding bad debt claim, the ld. Sr. Counsel submitted that the Tribunal had disallowed the claim due to absence of any write off and also for want of its correlation with money lending activity. In this regard, the Ld. Sr. Counsel submitted that the absence of entry for write off should not come in the way of estimating the correct business profit. He submitted that each of the write off entry has the corresponding effect on the money lending ledger account and thus the correlation of bad debt write-off with money lending activity was established. He, therefore, requested that the disallowance of bad debt was not correct and accordingly, the order of the Tribunal may be modified allowing the bad debt claim of the assessee. 2.3 According to the Ld. Sr. Counsel, these mistakes were apparent from the record and, therefore, he requested to rectify the order of the Tribunal u/s 254(2) of the Act. 3. Per contra, Shri Abhijit, Ld. Sr. DR submitted at the outset that the miscellaneous applications filed by the assessee were not maintainable as they were filed beyond the period of six months. On merits, the Ld. Sr. DR submitted that the Tribunal had considered each and every aspect and given a categorical finding in respect of assessee’s grounds for deduction of commission, other expenses and bad debts. He submitted that considering the categorical finding given by the Tribunal, there was no mistake apparent from record. According to the Ld. Sr. DR, the present miscellaneous applications were intended to recall the order and get the matter reviewed which was not permissible under the provisions of the Act. Printed from counselvise.com 4 4. In rejoinder, the Ld. Sr. Counsel explained that all the miscellaneous applications were filed by the assessee within a period of six months from the end of the month in which the order of the Tribunal was received by the assessee. Thus, there was no delay in filing the applications. 5. We have carefully considered the rival submissions. The assessee, in its appeal, had taken Ground nos. 10 and 11 in respect of disallowance of commission and other expenses. Before we go into the merits of the miscellaneous applications filed by the assessee, it will be relevant to reproduce the finding of the Tribunal in respect of these two grounds, which is as under: 70. We have considered the rival submissions. The fact that the commission expense and other expenses were found recorded in the seized diaries is not under dispute. We do agree with the submission of Ld. Sr. Counsel that if the income can be taxed based on the noting in the seized diaries, the same treatment has to be given to the expenditures as noted in the seized diaries. However, as rightly pointed out by the Ld. CIT.DR, the entries in the seized diaries were not taxed on gross basis and in view of this fact, the deduction for expense as noted in the seized diary couldn't have been allowed. In respect of receipts as appearing in the ledgers land trading account, share trading account, Maal Khaate account etc., only net profit rate has been applied to work out the income and the entire receipts as appearing in the seized diaries were not brought to tax. When the income is estimated by applying net profit rate, all the expenses are deemed to have been allowed and this principle is categorically enunciated in Section 44AD of the Act. Even in the case of other ledger accounts, the gross receipt has not been considered as income but only peak of the transactions have been worked out to estimate the profit and unexplained investment in the business. Considering these facts, the assessee could not have been allowed the deduction for expenses of commission and other expenses as appearing in the seized diary, as the income was not worked out on gross basis considering all the entries as appearing in the seized diary. 6. It is thus evident that the deduction for commission and other expense was disallowed for the reason that only net profit rate was applied to work out the income of the assessee. The contention of the Printed from counselvise.com 5 assessee is that the net profit rate was applied only in the case of share trading and goods trading activity. According to the assessee, the profit of money lending (sarafi) and land trading activity was worked out by applying gross profit rate and not the net profit rate. 7. According to the assessee, the income from money lending activity was worked out by applying 100% profit percentage. In this regard, it will be relevant to reproduce the finding given in para 42 of the order dated 18.02.2025: 42. We have considered the rival submissions. The AO has reproduced the ledger account of interest received by the assessee in the assessment order. It is found therefrom that there were credit as well as debit entries in the interest ledger account. The total credit appearing in the interest ledger was Rs.11.86.21.397/- whereas the debit entries were to the extent of Rs.49,25,679/-. After setting off the debit entries with the credit entries, the AO had made addition for net interest of Rs. 11,36,95.718/- only. It is thus found that the expenditure incurred by the assessee for earning of the interest income, as recorded in the ledger account. was already allowed set off by the AO. Under the circumstances, we do not find any merit in the ground as taken by the assessee. No evidence has been not brought on record to substantiate that the assessee had incurred any other expenditure for earning of the interest income as recorded in the seized diaries. Therefore, we do not find any mistake in the order of the AO and the ground as taken by the assessee is dismissed. 