DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-3(3), MUMBAI, MUMBAI vs. PRADEEP PHULCHAND AGARWAL, MUMBAI
In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that the additions were not substantiated by independent corroborative evidence linking the cash transactions to the assessee in his individual capacity. The CIT(A) had correctly examined each item and found that the material either related to the group company, was disclosed through banking channels, or lacked necessary nexus with the assessee.
What were the facts?
The Revenue appealed the deletion of additions made under sections 69C and 69A, based on WhatsApp conversations and a statement from an employee of a group company. The Assessing Officer alleged unexplained cash interest payments and receipts by the assessee.
What were the issues?
Whether WhatsApp chats and an employee's statement, without independent corroboration, are sufficient to prove unexplained cash expenditure and receipts by the assessee.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH
आदेश / O R D E R PER AMIT SHUKLA (J.M): This appeal has been filed by the Revenue against the order passed by the learned Commissioner of Income Tax (Appeals) in the case of Shri Pradeep Phulchand Agarwal for A.Y. 2018-19. The first and principal grievance of the Revenue is that the learned CIT(A) has erred in deleting the addition of Rs.20,35,72,864 made under sections 69C and
2 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal 69A of the Income Tax Act, 1961. The case of the Revenue is that the said additions were made on the basis of evidences in the form of WhatsApp conversations/images found from the mobile phone of Mrs. Jyoti Laxman Bambade, who was stated to be a key employee of M/s Phulchand Exports Pvt. Ltd., during the course of search proceedings in Phulchand Group. The Revenue has further alleged that Mrs. Jyoti Laxman Bambade, in her statement recorded under section 132(4), had admitted that the assessee was routinely engaged in raising loans in cash and making payment of interest in cash. According to the Revenue, the learned CIT(A) failed to appreciate the evidentiary value of such WhatsApp conversations and statement, and wrongly deleted the additions which were made by the Assessing Officer after considering the seized material and the statement recorded during search.
The additions forming part of this ground comprise two broad categories. The first category consists of additions made under section 69C aggregating to Rs.10,38,81,017, being alleged unexplained expenditure in the form of cash interest payments and other cash payments. The second category consists of additions made under section 69A aggregating to Rs.9,96,91,847, being alleged unexplained money or cash receipts. The Assessing Officer had discussed these additions mainly in para 6 of the assessment order and
3 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal had proceeded party-wise on the basis of WhatsApp images/chats and explanations given by Smt. Jyoti Bambade. The learned CIT(A), on the other hand, has considered each item separately and has deleted the additions after examining the assessee’s explanation, ledger accounts, bank statements, confirmations and other supporting records.
Before dealing with the individual additions, it would be appropriate to record the broad factual setting in which these additions have been made. The search proceedings were carried out in Phulchand Group. During such search, mobile phone of Smt. Jyoti Laxman Bambade, an employee of M/s Phulchand Exports Pvt. Ltd. (“PEL”), was examined and certain WhatsApp messages/images were found therein. The Assessing Officer treated such images and chats as evidence of cash dealings of the assessee. The assessee, however, throughout the proceedings submitted that Smt. Jyoti Bambade was an employee of PEL; that the assessee was not even a director of PEL but was merely assisting his aged father Shri Phulchand Agarwal in business matters; that several chats and workings related to PEL or Shri Phulchand Agarwal and not to the assessee in his individual capacity; that no corresponding WhatsApp chats were found from the assessee’s own phone; that during search no undeclared cash, jewellery or other asset was found from the assessee; and that no record of any cash interest paid, cash received or
4 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal unrecorded investment was found. It was also submitted that the Assessing Officer did not conduct any independent enquiry from the alleged parties to whom cash interest was said to have been paid or from whom cash was alleged to have been received.
The first addition under section 69C is of Rs.2,91,77,425, being alleged interest payable to “MJ”. This addition was based on an image dated 05.03.2018 found from the telephone of Smt. Jyoti Bambade, containing calculation of interest payable. The image reflected an interest calculation from 01.04.2017 to 31.03.2018 which was as under:-
Interest calculation From l.4.2017 To 31. 3. 2018 MJ DATE PRINCIPAL MONTH ROI INTEREST AMOUNT 01.04.2017 21,00,00,000 3 12% 63,00,000 30.06.2017 01.07.2017 21,00,00,000 3 12% 63,00,000 30.09.2017 01.10.2017 21,00,00,000 3 12% 63,00,000 31.12.2017 …………. 1,89,00,000 . 01.01.2018 21,00,00,000 3 12% 63,00,000 63,00,00 31.03.2018 2,52,00,000
5 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal
LOAN A/C DATE PRINCIPAL Add! DAYS ROI INTEREST received AMOUNT 02.06.2017 2,00,00,000 6 12% 39,452 RECD ADDL ON 1,00,00,000 03.07.2017 3,00,00,000 2 12% 19,726 RECD ADDL ON 35,00,000 05.07.2017 3,35,00,000 78 12% 8,59,068
RECD ADDL ON 50,00,000 21.09.2017 3,85,00,000 40 12% 5,06,301
MONTH 14,24,548 __________ __________ _ 4,35,00,000 2 12% 8,70,000.00 02.11.2017 …………….. 31.12.2017 22,94,548
01.01.2018 4,35,00,000 3 12% 13,05,000
35,99,548 ………………
LOAN..... DAYS .
20.11.2017 75,00,000 42 12% 1,03,562
31.12.2017 _
MONTH _
01.01.2018 75,00,000 3 12% 2,25,000
3,28,562 ………………
6 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal
DAYS _
30.01.2018 50,00,000 30 12% 49,315 49,315
02.03.2018 -5000000 …………… - .. - 2,91,77,425
INT CAL UPTO - 31.03.2018 SUMMARY INTAMT -
RTGS LOAN-PEL 4,35,00,000 36,48,863 - CHEQUE PRINCIPAL 21,75,00,000 2,55,28,562 -
…………… -
26,10,00,000
INTEREST 2,91,77,425 UPTO 31.03.2018 (A+B+C+D) 29,01,77,425 PAYABLE UPTO MARCH ,2018 INCLUDIN G INTEREST
in a/c of phulchandji
sumer constructions 18500000 14.11.2017
kamladevi Jain 6600000 14.11.2017
Nikhil enterprises 3400000 15.11.2017
…………… - 28500000
7 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal
- IN A/C OF PHULCHAND EXPORTS MASS L 4,35,00,000 CONSTRUCTIONS - 105000000 .- - - PEPL/ JASMINE 20000000 - ENTERPRISES - …………. 153500000 -
The image also recorded “payable upto March 2018 including interest” and at the bottom there was a reference “in a/c of Phulchandji”.
The assessee, during assessment proceedings, vide submission dated 04.01.2022, submitted that the loose working paper image seized from the residence or mobile phone of Smt. Jyoti Bambade nowhere reflected the name of the assessee. It was submitted that the loose paper reflected the name “MJ”, but the assessee had not made any loan transaction with any such party named “MJ”. It was further submitted that for making an addition under section 69C, the onus was upon the department to prove that the expenditure had actually been incurred and that the same belonged to the
8 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal assessee. The assessee specifically stated that apart from the loose working paper, there was no other material on record to corroborate that the noting belonged to the assessee in any manner or that any interest was paid in cash by him. It was also stated that no further evidence was found during search correlating any record or material with such cash movement or accounting thereof. Again, in response to the show cause notice dated 06.01.2022, the assessee reiterated vide submission dated 07.01.2022 that he had not carried out any transaction with “MJ” and that there was nothing to show that the said noting belonged to him.
The assessee also explained that in the above image containing interest calculation, various names were appearing and the borrowings were made by PEL from MAS Construction of Rs.9.60 crores and Sumer Corporation of Rs.1.85 crores, and payments were made by Shri Phulchand Agarwal, father of the assessee, to two parties. Necessary confirmations of accounts were also submitted. The assessee’s specific case was that the transactions were duly disclosed and related to PEL/Shri Phulchand Agarwal and not to the assessee. It was further explained that the interest calculation was on these loans and other loans as appearing in the accounts of PEL/father Shri Phulchand Agarwal. The Assessing Officer, however, rejected the assessee’s explanation by observing at page 19 of the assessment order
9 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal that the assessee had not discharged his primary onus by explaining the transaction and by justifying the reason for conversation with Smt. Jyoti Laxman Bambade. The addition was made without identifying any lender named “MJ” and without linking the alleged interest payment to any specific party from whom the assessee had received any loan.