8. It is evident from the above finding that the interest income was worked out after considering the credit as well as the debit entries as appearing in the Shree Vyaaj Khaate ledger account. Thus, the income of money lending activity was not estimated on gross basis rather the assessee was allowed set off for all the debit entries appearing in the ledger account. Further, a finding was also given that no evidence was brought on record to substantiate that the assessee had incurred any other expenditure for earning the interest income recorded in the seized diaries. This finding was applicable to commission expense and other Printed from counselvise.com 6 expense as appearing in the seized diaries. In fact, no other expense was found recorded in the interest ledger account and the assessee was unable to establish that any part of commission and other expense as recorded in seized diaries was laid out or incurred for earning of interest income. In view of these facts we don’t find any mistake in the order of the Tribunal. The interest income was not taken at gross value but only net amount, after allowing set off of debit entries, was considered as income of the assessee. Therefore, the contention of assessee that income from money lending activity was taken at gross value is not found correct. 9. As regarding income from land trading activity, the contention of the assessee is that profit percentage of 13.14% applied by the Tribunal was the gross rate and not the net rate. The finding given in this regard in the order dated 18.02.2025 at para-47 is found to be as under: 47. The grievance of the assesses is that profit @ 15% as sustained by the id. CITEA) was still high and it should be reduced to 8% as stipulated u/s 44AD of the Act. The assessee was only a passive investor in land dealings and was not incurring any overhead expenditure. Further as the assessee was engaged in sarafi business, obviously he would deploy funds in land dealings with an intention to earn better return than the interest earned in sarafi business. The profit earned in land dealings depends substantially on the period of holding. Longer the period of holding better the earning. The Id: CIT(A) had inquired about this aspect but the period of holding of the land transactions was not made available by the assessee. Considering this aspect, the Id. CIT(A) had rejected the application of presumptive rate of 8% u/s- 44AD as contended by the assessee. Since the average profit rate in the land dealings as per the seized documents was 13.14%. the presumptive rate of 8% could not have been applied in this case. The assessee himself had worked out the average percentage of profit at 13.14% on the basis of the Jamin trading ledgers in the seized diaries, in the rejoinder to the remand report of the AO. At the same time, the Id. CIT(A) also has not given any reason for estimating the profit @ 15% when the average profit rate as per seized document was 13.14% only. All the factors of passive investment, no overhead expense etc. were already taken into account in the average profit rate as reflected in the seized document. Therefore, it will be reasonable to estimate the profit of Jamin/land trading account by applying the average profit rate of 13.14%. Accordingly, the AO is work out the profit from Printed from counselvise.com 7 Jamin/land trading by applying the average profit rate of 13.14% on the total credits received during the year. 10. The contention of the assessee was to apply profit rate of 8% as stipulated u/s 44AD of the Act, for working out the profit from land trading activity. Considering the fact that the assessee was only a passive investor and did not incur any overhead expenditure, it was held that the CIT(A) had rightly rejected application of presumptive rate of 8%, as requested by the assessee. The income from land trading was worked out at profit rate of 13.14% on the basis of profit rate disclosed by the assessee himself, as appearing in the seized diaries. This profit rate was worked by the assessee himself in the rejoinder to the remand report of the AO filed before the Ld. CIT(A). It was never the contention of the assessee that this rate of 13.14% was gross profit rate and that the assessee was eligible for further deduction therefrom. Therefore, we do not find the contention of the assessee that the rate of 13.14% was gross profit rate and not net profit rate, as correct. In view of this fact we don’t find any mistake in the order of the Tribunal. 11. As regarding claim for bad debt a finding was given in para-74 of the order dated 18.02.2025 that “the assessee had written of the bad debts as irrevocable in the previous year 2022-23 and, therefore, he was eligible for deduction of bad debts in the subsequent assessment year. The deduction for the same could not have been allowed in the earlier years.” This fact has not been controverted by the assessee. Further, regarding the fulfilment of conditions for allowing the claim of bad debt, the following finding was given: 76. The contention of the assessee is that many debts remained to be recovered for a prolonged period and they represented bad debts. Printed from counselvise.com 8 However, the balances of such debts were carried forward to the subsequent years in the seized diaries. When the assessee himself had carried forward the balances in the seized diary, it is evident that these debts were not acknowledged as bad debt in the accounts of the assessee. Further, not only the balances were carried forward but the assessee had also worked out the notional interest in respect of such debts. Thus, part of the bad debts was also in respect of such notional interest. Since the notional interest was not offered to tax by the assessee, he couldn’t have claimed deduction for bad debt in this respect. The Ld. CIT(A) had rightly upheld that twin condition of writing off the bad debts as irrecoverable in the seized diaries as well as offering such debts as income in the earlier years was not satisfied and, therefore, the deduction was not admissible. Though, the assessee has contended that the bad debt pertained to sarafi business and there was no requirement for such debts to be considered as income in the earlier years, no evidence was brought on record that all the bad debts pertained to sarafi business only. The assessee was carrying on multiple activities and, therefore, it cannot be presumed that all the bad debts pertained only to sarafi business. Thus, it can’t be held that the entire claim of bad debt was in respect of money- lending business only. Be that as it may, the fact remains that no bad debt was found written off in the seized diaries. Therefore, the claim for deduction of bad debt was rightly disallowed by the AO in the current year. We do not find anything wrong with the decision of Ld. CIT(A) on this issue and, therefore, his order on this issue is upheld. In view of the above categorical findings, we don’t find any mistake in the order of the Tribunal. 12. By filing the present miscellaneous applications, the assessee has requested to re-adjudicate the issues of commission expense, other expense and bad debts. The provision of Section 254(2) of the Act is intended to rectify only the mistake apparent from the record and we do not find any mistake in the order of the Tribunal. The power of Section 254(2) of the Act cannot be utilized to recall and review the order on its merits. We can’t revisit the case and re-adjudicate the grounds taken by the assessee on merits. If the assessee is of the opinion that the findings given by the Tribunal are incorrect or perverse, he is Printed from counselvise.com 9 free to file an appeal before the Hon’ble High Court. The Hon’ble Supreme Court in the case of CIT vs. Reliance Telecom Limited (2021) 133 taxmann.com 41 (SC) has categorically held as under: “3.2 Having gone through both the orders passed by the ITAT, we are of the opinion that the order passed by the ITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013 is beyond the scope and ambit of the powers under Section 254(2) of the Act. While allowing the application under Section 254(2) of the Act and recalling its earlier order dated 06.09.2013, it appears that the ITAT has re-heard the entire appeal on merits as if the ITAT was deciding the appeal against the order passed by the C.I.T. In exercise of powers under Section 254(2) of the Act, the Appellate Tribunal may amend any order passed by it under sub-section (1) of Section 254 of the Act with a view to rectifying any mistake apparent from the record only. Therefore, the powers under Section 254(2) of the Act are akin to Order XLVII Rule 1 CPC. While considering the application under Section 254(2) of the Act, the Appellate Tribunal is not required to re-visit its earlier order and to go into detail on merits. The powers under Section 254(2) of the Act are only to rectify/correct any mistake apparent from the record. 4. In the present case, a detailed order was passed by the ITAT when it passed an order on 06.09.2013, by which the ITAT held in favour of the Revenue. Therefore, the said order could not have been recalled by the Appellate Tribunal in exercise of powers under Section 254(2) of the Act. If the Assessee was of the opinion that the order passed by the ITAT was erroneous, either on facts or in law, in that case, the only remedy available to the Assessee was to prefer the appeal before the High Court, which as such was already filed by the Assessee before the High Court, which the Assessee withdrew after the order passed by the ITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013. Therefore, as such, the order passed by the ITAT recalling its earlier order dated 06.09.2013 which has been passed in exercise of powers under Section 254(2) of the Act is beyond the scope and ambit of the powers of the Appellate Tribunal conferred under Section 254 (2) of the Act. Therefore, the order passed by the ITAT dated 18.11.2016 recalling its earlier order dated 06.09.2013 is unsustainable, which ought to have been set aside by the High Court. 13. The provision of Section 254(2) of the Act entitles to rectify the mistake apparent from record and we do not find any such mistake in the order of the Tribunal. The power of Section 254(2) of the Act cannot be utilised to recall, review and re-adjudicate the order on its merit. Considering the totality of the facts as discussed above, the Miscellaneous Applications filed by the assessee are required to be dismissed for the reason as discussed above and also Printed from counselvise.com 10 on account of judicial discipline following the judgement of Hon’ble Supreme Court in the case of Reliance Telecom Ltd. (supra). 15. Accordingly, the miscellaneous applications filed by the assessee are dismissed. Order pronounced in the Court on 09/01/2026 at Ahmedabad. Sd/- Sd/- (TR SENTHIL KUMAR) (NARENDRA PRASAD SINHA) Judicial Member Accountant Member TRUE COPY Dated - 09th January, 2026 Nimisha Arora आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant 2. ᮧ᭜यथᱮ / The Respondent. 3. संबंिधत आयकर आयुᲦ / Concerned CIT 4. आयकर आयुᲦ(अपील) / The CIT(A) 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण / DR, ITAT, 6. गाडᭅ फाईल /Guard file. आदेशानुसार/BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad Printed from counselvise.com "