The learned CIT(A), in para 6.5.1.3, has recorded a very specific factual finding. The assessee had submitted the list of persons from whom he had taken or given loan during the year and on perusal of the same no person having the acronym “MJ” was found. The learned CIT(A) further noted that Smt. Bambade, in her statement reproduced by the Assessing Officer, had herself stated that these were business communications involving bank and cash transactions with various parties of the company. Therefore, the learned CIT(A) held that even the statement relied upon by the Assessing Officer made it clear that the transactions pertained to the company and not to the assessee in his individual capacity. The learned CIT(A) also recorded that there was no other finding or material on record to corroborate the statement of Smt. Bambade. Accordingly, the learned CIT(A) accepted the assessee’s contention that he had not entered into any transaction with any entity named “MJ” and that if no loan had been received by him from “MJ” through RTGS, the question of interest payment did not arise.
10 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal
We find that the deletion of this addition by the learned CIT(A) is based on a proper appreciation of the material on record and calls for no interference. The foundation of the addition is a WhatsApp image found not from the possession or device of the assessee, but from the mobile phone of an employee of PEL. The said image, on its own terms, contains references such as “RTGS loan PEL” and “in a/c of Phulchandji”, which prima facie point towards the company or Shri Phulchand Agarwal and not towards the assessee in his individual capacity. Once the assessee had specifically denied any transaction with “MJ”, the burden shifted upon the Assessing Officer to identify who “MJ” was, whether any loan had in fact been received by the assessee from such person, whether any interest liability had arisen in the assessee’s hands, and whether any part thereof had actually been paid in cash. None of these foundational facts has been established. Section 69C cannot be invoked merely because a working of interest is found in a third-party device; it requires proof, or at least cogent material, that the assessee has incurred expenditure and that the source of such expenditure is unexplained. Here, the Assessing Officer has not identified the lender, has not examined any such person, has not found any corresponding cash trail, and has not shown any debit, withdrawal, receipt or payment connecting the assessee personally with the alleged interest. On the contrary, the
11 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal internal contents of the image itself militate against the Revenue’s case, as the references contained therein connect the transaction to PEL/Phulchandji. In such circumstances, the learned CIT(A) was fully justified in holding that the addition of Rs.2,91,77,425 could not be fastened upon the assessee merely on suspicion, conjecture or on a general statement of an employee, without independent corroboration. The deletion of this addition is, therefore, upheld.
The next addition under section 69C is of Rs.46,00,000, based on a telephone image dated 19.01.2018, alleging that the assessee had paid Rs.46,00,000 in cash to various parties. Before the learned CIT(A), the assessee submitted that the transactions were duly recorded and belonged partly to the assessee and partly to M/s Phulchand Exports Pvt. Ltd.; and that all payments were by cheque or banking channels and duly reflected in bank statements. The details furnished were as under:-
Amount Payment Payment made from Payment made to Party Paid Date 5,00,000 17.07.2017 Mr. Pradeep Agarwal Suman Roofings 10,00,000 31-08-2017 Mr. Pradeep Agarwal Shree Ranisati Enterprises 5,00,000 04.10.2017 Phulchand Exports Pvt Right choice Tours & Travels Ltd
12 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal 2,00,000 05.10.2017 Phulchand Exports Pvt Mr. Phulchand Agarwal Ltd 1,00,000 31.10.2017 Phulchand Exports Pvt Anjani Commercial Ltd Corporation 3,00,000 07-11-2017 Mr. Phulchand Agarwal Mr. Pradeep Agarwal '15,00,000 22-11-2017 Phulchand Exports Pvt Mr. Phulchand Agarwal Ltd 5,00,000 30-11-2017 Mr. Phulchand Agarwal Phulchand Exports Pvt Ltd 46,00,000
Necessary copies of accounts were furnished at pages 37 to 63, and it was submitted that the transactions belonged to the assessee, his father Shri Phulchand Agarwal and the group company/firm, and were supported by accounts and bank statements.
The Assessing Officer, at page 22 of the assessment order, observed that the assessee and Jyoti used to exchange WhatsApp messages for the parties to whom payment was to be made in order to keep the loan parties in faith; and that the explanation regarding flow of funds appeared to be an afterthought and lacked substance. Accordingly, the Assessing Officer treated Rs.46,00,000 as unexplained cash expenditure under section 69C. The learned CIT(A), in para 6.5.2.5, deleted the addition after recording that the assessee had demonstrated that the payments were made through
13 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal banking channels and recorded in books rather than in cash as alleged through the WhatsApp image. The learned CIT(A) further recorded that although the Assessing Officer had noted minor discrepancies between WhatsApp file dates and bank statement dates, the delay of three to five days was plausible and the evidence showed that the transactions pertained to M/s Phulchand Exports Pvt. Ltd. and the assessee.
On this issue also, we find that the learned CIT(A) has undertaken a factual reconciliation of the very entries which the Assessing Officer had treated as cash payments. The assessee did not merely offer a bald denial; he gave a date- wise, party-wise and source-wise explanation and supported the same with ledger accounts and bank statements. The details show that the payments were made either by the assessee, by Shri Phulchand Agarwal, or by PEL through regular banking channels. The Assessing Officer has not disproved these bank entries, nor has he shown that the same entries were bogus, back-dated, fabricated or unrelated to the notings in the WhatsApp image. Once the documentary record explains the payments through banking channels, the statutory precondition for invoking section 69C, namely unexplained expenditure, is not satisfied. A WhatsApp image may at best be a piece of information requiring verification; it cannot, after verification has yielded recorded bank
14 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal transactions, be elevated into conclusive evidence of cash expenditure. Minor differences of a few days between the date appearing in an informal message and the date of actual banking transaction cannot, by themselves, convert recorded banking payments into unexplained cash payments. The learned CIT(A), therefore, has rightly preferred contemporaneous books and bank statements over an uncorroborated presumption drawn from a third-party image. Accordingly, the deletion of addition of Rs.46,00,000 is upheld.
The third addition under section 69C is of Rs.1,02,50,000 in respect of alleged out-of-books interest payable to “Vishal”, based on image dated 05.03.2018 which is as under:-
INTEREST FOR JUNE 2017
VISHAL 70000000 3 15.0% 2625000
1.4.17 30000000 3 15.0% 1125000 30.6.17 ………… 100000000 ---------- 3750000 PAID ON -2500000 13.9.17
----------- BALANCE TO 1250000 PAY
INTEREST FOR SEPTEMBER,2017 QUARTER
15 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal VISHAL 1.7.17 10,00,00,000 3 12.0% 30,00,000
30.9.17 balance to pay from June, 17 quarter (calculated by 12,50,000 15%) ------------- 42,50,000
1.10.17 10,00,00,000 3 12.0% 30,00,000
31.12.17 1.1.18 10,00,00,000 3 12.0% 30,00,000
31.3.18 ------------ 1,02,50,000
The assessee, during assessment proceedings, submitted that he had not carried out any transaction with any party named Vishal. It was also submitted that the image related only to calculation of interest payable and not actual payment, and that there was no evidence that any such expenditure had been incurred by the assessee. The Assessing Officer, however, at page 25 of the assessment order, observed that as admitted by the assessee, no recorded transaction of raising money from a person named Vishal had been presented to him and, relying on the statement of Mrs. Jyoti Laxman Bambade and alleged incriminating evidence, held
16 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal that the transaction was out of books. Accordingly, Rs.1,02,50,000 was added under section 69C.
The learned CIT(A), in para 6.5.3.4, deleted the addition on the ground of lack of identity and correlation. The learned CIT(A) recorded that the Assessing Officer had failed to identify the party “Vishal” or establish any link between such individual and the assessee’s records. No such loan appeared in the assessee’s list of borrowings. The learned CIT(A) further recorded that the evidence suggested that the transaction related to M/s Phulchand Exports Pvt. Ltd., specifically a loan from Chartered Capital Research Pvt. Ltd., and not to the assessee in his individual capacity. It was further held that the statement of Smt. Bambade lacked consistency and was not supported by any credit entries in the assessee’s books. The learned CIT(A) also observed that the WhatsApp image merely showed interest as “payable”, indicating that it was not a completed transaction or actual expenditure incurred by the assessee. On these facts, the learned CIT(A) held that the addition was not sustainable.
We are inclined to agree with the finding recorded by the learned CIT(A). The Assessing Officer has proceeded on the footing that because the assessee could not show a recorded transaction with a person named “Vishal”, the transaction must necessarily be out of books. This approach reverses the
17 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal burden in a manner not contemplated by section 69C. When the assessee denies any transaction with an unidentified person, the first obligation of the Revenue is to show that such person exists, that he had advanced money to the assessee, that interest had accrued or was payable by the assessee to him, and that such interest was actually paid or represented expenditure incurred by the assessee. None of these links has been established. The image only mentions an interest working as “payable”; it does not prove payment. Even otherwise, the learned CIT(A) has recorded that the material was relatable to PEL and Chartered Capital Research Pvt. Ltd. and not to the assessee individually. This finding has not been rebutted by the Revenue by bringing any contrary material on record. No confirmation, no cash trail, no lender statement, no seized cash-flow record, and no corresponding entry in the assessee’s books has been shown. In absence of such corroboration, the addition remains founded only on an unverified notation and a generalized statement of an employee. Such material may give rise to suspicion, but suspicion, however strong, cannot be a substitute for proof of unexplained expenditure. The deletion of Rs.1,02,50,000 is, therefore, sustained.
The next addition under section 69C is of Rs.4,65,36,593, being alleged interest paid to “JB/KP”. The assessee submitted that the payments related to the parties stated in
18 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal the chart and that necessary copies of accounts and bank statements were enclosed at pages 64 to 112. It was specifically explained that three accounts related to the assessee and the others related to PEL. It was categorically stated that all payments were through bank and there was no cash payment. The interest referred to in the WhatsApp material was for the quarter ending 31.03.2018, whereas the interest paid for the whole year and debited in the books of account was Rs.5,99,44,614. The details of interest paid from the books of Mr. Pradeep Agarwal were as under:- Date Name Interest Amount 26,14,575 Mr. Pradeep Agarwal 28-03-18 Anushka V Bansal Mr. Pradeep Agarwal 28-03-18 Pooja M Goel 12,11,310 Mr. Pradeep Agarwal 28-03-18 Jagdish Chandra R Bansal 13,23,836 Total - A 51,49,721
Interest paid from the books of Phulchand Export pvt Ltd. Phulchand Exports 28-03-18 Zoom Trade & Realty Ltd 61,88,932 Pvt Ltd Phulchand Exports 28-03-18 Zoom Trade & Realty Ltd 2,33,556 Pvt Ltd Phulchand Exports 28-03-18 Smeaton Developers Pvt Ltd 49,64,384 Pvt Ltd Phulchand Exports 29-03-18 Florence Securities Pvt Ltd 60,00,000 Pvt Ltd
19 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal Phulchand Exports 29-03-18 Carron Investment Pvt Ltd 60,00,000 Pvt Ltd Phulchand Exports 29-03-18 Chartered Capital Research Pvt 60,00,000 Ltd Pvt Ltd Phulchand Exports 29-03-18 Alken Management & Financial 60,00,000 Services Pvt Ltd Pvt Ltd Phulchand Exports 29-03-18 Novus Tradestar Pvt. Ltd 60,00,000 Pvt Ltd Total – B 4,13,86,872 Gross Total (A+B)_ Rs.4,65,36,593/-
The Assessing Officer, at page 28 of the assessment order, observed that since the image was sent by the assessee’s employee to him, the primary onus of identifying these parties lay on the assessee. The Assessing Officer further observed that the assessee himself was claiming that half of the facts mentioned in the image were true, which according to him enhanced the authenticity of the evidence gathered. Accordingly, interest of Rs.4,65,36,592 was added under section 69C. The learned CIT(A), in para 6.5.4.3, deleted the addition after recording that the assessee had successfully demonstrated that the entire interest amount was duly reflected in ledger accounts and bank statements of both the assessee and PEL. The learned CIT(A) further recorded that the breakup of interest, including TDS details shown in the WhatsApp image, matched the books of account exactly, thereby confirming that the transactions were through
20 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal banking channels. The learned CIT(A) also noted that the Assessing Officer had relied on the vague statement of Smt. Jyoti Bambade that interest was “partially paid in cash”, but she failed to specify the cash component or rebut the fact that the entire amount was accounted for in the books. The learned CIT(A) further observed that a significant portion of the interest, more than Rs.4.13 crores, pertained to PEL and not to the assessee in his individual capacity.
We find that this addition is a striking instance where the very amount alleged to be unexplained stands reconciled with the regular books of account and banking records. The assessee gave complete particulars of the parties, dates, amounts and the books in which such payments were recorded. A sum of Rs.51,49,721 was shown from the assessee’s own books, while Rs.4,13,86,872 was shown from the books of PEL. The learned CIT(A) has recorded a categorical finding that the breakup of interest and even TDS particulars matched with the books of account. Once the entries in the WhatsApp image are found to correspond with recorded interest transactions, the Revenue cannot selectively accept the image for making an addition and at the same time ignore the books and bank statements which explain the same image. The Assessing Officer’s reasoning that part of the image being true enhances the authenticity of the whole evidence does not carry the matter further, because the part
21 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal found to be true actually supports the assessee’s case that these were recorded transactions. Further, the vague assertion that interest was “partially paid in cash” is bereft of particulars. It does not identify the cash portion, the recipient, the date of payment, the source of cash, or any seized material showing actual outgo. Such an indefinite statement cannot override documentary evidence which explains the entire amount. In taxing a person under section 69C, the Revenue must demonstrate unexplained expenditure incurred by that person; it cannot tax recorded banking transactions merely by attaching to them an unsubstantiated allegation of cash payment. The learned CIT(A), therefore, rightly deleted the addition of Rs.4,65,36,593 and the said deletion is affirmed.
The next addition under section 69C is of Rs.5,00,000 on the basis of WhatsApp chat with Mr. Jay Shah found in the mobile phone of Jyoti Bambade. The assessee submitted that he had no dealing with Jay Shah and no payment had been made by him to Jay Shah. It was further submitted that there was nothing to show actual payment by the assessee, and the Assessing Officer did not make any enquiry from Mr. Jay Shah. The Assessing Officer, at page 28 of the assessment order, held that the explanation was not satisfactory because the assessee had not explained how making payment of Rs.5,00,000 to Jay Shah as per assessee’s instruction would
22 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal pacify loan parties without actually making payments. Accordingly, Rs.5,00,000 was added under section 69C.
The learned CIT(A), in para 6.5.5.3, deleted the addition. It was observed that the addition was based on a WhatsApp conversation between third parties, namely Smt. Jyoti Bambade and Jay Shah. There was no instruction for cash payment or loan in any direct communication between the assessee and Smt. Bambade. The learned CIT(A) further observed that the addition relied solely upon a chat image and the statement of Smt. Bambade, without any independent evidence that the assessee had actually provided cash or incurred expenditure. It was further recorded that, for section 69C, the Revenue must prove that expenditure was actually incurred; however, no evidence of any cash loan receipt or interest payment was found to substantiate the transaction. The learned CIT(A) also noticed that the statement indicated that the amount was merely “payable”, meaning thereby that the transaction was not concluded or executed by the assessee. Since there was no material establishing link with the assessee or actual occurrence of payment, the addition was deleted.
We find no infirmity in the aforesaid conclusion of the learned CIT(A). The addition of Rs.5,00,000 rests entirely on a WhatsApp conversation found from the phone of Smt. Jyoti
23 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal Bambade, and that too without any independent enquiry from Jay Shah. If Jay Shah was the alleged recipient, nothing prevented the Assessing Officer from issuing summons, recording his statement, or ascertaining whether any cash was in fact received by him from or on behalf of the assessee. No such exercise was undertaken. There is also no direct communication of the assessee instructing cash payment, nor is there any document showing that cash moved from the assessee to Jay Shah. The expression “payable”, as noticed by the learned CIT(A), itself does not establish an actual outflow. In matters under section 69C, the distinction between a proposed, contemplated or notional payment and an actual expenditure is of consequence. Unless the Revenue establishes that expenditure has actually been incurred, addition cannot be sustained. Therefore, in absence of any corroborative material, and in absence of enquiry from the alleged recipient, the learned CIT(A) was justified in deleting the addition. The deletion is accordingly confirmed.
The next addition under section 69C is of Rs.33,00,000 on the basis of WhatsApp chat with Mr. Anuj Jain. Smt. Jyoti, while explaining telephone messages in reply to Question No.44(xx), stated that he belonged to Indo Sino Trade Pte. Ltd., Singapore. The Assessing Officer, at page 29 of the order, observed that with respect to this chat dated 05.03.2018, the assessee had denied undertaking any such
24 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal transaction without proper explanation, but the statement made by Mrs. Jyoti Laxman Bambade was clear enough as she had identified the party. Accordingly, the assessee’s denial was rejected and Rs.33,00,000 was added under section 69C.
The related addition is payment to Mr. Lalit Jain, Singapore, of Rs.95,17,000. Smt. Jyoti, while explaining telephone messages in reply to Question No.44(xvii), stated that he was of Indo Sino Trade Pte. Ltd., Singapore. Smt. Jyoti, in reply to Question No.20, also stated that PEL imports coal from Singapore. Accordingly, the assessee submitted that the transaction did not relate to the assessee. The Assessing Officer, however, at page 26 of the assessment order, rejected the argument that Jyoti used to exchange WhatsApp messages with the assessee or with parties to whom payment was to be done in order to keep loan parties in faith. Relying upon the statement of Mrs. Jyoti Laxman Bambade and alleged incriminating evidences found and seized during search, the Assessing Officer treated the transaction as out-of-books and added cash paid to Lalit Jain, Singapore of Rs.95.17 lakhs, consisting of Rs.55 lakhs and Rs.40.17 lakhs, under section 69C.
The learned CIT(A), in para 6.5.6.3, deleted the additions of Rs.33,00,000 in respect of Anuj Jain and Rs.95,17,000 in
25 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal respect of Lalit Jain. The learned CIT(A) recorded that the payees Anuj Jain and Lalit Jain were associated with Indo Sino Trade Pte. Ltd., an entity which transacted with M/s Phulchand Exports Pvt. Ltd. and not with the assessee personally. The learned CIT(A) found that the Assessing Officer had relied solely on WhatsApp chats from a third party’s mobile and statement of Smt. Jyoti Bambade. The appellate authority found her statements vague, non-specific and lacking any distinction between company and individual transactions. The learned CIT(A) further observed that under section 69C, the onus is on the department to prove that an expenditure was actually incurred, but no corroborative evidence such as seized cash, recorded entries or confirmation from payees was found to prove actual passing of cash. The learned CIT(A), relying on the jurisdictional High Court rulings in Lavanya Land, Arpit Land and Timblo Pvt. Ltd., held that additions could not be sustained merely on seized documents/chats without cogent evidence of actual cash outflow. Since the transactions were attributable to the company and no material established personal liability or actual payment by the assessee, both additions were deleted.
We find that the learned CIT(A)’s finding is well founded. The material relied upon by the Assessing Officer itself shows that Anuj Jain and Lalit Jain were connected with Indo Sino Trade Pte. Ltd., Singapore, and the statement of Smt. Jyoti
26 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal Bambade also records that PEL was engaged in import of coal from Singapore. Thus, the primary factual trail emerging from the Revenue’s own material points towards the business dealings of PEL and not towards any personal transaction of the assessee. Once this position emerges from the material itself, it was incumbent upon the Assessing Officer to bring some positive evidence to show that, notwithstanding the corporate connection, the alleged cash payment was actually made by the assessee in his individual capacity. No such evidence has been brought. Neither Anuj Jain nor Lalit Jain was examined. There is no confirmation of cash receipt. There is no evidence of cash withdrawal or cash availability with the assessee. There is no seized cash book, diary or parallel ledger evidencing such payment. There is also no material to show that the assessee derived any personal benefit from the alleged payments. The additions are thus based not on proof of expenditure, but on an assumption that every communication handled by Smt. Jyoti Bambade must necessarily relate to the assessee. Such an assumption is impermissible, particularly when Smt. Bambade was admittedly an employee of PEL and the parties named in the chats were connected with PEL’s business. The learned CIT(A), therefore, has rightly held that these additions could not be sustained merely on the strength of third-party WhatsApp chats and an uncorroborated statement.
27 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal Accordingly, the deletion of Rs.33,00,000 and Rs.95,17,000 is upheld.
Having dealt with the additions made under section 69C, we now come to the additions made under section 69A aggregating to Rs.9,96,91,847 which is as under:-
Sr. no Party Name Amount Section under the Act. 1 Cash received 5,20,00,000/- 69A Cash received(b November 17) 2 Sushil Sanghai-cash received 5,00,000/- 69A Amount received(E 4-02-18) 3 Star Minerals-interest in cash 4,71,91,847- 69A Unexplained loan given and interest received(d4-02-18) Total 9,96,91,847-
The first addition under section 69A is Rs.5,20,00,000 based on an image found in the telephone of the company employee containing “details of receipts received in November 2017”. The image contained entries on following dates:-
DETAILS OF RECEIPTS RECEIVED IN NOVEMBER2017
DATE R P
28 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal
1 2.11.17 48.2 )
2 7.11.17 49.9 )100
3 8.11.17 70.00
4 9.11.17 30
5 9.11.17 100
6 9.11.17 50
7 9.11.17 - 4997500 paid to arvindji
8 11.11.17 50
11.11.17 15 9
14.11.17 10
10 11 14.11.17 10
12 14.11.17 13 15.11.17 25
14 A'bad 25
………..
9/11 -50 pd to Arvindji
…………….
29 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal
-260 RTGS
-140 RTGS 24/11
………….
Balance 70
The Assessing Officer treated these figures as cash receipts of Rs.5.20 crores belonging to the assessee.
The assessee submitted during assessment proceedings that during search at the residence of the assessee or Jyoti, no undisclosed cash was found. Merely on the basis of certain figures stated in hundreds and by presuming such figures to be cash received, addition of Rs.5,20,00,000 under section 69A could not be made. It was specifically submitted that the assessee was not found to be owner of any undisclosed money, bullion, jewellery or other valuable article and therefore addition under section 69A was unjustified. The assessee further submitted that a telephone image is not books of account and section 68 is inapplicable. For section 69A, the Assessing Officer had to prove that funds were in fact received by the assessee. It was further submitted that there was no evidence of any cash received by the assessee. The assessee explained that the statement showed receipts of
30 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal Rs.5.20 crores and payments through RTGS of Rs.4 crores, and that the payments were made by PEL to M/s Anjani Towers Pvt. Ltd. as per copy of accounts and bank statements enclosed at pages 113 to 115. Since payments through RTGS and by PEL were duly reflected in the books of account and bank statement of PEL, there was no reason to presume that receipts were in cash and belonged to the assessee, while the payment recorded was through bank and by PEL.
The Assessing Officer, at page 21 of the order, held that the figures mentioned in the image had been identified by Mrs. Jyoti Laxman Bambade herself in her statement. He further observed that absence of physical cash at the residence did not prove that there was no cash transaction, and that there was considerable time lag between the date of transactions and the date of search. Accordingly, he concluded that Rs.5,20,00,000 was received by the assessee and belonged to him within the definition of section 69A.
The learned CIT(A), in para 6.5.7.4, recorded that the assessee had argued that the scribblings pertained to the business of PEL and not his personal income. Specifically, RTGS payments of Rs.2.60 crores and Rs.1.40 crores mentioned in the image were shown to match exactly with PEL’s bank entries and ledger payments to M/s Anjani Towers Pvt. Ltd. The learned CIT(A), after verification,
31 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal recorded that the RTGS amounts of Rs.2.60 crores and Rs.1.40 crores and dates in the WhatsApp image exactly matched the company’s audited bank statements and ledgers. Since the primary transactions were verified as belonging to the company, a separate legal entity, the learned CIT(A) held that the remaining scribblings logically pertained to the company as well. Accordingly, the addition of Rs.5.20 crores was deleted as the image did not represent personal unexplained income of the assessee but documented recorded corporate transactions.
We find that the learned CIT(A) has correctly appreciated the evidentiary value of the material and has deleted the addition after due verification of the contemporaneous record. Section 69A contemplates a situation where the assessee is found to be the owner of money, bullion, jewellery or other valuable article and such money or asset is not recorded in the books of account, if any, maintained by him. Thus, the sine qua non for invoking section 69A is not merely the existence of some figures in a loose document or a mobile image, but a demonstrable finding that the assessee is the owner of such money or asset. In the present case, no cash of Rs.5.20 crores, or any part thereof, was found from the assessee. No person was examined to establish that such amount was paid to or received by the assessee. No material was found from the assessee’s own possession showing that
32 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal he had received this sum in cash. On the contrary, the very image relied upon by the Assessing Officer contained RTGS entries of Rs.2.60 crores and Rs.1.40 crores, which stood exactly reconciled with PEL’s books and bank statements in respect of payments made to M/s Anjani Towers Pvt. Ltd. Once the reliable and verifiable part of the image is found to belong to the company’s recorded banking transactions, it would be wholly unsafe to sever the remaining notings from that context and attribute them to the assessee personally, without any independent corroboration. The Assessing Officer has accepted the image as incriminating, but has ignored the internal indications in the same image which connect the transactions to PEL. Such selective reading cannot sustain an addition under section 69A. The learned CIT(A), therefore, rightly held that the notings did not represent unexplained money of the assessee, but were relatable to corporate transactions of PEL. The deletion of Rs.5,20,00,000 is accordingly upheld.
The second addition under section 69A is Rs.5,00,000, based on WhatsApp chat of Jyoti Bambade, being amount allegedly received from Shri Sushil Sanghai. The assessee submitted that Shri Phulchand Agarwal had in fact paid Rs.5,00,000 to him as per copy of account and bank statement enclosed at pages 116 and 117. It was also submitted that the Assessing Officer did not make any
33 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal enquiry from Mr. Sushil Sanghai although his address was available, and therefore the addition was made without enquiry and merely on presumption. The Assessing Officer, at page 24 of the assessment order, held that since the assessee had not given any satisfactory response, the amount of Rs.5,00,000 received by him was added under section 69A.
The learned CIT(A), in para 6.5.8.3, held that the statement failed to distinguish whether the alleged transaction pertained to the assessee personally or to the company where Smt. Bambade was employed. The learned CIT(A) recorded that the assessee had categorically denied cash receipt and had provided documentary evidence in the form of ledger and bank statements to the contrary. The records showed a documented payment of Rs.5,00,000 to Shri Sunil/Sushil Sanghai on 07.02.2018, directly contradicting the claim of cash receipt. The learned CIT(A) further held that the Assessing Officer failed to produce any corroborative material or independent evidence to support the oral testimony. Smt. Bambade was an employee and her sweeping generalizations could not be attributed to the assessee without proof. In the absence of incriminating evidence, a mere oral statement could not override recorded books of account. Accordingly, the addition was deleted.
34 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal 33. We find that the deletion of this addition also rests on sound factual appreciation. The assessee had placed ledger account and bank statement to explain the transaction, whereas the Assessing Officer did not bring any contrary material on record. If according to the Assessing Officer the assessee had received cash from Shri Sushil Sanghai, then the obvious and elementary course was to examine Shri Sushil Sanghai, particularly when his details were available. No such enquiry was conducted. There is no evidence of cash receipt, no seized material from the assessee, no admission by the assessee, no cash trail, and no independent confirmation from the alleged payer. The statement of Smt. Jyoti Bambade, without distinguishing whether the transaction related to PEL, Shri Phulchand Agarwal or the assessee personally, could not by itself justify an addition under section 69A. More importantly, section 69A requires a finding that the assessee was owner of unexplained money. Such ownership cannot be presumed merely because a name or an amount appears in a WhatsApp chat found from the mobile phone of an employee of a company. In view of the documentary evidence furnished by the assessee and the absence of any enquiry or corroboration by the Assessing Officer, the learned CIT(A) rightly deleted the addition of Rs.5,00,000. The same is upheld.
35 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal 34. The third addition under section 69A is Rs.4,71,91,847 on account of alleged interest received in cash from Star Minerals. The assessee submitted that in the assessment proceedings, the proposed addition was Rs.65,91,847, being interest received under section 69A, but the Assessing Officer ultimately made addition of Rs.4,71,91,847. The assessee submitted that he had not carried out any transaction with Star Minerals. Smt. Jyoti, in reply to Question No.44(vii), while explaining telephone messages, had stated, “we have given loan to this company through cheque and the chat contains the calculation of interest on loan”. The assessee submitted that the loan was given by PEL and copies of account and bank statements were enclosed at pages 118 to 135. It was also submitted that PEL had filed a legal suit against the said party and the image merely contained calculation of interest to be received on court judgment. The assessee again emphasized that the assessee had not carried out any transaction with Star Minerals and that loan was advanced by PEL.
The Assessing Officer, at page 24 of the assessment order, observed that no person in a sound state of mind would send an image containing such information to their employer without any reason. Therefore, according to him, addition based on such evidence was justified. He made addition of Rs.4,71,91,847, comprising unexplained loan given of
36 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal Rs.4,06,00,000 and unaccounted interest received of Rs.65,91,847 under section 69A.
The learned CIT(A), in para 6.5.9.3, noted that the Assessing Officer had added Rs.4,71,91,847 under section 69A alleging that the assessee received unaccounted interest in cash from M/s Star Minerals based on a WhatsApp image. The learned CIT(A) observed that the show cause notice had proposed only addition of Rs.65,91,847, yet the final addition was substantially higher at Rs.4.71 crores. The learned CIT(A) further recorded that the assessee proved that the loan was actually advanced by PEL, supported by bank statements and ledgers. Upon verification, the principal amounts in the WhatsApp image matched exactly with the ledger entries of Star Minerals in PEL’s books. It was further noted that PEL had initiated a legal suit against Star Minerals for recovery, confirming that the transaction was a corporate business matter. The learned CIT(A) also observed that Smt. Jyoti Bambade’s statement used the plural “we”, which referred to the company, being her employer, rather than the assessee individually. Since PEL is a separate legal entity, its transactions, whether accounted for or alleged to be in cash, could not be added to the assessee’s personal income. Accordingly, the addition of Rs.4,71,91,847 was deleted.
37 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal 37. We find that the learned CIT(A) has rightly deleted this addition as well. The statement of Smt. Jyoti Bambade itself records that “we have given loan to this company through cheque”, and in the context of her employment with PEL, the expression “we” naturally refers to the company whose work she was handling. The assessee had categorically stated that he had no personal transaction with Star Minerals. This assertion is not rebutted by the Assessing Officer through any independent material. On the contrary, the ledger accounts and bank statements demonstrated that the loan was advanced by PEL, and the principal amounts appearing in the WhatsApp image matched with the ledger account of Star Minerals in PEL’s books. The fact that PEL had also initiated legal proceedings against Star Minerals further reinforces the assessee’s contention that this was a corporate transaction of PEL and not a personal transaction of the assessee. Once the principal transaction itself is shown to belong to PEL, any interest computation arising therefrom cannot be brought to tax in the hands of the assessee unless there is material to show that the assessee personally received such interest or that the corporate entity was merely a façade for the assessee’s individual transaction. No such case has been made out. Further, the enhancement of the proposed addition from Rs.65,91,847 to Rs.4,71,91,847 in the final assessment order, without a proper factual foundation establishing ownership of the loan or receipt of interest by the assessee,
38 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal also shows that the addition was made more on inference than on evidence. Section 69A cannot be stretched to tax a transaction of a separate juridical entity in the hands of an individual merely because an employee of that entity had communicated some working through WhatsApp. The learned CIT(A), therefore, was justified in deleting the addition of Rs.4,71,91,847, and the same is confirmed.
The assessee had also made an overarching submission before the learned CIT(A) that none of the three receipts under section 69A related to the assessee; all transactions related to PEL/Shri Phulchand Agarwal and were duly disclosed. It was submitted that section 69A applies where the assessee is found to be owner of money, bullion, jewellery or valuable article. In the present case, the assessee was not found to be owner of any such money. The WhatsApp chats found in the telephone of the company’s employee did not constitute books of account, and no enquiry was made from parties alleged to have remitted funds. The assessee further submitted that additions under section 69C of Rs.10,38,81,017 and under section 69A of Rs.9,96,91,847 were made based on certain images/chats found in the telephone of Smt. Jyoti Bambade, an employee of PEL. The assessee, Shri Pradeep Agarwal, is son of Shri Phulchand Agarwal, director of PEL; the assessee himself was not even a director of PEL but was looking after business of the company
39 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal to assist his aged father and giving instructions to Smt. Jyoti Bambade. Therefore, merely on this basis, there was no justification to presume that transactions found in her telephone belonged to the assessee. It was also specifically submitted that corresponding WhatsApp chats were not found in the assessee’s telephone.
The assessee further emphasized that in the search proceedings no undeclared cash, jewellery or any other asset was found or seized from him. No record of any interest paid in cash, cash receipt or unrecorded investment was found. It was argued that if such huge cash transactions had actually taken place, some record of cash dealing would have been found during the search at residence and office premises conducted for three days. No such record was found. During assessment proceedings also, no enquiry was made from the parties to whom cash interest was alleged to have been paid or from whom cash was alleged to have been received. The assessee also placed reliance on judicial precedents including the decision where SLP was dismissed in Commissioner of Income Tax (Appeals) v. Sunil Kumar Sharma [2024] 165 taxmann.com 846 (SC), wherein loose sheets/diaries not forming part of regularly maintained books were held not to constitute material evidence; and also relied upon decisions including Saaras Agro Industries, and other decisions holding that additions under sections 69, 69A and 69C cannot be
40 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal made merely on the basis of seized documents or entries without independent corroboration. These submissions were specifically noted by the learned CIT(A) while appreciating the nature of the evidence and the lack of corroboration.
Having considered the entire material placed before us, we find that the learned CIT(A) has deleted the additions after proper factual verification and not by ignoring the search material. The approach of the learned CIT(A) has been to test each WhatsApp image or chat against the contemporaneous books of account, bank statements, confirmations, nature of parties, and the corporate context in which Smt. Jyoti Bambade was functioning. On such verification, it has been found that either the transaction stood reconciled with the books and bank statements of PEL or the assessee; or the party was not identified at all; or the transaction related to PEL or Shri Phulchand Agarwal; or there was no material to show actual payment or receipt by the assessee. The Assessing Officer, on the other hand, has proceeded mainly on the assumption that since the WhatsApp images were found in the phone of an employee who was communicating with or about group concerns, the contents thereof should be treated as personal unexplained transactions of the assessee. Such an approach, without the indispensable bridge of corroborative evidence, cannot be approved. The assessee is an individual and PEL is a separate taxable entity. The
41 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal business communications of an employee of PEL cannot automatically be transposed into the personal income of the assessee unless the Revenue brings cogent material establishing that the assessee was the real owner of the money or the real person incurring the expenditure. That crucial link is missing throughout.
It is also material that no undisclosed cash, jewellery, investment or valuable article was found from the assessee during search. No parallel cash book, no diary of cash movement, no acknowledgement from any creditor or debtor, no confirmation from any recipient of cash, and no evidence of cash withdrawal or cash availability corresponding to the alleged payments has been brought on record. The Assessing Officer has not made any meaningful enquiry from the alleged parties, though in several instances their identity or broad particulars were available. In some cases, such as “MJ” and “Vishal”, even the alleged parties were not identified. In others, such as Anuj Jain, Lalit Jain and Star Minerals, the material itself pointed towards PEL’s business transactions. In still others, such as the Rs.46,00,000 payments and Rs.4,65,36,593 interest payments, the amounts were substantially reconciled with recorded bank transactions and books of account. In respect of Rs.5.20 crores also, the RTGS entries mentioned in the image matched PEL’s audited records. These facts, when seen cumulatively, demonstrate
42 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal that the additions were founded more on suspicion generated from informal digital communications than on legally admissible and corroborated evidence establishing taxable income in the hands of the assessee. 42. Thus, on the facts and material placed on record, we hold that the learned CIT(A) was justified in deleting the additions aggregating to Rs.20,35,72,864 made under sections 69C and 69A. The deletion is not on a technical ground, but on a substantive appreciation of evidence, or rather the lack of evidence, connecting the assessee personally with the alleged cash payments and cash receipts. We accordingly uphold the order of the learned CIT(A) on this issue. Ground No.1 raised by the Revenue is dismissed.
Ground No.2 of the Revenue is directed against the deletion of addition of Rs.1,85,59,019 made by the Assessing Officer under section 69C on account of alleged interest on loans paid in cash at 3.5%. The case of the Revenue is that this addition was also based on the WhatsApp conversations found from the mobile phone of Mrs. Jyoti Laxman Bambade and her statement recorded under section 132(4), wherein, according to the Assessing Officer, she had admitted that the assessee was routinely engaged in raising loans in cash and making payment of interest in cash. The Assessing Officer, in paras 7.1 to 7.4 of the assessment order, proceeded on the premise that the WhatsApp communications and statement
43 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal of Smt. Jyoti Bambade revealed a general pattern of cash borrowing and cash interest payment. On that basis, the Assessing Officer estimated interest expenditure at 3.5% and made an addition of Rs.1,85,59,019 under section 69C. 44. The assessee, before the learned CIT(A), submitted that this addition was purely on estimate and without any identified lender, without any identified cash payment, without any seized document showing payment of cash interest, and without any confirmation or enquiry from any party to whom such alleged cash interest was said to have been paid. The assessee furnished details of recorded loans and submitted that during the year there was opening loan balance of Rs.62.71 crores, further loan received of Rs.30.72 crores, repayment of Rs.31.51 crores and closing balance of Rs.61.93 crores. It was further submitted that interest of Rs.5.29 crores was duly paid and recorded in the books of account, and confirmations from loan parties were also available. The assessee’s specific contention was that once the entire loan transactions and interest payments were duly recorded in the books and no lender had been examined to establish any cash interest, the addition under section 69C could not be made merely on an assumed rate of 3.5%.
The learned CIT(A) deleted the addition by observing that the same was purely presumptive and estimative in nature. The learned CIT(A) further noted that a similar addition had
44 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal already been deleted in the assessee’s own case for A.Y. 2013- 14 and that the reasoning applied therein was equally applicable for the year under consideration. The learned CIT(A) found that the Assessing Officer had not brought any material to show that any lender had received interest in cash from the assessee; no lender was examined; no cash trail was established; and no document was found showing actual cash payment of interest. The learned CIT(A), therefore, held that the addition of Rs.1,85,59,019 under section 69C could not be sustained.
We find that the learned CIT(A) has rightly deleted this addition. The Assessing Officer has not made the addition on the basis of any specific cash interest payment to any specific lender. The addition is only an estimate at 3.5%, drawn from the broad allegation arising from the same WhatsApp chats and the statement of Smt. Jyoti Bambade. In the preceding ground, we have already examined the party-wise additions arising from those very chats and have found that the learned CIT(A) had correctly deleted them after factual verification. Once the specific additions, founded on specific chats and specific images, have themselves failed for want of corroboration and factual nexus with the assessee, a further estimated addition on the same general premise cannot survive. Section 69C does not permit an addition merely on a presumed rate of interest unless there is foundational
45 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal material to show that the assessee has actually incurred an expenditure which is not recorded in his books. Here, the assessee had placed on record the complete loan position, recorded interest payments, confirmations and books of account. No lender has been brought on record to say that any interest was received in cash. No corresponding cash withdrawal, cash payment, or cash availability has been identified. The addition, therefore, is not founded upon an ascertainable transaction but upon an extrapolated presumption. Such an addition cannot be sustained in law or on facts. Accordingly, Ground No.2 raised by the Revenue is dismissed.
Ground No.3 relates to the deletion of disallowance of long-term capital loss arising on sale of shares of Astron Developers Pvt. Ltd. (“ADPL”). The Revenue has challenged the finding of the learned CIT(A) accepting the assessee’s contention that subscription of shares of ADPL at face value of Rs.10 per share was justified, and has contended that the assessee had invested Rs.15.17 crores in a company having negative net worth of Rs.7.97 crores and huge accumulated losses. According to the Revenue, no prudent investor would invest in such a loss-making company, and the subsequent sale of the shares at substantial loss to the assessee’s father was devoid of commercial prudence and was structured only to create future tax benefit.
46 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal
The Assessing Officer, in para 5 from page 2 onwards of the assessment order, observed that the assessee had claimed long-term capital loss on sale of shares amounting to Rs.10,05,69,365. The assessee had acquired 1,51,69,500 shares of ADPL having face value of Rs.10 each on 15.08.2013. The Assessing Officer noted that at the time of the acquisition, the net worth of ADPL was negative at Rs.7,97,48,013. The shares were thereafter sold by the assessee to his father, Shri Phulchand Agarwal, at Rs.5.75 per share on the basis of valuation report of a Chartered Accountant. The Assessing Officer referred to the summary of transactions tabulated in para 5.3 at page 5 of the assessment order and held that there was no justification for purchasing shares of a company having negative net worth at face value and thereafter selling the same below face value. The Assessing Officer treated the transaction as a colourable arrangement for booking fictitious loss and accordingly disallowed the long-term capital loss claimed by the assessee.
The assessee, before the learned CIT(A), explained that ADPL had been incorporated for developing commercial properties and that in the year 2011 another company, Prateek Realty Pvt. Ltd., having accumulated losses of Rs.7.88 crores, had amalgamated with ADPL, resulting in negative net worth. It was further explained that during the
47 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal year 2013 ADPL had commenced a commercial project named “Advance Business Park” and required infusion of capital as one of the conditions for sanction of term loan of Rs.15 crores by Corporation Bank. It was submitted that the shares were issued at face value of Rs.10 per share because issuance of shares at discount was prohibited under the Companies Act, 1956, unless statutory conditions were satisfied. The assessee also furnished the relevant ROC filings, including Form 5 and Form 23, to show that the issue of shares was duly recorded and carried out in accordance with corporate law requirements.
The assessee further submitted that when the shares were subsequently sold, the sale consideration of Rs.5.75 per share was not arbitrarily fixed. Since the shares were unlisted, fair market value was determined on the basis of valuation report obtained from an independent Chartered Accountant, Dhiren Shah & Co. The fair market value determined as per the valuation report was Rs.5.59 per share, whereas the assessee sold the shares at Rs.5.75 per share, which was higher than the fair market value. It was also submitted that the cost of acquisition of these shares had already been accepted in the year of acquisition and therefore, in the year of sale, the Assessing Officer could not reject the genuine acquisition merely because the company had negative net worth at the time of allotment.
48 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal
The learned CIT(A), in para 6.4.1 onwards at page 13 of the appellate order, examined the facts in detail. The learned CIT(A) observed that the finding of the Assessing Officer that the assessee had not adopted fair market value as per valuer certificate merely to manage the transaction and inflate purchase price was factually incorrect. The learned CIT(A) noted that the shares were required to be issued at face value unless the conditions laid down under the Companies Act were fulfilled. Reference in this regard was made in paras 6.4.2 at pages 14 and 15 of the appellate order. The learned CIT(A) further observed that, insofar as the sale of shares was concerned, since the shares were not listed on any exchange, fair market value had to be determined in accordance with Rule 11UA. It was further held that the transaction had been undertaken at a value duly supported by documentation, with adequate consideration, and at a value higher than the fair market value as determined by an independent valuer. The learned CIT(A), therefore, held that the disallowance made by the Assessing Officer was unsustainable and deleted the same.
We find that the learned CIT(A) has correctly appreciated the factual and statutory position. The Revenue’s allegation is essentially that no prudent person would invest in ADPL because it had negative net worth. However, the commercial
49 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal prudence of a transaction cannot be judged in isolation by merely looking at accumulated losses or negative net worth, especially when the assessee has explained the commercial background in which the investment was made. ADPL had commenced the commercial project “Advance Business Park”, and infusion of capital was required in connection with sanction of term loan by Corporation Bank. The investment, therefore, had a business and commercial context. Further, the issue of shares at face value was explained with reference to the requirements and restrictions under the Companies Act, 1956, and the relevant ROC filings were produced. The Assessing Officer has not shown that the shares were not actually allotted, that the consideration was not paid, or that the corporate records were false.
Further, the subsequent sale of shares was supported by an independent valuation report. The fair market value determined by the valuer was Rs.5.59 per share, whereas the assessee sold the shares at Rs.5.75 per share, which was higher than the valuation. The Assessing Officer has not rejected the valuation report on any cogent technical ground. No alternate valuation has been brought on record. No material has been shown to establish that any part of the sale consideration flowed back to the assessee or that the transaction was a sham. Merely because the purchaser was the assessee’s father cannot, by itself, be a ground to
50 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal disregard a transaction which is otherwise supported by corporate records, valuation report and actual transfer. A related-party transaction may warrant closer scrutiny, but scrutiny cannot travel into disallowance unless the Revenue brings material to show colourable device, circular movement of funds, absence of genuine transfer, or consideration different from that recorded. None of these ingredients is present here. Therefore, the learned CIT(A) rightly held that the long-term capital loss could not be disallowed on mere suspicion or on the Assessing Officer’s subjective perception of commercial prudence. The deletion of disallowance of long- term capital loss is accordingly upheld. Ground No.3 raised by the Revenue is dismissed.
Ground No.4 relates to the action of the learned CIT(A) in restricting/deleting the disallowance made under section 14A. The Revenue has alleged that the learned CIT(A) erred in restricting the disallowance to the extent of exempt income earned during the year and failed to appreciate CBDT Circular No.5/2014 dated 11.02.2014 and the Explanation inserted to section 14A by the Finance Act, 2022.
The Assessing Officer, in para 8 from page 34 onwards of the assessment order, observed that the assessee had earned exempt income by investing in shares and securities. The dividend income earned during the year was Rs.8,84,121 and
51 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal the long-term capital gain claimed as exempt was Rs.2,18,26,887. According to the Assessing Officer, the assessee had not made any disallowance under section 14A. The Assessing Officer, therefore, proceeded to compute disallowance under Rule 8D(2) and made disallowance of Rs.12,09,032 under section 14A, as discussed in paras 8.3 to 8.6 at pages 34 to 36 of the assessment order.
Before the learned CIT(A), the assessee submitted that no expenditure had been incurred for earning exempt income. It was specifically submitted that the assessee had not claimed any expenditure relatable to exempt income. The only interest expenditure claimed was Rs.38,10,096, which was set off against taxable interest income of Rs.39,05,685 under the head “Income from Other Sources”. It was further submitted that the assessee had own capital of Rs.32.30 crores, whereas total investment was only Rs.12.29 crores, and therefore own funds were far in excess of investments. It was also submitted that no fresh investment had been made during the year from borrowed funds.
The learned CIT(A), in paras 8.1 and 8.2 at pages 42 and 43 of the appellate order, accepted the assessee’s contention and held that section 14A applies only to expenditure actually incurred in relation to exempt income. The learned CIT(A) recorded that, in the present case, there was no expenditure
52 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal directly or indirectly incurred by the assessee for earning exempt income. Since the assessee’s own funds were substantially higher than the investments and no borrowed funds were shown to have been used for making investments yielding exempt income, the learned CIT(A) deleted the disallowance.
We find that the factual findings recorded by the learned CIT(A) remain uncontroverted. The assessee had own funds of Rs.32.30 crores as against investments of Rs.12.29 crores. Thus, own funds were far in excess of the investments, and in absence of any contrary nexus established by the Assessing Officer, the presumption would be that the investments were made out of own funds. The interest expenditure claimed by the assessee was not shown to be relatable to exempt income; rather, the assessee had explained that such interest was set off against taxable interest income under the head “Income from Other Sources”. The Assessing Officer has not identified any particular expenditure, administrative or financial, which was actually incurred for earning exempt income. The invocation of Rule 8D cannot be mechanical. It must be preceded by an objective dissatisfaction, based on accounts of the assessee, that the claim of the assessee is not correct. In the present case, such objective nexus is absent. Further, the Explanation inserted to section 14A by the Finance Act, 2022 cannot assist the Revenue on these facts, particularly when
53 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal the learned CIT(A) has found that no expenditure was incurred and own funds were substantially higher than investments. On the facts of the case, therefore, the disallowance made under section 14A was rightly deleted. Ground No.4 raised by the Revenue is dismissed.
During the course of hearing, it was pointed out to the learned counsel that in the assessee’s own case for Assessment Year 2019-20, this Tribunal, while adjudicating additions founded upon WhatsApp chats retrieved from the mobile phone of Smt. Jyoti L. Bambade, an employee of M/s Phulchand Exports Pvt. Ltd., had reversed the order of the learned CIT(A) and restored the additions made by the Assessing Officer. The learned counsel, however, clarified that although the source of the material, namely the WhatsApp chats retrieved from the mobile phone of the said employee, may be common, the factual matrix and the issues involved in the present assessment year are entirely distinct and, therefore, the findings rendered by the Tribunal in Assessment Year 2019-20 cannot be applied in a mechanical manner to the year under consideration. In support thereof, it was submitted that, unlike Assessment Year 2019-20, the transactions reflected in the WhatsApp chats in the present year pertain either to M/s Phulchand Exports Pvt. Ltd. or Late Shri Phulchand Agrawal and all such transactions, including those relatable to the present assessee, stood duly
54 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal disclosed and recorded in the regular books of account of the respective persons and were executed through normal banking channels. It was further submitted that complete documentary evidence comprising ledger accounts, bank statements and other contemporaneous records demonstrating the corresponding accounting entries and banking trail had been produced before the learned CIT(A), who, after obtaining and considering the remand report from the Assessing Officer, admitted the additional evidences and recorded a categorical finding that the transactions stood duly accounted for and disclosed. It was also pointed out that the additions made under sections 69C and 69A were comprehensively explained by correlating each transaction appearing in the WhatsApp chats with the corresponding entries in the books of account and bank statements, copies whereof formed part of the paper book. It was further emphasized that during the course of search conducted continuously for three days at both the residential as well as business premises, no unaccounted cash, jewellery, investment, incriminating document, diary or any other asset was found or seized, nor was any evidence discovered indicating payment of interest in cash, receipt of unaccounted cash or any unrecorded investment. It was also submitted that even in respect of the disallowance under section 14A, the facts are materially distinguishable inasmuch as the assessee had not claimed any expenditure during the year,
55 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal the interest income assessed under the head “Income from Other Sources” exceeded the interest expenditure claimed, the assessee’s own capital was substantially higher than the investments made and, therefore, no disallowance under section 14A could survive. Accordingly, it was vehemently contended that the very factual foundation on which the additions were sustained by the Tribunal in Assessment Year 2019-20 is absent in the present year. The relevant observations of the Tribunal in Assessment Year 2019-20, relied upon during the course of hearing, are reproduced hereunder:
“Ld. CIT (A) deleted the addition based on his observations that there is no material on record to establish a link between the WhatsApp chat and transaction of cash payments by the assessee and to prove that such transaction having been concluded by way of its payment. He further observed that there money trail ledger entries bunk statements or agreements is no corroborative evidence like between the assessee and so-called lenders. We are unable to fathom with such findings of in present matter the incriminating material in the form of whatsapp chat images was found from the mobile phone of a key employee of the assessee which was further explained/clarified and proved incriminating by her statement u/s 132(4) of the Act, which were not retracted ever thereafier The assessee ulso endorsed such statements in post search proceedings. Denial of assessee at later stage and seeking linkage of information with transaction by corroborative evidence which is accepted by the Ld. CIT(A) found to be mis appreciation of facts, misplaced and illogical We therefore found substance in the plea of revenue that the addition made hy Ld 10 was based on incriminating material and merits substance to be upheld. We times direct to reverse the finding
56 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal of Ld CIT(A) on this issue and restore the addition of Rs. 74,86,913/-made u/s 68 of the Act on account of cash interest paid by the assessee, which is duly corroborated by whatsapp messages/images which further explained and admitted by Smt Bambode in her statements u/s 132(4) that could not be dislodged or contradicted by the assessee with any plausible explanation or evidence even during the post search assessment proceedings
We have carefully considered the rival submissions and have perused the order of the Tribunal for Assessment Year 2019-20 in juxtaposition with the facts obtaining in the year under consideration. From a bare comparison of the factual foundation involved in the two assessment years, we find considerable merit in the contention advanced by the learned counsel that the controversy arising in the present year stands on an altogether different footing. The addition sustained by the Tribunal in Assessment Year 2019-20 proceeded on the factual premise that the transactions reflected in the WhatsApp chats had not been demonstrated to have been duly recorded in the regular books of account or routed through identifiable banking channels. In the present assessment year, however, the material placed before us clearly demonstrates that the amounts and figures reflected in the WhatsApp chats already stand duly recorded in the regular books of account maintained by M/s Phulchand Exports Pvt. Ltd. and Late Shri Phulchand Agrawal, as the case may be, and the corresponding transactions have been
57 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal carried out through regular banking channels. The reconciliation furnished by the assessee is duly supported by the relevant ledger accounts, bank statements and other contemporaneous documentary evidences, which were admitted by the learned CIT(A) after obtaining the remand report from the Assessing Officer. It is further an undisputed factual position that despite an extensive search operation conducted at both the residential and business premises, no unaccounted cash, jewellery, investment, incriminating document or any other independent material evidencing undisclosed cash transactions was found or seized. Thus, unlike Assessment Year 2019-20, the WhatsApp chats in the present year do not constitute standalone incriminating material but merely reflect transactions which already stand disclosed in the regular books of account of the concerned persons and are fully corroborated by the corresponding banking trail. We are, therefore, satisfied that the factual substratum of the present assessment year is fundamentally distinguishable from that obtaining in Assessment Year 2019- 20 and, consequently, the conclusions reached by the Tribunal for the said assessment year cannot be mechanically imported to decide the controversy before us, which has necessarily to be adjudicated on the basis of the evidence and material available for the present assessment year.
58 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal 61. Before parting, we may also deal with the broader argument advanced by the learned CIT-DR that the statement of Smt. Jyoti Bambade recorded under section 132(4) had not been retracted and therefore the additions deserved to be sustained. In our view, on the peculiar facts of the present case, the issue is not merely whether the statement was retracted or not. The relevant and determinative question is whether the statement, along with the WhatsApp chats/images found from the mobile phone of an employee of PEL, established actual unexplained expenditure or unexplained money in the hands of the assessee. The learned CIT(A) has examined this aspect in detail and has found, item by item, that the material either related to PEL/Shri Phulchand Agarwal, or stood recorded in books through banking channels, or was unsupported by any independent evidence, or did not identify the alleged party, or did not establish actual receipt/payment by the assessee. The Revenue has not brought any material before us to disturb those factual findings.
The facts noted above also show that the Assessing Officer did not make any meaningful enquiry from the alleged payees, lenders, recipients or counterparties. In respect of “MJ” and “Vishal”, the very parties were not identified in the assessee’s records. In respect of Rs.46 lakhs and Rs.4,65,36,593, the amounts stood reconciled with bank
59 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal statements and books of the assessee/PEL. In respect of Anuj Jain and Lalit Jain, the material itself linked them to Indo Sino Trade Pte. Ltd., Singapore and PEL’s coal import business. In respect of Rs.5.20 crores, the RTGS entries of Rs.2.60 crores and Rs.1.40 crores exactly matched PEL’s books and bank statements relating to Anjani Towers Pvt. Ltd. In respect of Sushil/Sunil Sanghai, documentary evidence showed bank transaction contrary to the allegation of cash receipt. In respect of Star Minerals, the loan and interest computation belonged to PEL and was supported by books, bank statements and legal proceedings initiated by PEL. Thus, the learned CIT(A)’s order rests on factual verification and not on any abstract deletion of additions.
We may reiterate that a statement recorded during search is undoubtedly a relevant piece of evidence; however, it cannot be read divorced from the surrounding facts and documentary material. Where the statement is general in nature, where it does not identify the exact cash component, where the alleged parties have not been examined, and where the documentary record either explains the entries or connects them with another taxable entity, the statement alone cannot sustain additions of such magnitude in the hands of the assessee. The Revenue’s case would have stood on a different footing had there been corroborative material showing actual cash movement, personal benefit to the
60 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal assessee, admission by the alleged recipients, or recovery of unaccounted assets. In absence of such material, the statement of an employee of PEL cannot be used as a universal key to unlock additions in the hands of the assessee for every informal business communication found in her mobile phone.
In view of the entire discussion above, we hold that the learned CIT(A) has passed a reasoned and factually well- supported order. The additions made by the Assessing Officer under sections 69A and 69C were largely founded on WhatsApp chats/images found from the phone of an employee of PEL and her statement, without independent corroboration establishing actual cash payment or cash receipt by the assessee in his individual capacity. The learned CIT(A) has correctly examined each item, matched the entries with books and bank statements wherever available, and deleted only those additions where the Assessing Officer had failed to establish the necessary factual nexus with the assessee. Similarly, the deletion of estimated cash interest, acceptance of long-term capital loss on sale of ADPL shares and deletion of section 14A disallowance are also based on the material placed on record and factual findings which have not been rebutted by the Revenue.
61 ITA No.6171/Mum/2025 Pradeep Phulchand Agarwal 65. Accordingly, all the grounds raised by the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on 29th June, 2026.
Sd/- Sd/- (ARUN KHODPIA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 29/06/2026 KARUNA, sr.ps
Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER,
(Asstt. Registrar) ITAT, Mumbai
More judgments on Section 69C
- Jitendrakumar Bhikhabhai Shrimali, Mehsana vs ITO Ward 1, MehsaanaITA 1290/AHD/2026[2017-18]Status: Disposed21 Oct 2026AY 2017-18
- Sonu Jain, Agra vs ITO WD(1)(1)(2), AgraITA 671/AGR/2026[2024-25]Status: Disposed16 Oct 2026AY 2024-25
- Mritunjay Singh, Kudra vs AO, SasaramITA 454/PAT/2026[2017-2018]Status: Disposed16 Oct 2026AY 2017-2018
- Shantilal Mafaji Kachchhava, Banaskantha vs ITO WD 1 Palanpur, PalanpurITA 2256/AHD/2026[2023-24]Status: Disposed16 Oct 2026AY 2023-24
- Madhusudhan Gade, Nizamabad vs ITO., Ward-1, NizamabadITA 379/HYD/2025[2017-18]Status: Disposed16 Oct 2026AY 2017-18
Recent GST High Court judgments
Search GST case law →- M/S. Ut Corp vs. Union Of INDIARajasthan · 26 Oct 2026
- Sunrise Engineering vs. The State Of Andhra PradeshAndhra Pradesh · 26 Oct 2026
- M/S Kalra Traders vs. Union Of INDIAUttarakhand · 26 Oct 2026
- Ms Isoft vs. The Commissioner State TaxUttarakhand · 26 Oct 2026
- M/S Sita Enterprises vs. Office Of The CommissionerUttarakhand · 26 Oct 2026
