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Facts
A search under Section 132 of the Income Tax Act was conducted at the business premises of M/s. Index Logistics Pvt Ltd and the residential premises of its Managing Director, Mr. Ismail Muhammad Khan. Subsequently, the AO completed the assessment under Section 143(3), making various additions.
Held
The Tribunal held that the addition made by the AO based on WhatsApp conversations with Dr. Satish Desai was factually incorrect and based on surmises, as no actual exchange of money was proved. Similarly, additions based on empty envelopes were not sustainable as Section 69A was not applicable.
Key Issues
Whether additions made based on WhatsApp conversations and empty envelopes are sustainable without proof of actual cash transactions and applicability of Section 69A and 115BBE of the Income Tax Act.
Sections Cited
132, 143(3), 153A, 69A, 115BBE, 69C, 68, 132(4A)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
ORDER Per: SHRI. SANDEEP GOSAIN, J.M.: The present appeal filed by the assessee arises out of final assessment order passed by Commissioner of Income Tax CIT(A)- 47, Mumbai dated 28/09/2023 for assessment year 2020-21 on following grounds of appeal:
1. That on the facts and in the circumstances of the case, the 1 earned Commissioner of Income tax (Appeals)-47. Mumbai (hereinafter referred to as the "Ld.CIT(A)] erred in passing the impugned order dated 28.09. 2023 in Appeal No. CIT(A)-47 Mumbai/10423/2019-20 dismissing the appeal filed by Appellant and confirming the order dated 07.09.2022 passed by the Assistant Commissioner of Income-tax Central Circle-1(2), Mumbai (hereinafter referred to as the "AO") under section 143(3) read with section 153A of the Income-tax Act, 1961 [hereinafter referred to as the "Act"], because the assessment proceedings resulting in the passing of the assessment order were initiated consequent upon a search under section 132 of the Act conducted at the residential premises of Mr. Ismail Muhammad Khan [hereinafter referred to as the Appellant" at 53, C-Wing. Rustomji Central Park CHSL. Andheri Kurla Road. Mumbai-93, which itself was illegal invalid and hence void ab initio, because the search was conducted without the conditions specified in section 132 of the Act being fulfilled. was mala tide as evident from the manner of conduct of search and was a gross and serious violation of the fundamental rights of the Appellant
2. That on the facts and in the circumstances of the case, the Ld CIT(A) erred in passing the impugned order dated 28.09.2023 in Appeal No. CIT(A)-47, Mumbai/10423/2019-20 dismissing the appeal filed by Appellant and confirming the order dated 07.09.2022 passed by the AO under section 143(3) read with section 1534 of the Act, whereby the total income of the Appellant for Assessment Year (hereinafter referred to as "A.Y."] 2020-21 was assessed at 24.62,05,480 as against the total income of ₹86.35.770 declared by the Appellant in his return of income.
3. That on the facts and in the circumstances of the case, the Ld.CIT(A) erred in passing the impugned order dated 28.09.2023 in Appcal No CIT(A)-47. Mumbai/10423/2019-20 dismissing the appeal filed by the Appellant and confirming the order dated 07.09.2022 passed by the AD. because the assessment order is barred by limitation and is therefore invalid and non est
4. That on the facts and in the circumstances of the case, the Ld CIT(A) erred in passing the impugned order dated 28.09 2023 in Appeal No. CITIA)-47 Mumbai/10423/2019-20 dismissing the appeal filed by the Appellant and confirming the addition of 27,42,710 made by the AO on protective basis under section 69C read with section 115BBE of the Act on account of unexplained expenditure, allegedly being withdrawals made from the bank account of M/s. Transx’ unlawfully assumed as to be as per the directions of the Appellant, even when the provisions of sections 690 and 1158BE are not applicable in the case.
5. That on the facts and in the circumstances of the case, the Ld.CIT(A) erred in passing the impugned order dated 28.09.2023 in Appeal No CIT(A)-47, Mumbai/10423/2019-20 dismissing the appeal filed by the Appellant and confirming the addition of 23.68.26.996 made by the AO on protective basis under section 68 read with section 115BBE of the Act on account of unexplained cash credits from walk-in customers, because the addition has been confirmed without appreciating the facts and even when the provisions of sections 68 and 115BBE are not applicable in the case.
2. The brief facts of the case are that the assessee is an individual and is Managing Director of M/s. Index Logistics Private Limited (hereinafter referred to as "ILPL"), which is a domestic private company registered with the Registrar of Companies, Mumbai ILPI was incorporated on 29.04.2005 and it is engaged in the business of providing logistics/freight forwarding services.
3. A Search u/s.132 of the Income-tax Act, 1961 (hereinafter referred to as the "Act") was conducted at the business premises of M/s Index Logistics Pvt Ltd and during the search proceedings, some books of accounts and documents were found and seized, which have been described in the Panchnama as 5. (a) (i) Books of accounts and documents as per Annexure A' Further, cash amounting to Rs. 55,770/- was found, but the same was not seized. Apart from this, nothing was found or seized. The search proceedings at this premises commenced on 24.03 2021 at 9.15 am and these were closed as temporarily concluded on 26.03.2021 at 5.00 pm and an order under section 132(3) of the Act was passed on 26.03.2021 in respect of the following articles: (i) One Desktop Computer (ii) 2 CPUs (iii) Loose papers (iv) SIM Cards
The above articles were placed in one "Prakash Nair Cabin' described in the Panchnama as '2nd Cabin from Mr. Ismail M. Khan's cabin', which was sealed by the officials on 26.03.2021.
Thereafter, in continuation of the proceedings initiated on 24.03.2021, the officials from the Department again visited the business premises of the Appellant company on 24.05 2021 at 1.15 pm and the proceedings were closed on 24.05 2021 itself at 8.00 pm as finally concluded. During these proceedings, certain documents were seized, which have been described in the Panchnama as '5 (a) (i) Books of accounts and documents as per Annexure A
It is pertinent to mention that search proceedings under section 132 of the Act were also conducted at the following premises on 24.03.2021: (i) Residential premises of Mr. Mohammad Ismail Khan, Managing Director of the Appellant company, located at 53/C, Rustomjee Central Park, CHSL, Andheri Kurla Road, Mumbai, Maharashtra-400093 The search proceedings commenced on 24.03 2021 and these were closed as finally concluded on 25.03.2021. During the course of search, some loose papers were found and seized (ii) Residential premises of Mr. Vinay Lal, Chief Operating Officer of the Appellant company, located at Flat No. 501, K Block, HJK Lokdarshan Housing Society, Military Road, Marol, Andheri (East), Mumbai, Maharashtra-400059. The search proceedings commenced on 24.03.2021 at 4.30 pm and these were closed as finally concluded on 24 03.2021 itself at 10.30 pm. During the course of search, some loose papers were found and seized.
Consequently, the AO completed the assessment u/s 143(3) of the Act and the total income of the assessee was assessed at Rs. 1,34,47,500/- by making following additions:
Sr. Issue involved Amount of No. addition (in INR) 1 Addition under section 69A of the Act on 5,00,000 account of conversation with Dr. Desai 2 Addition under section 69A of the Act on 29,80,000 account of unexplained cash receipts. 3 Addition under section 68 of the Act on 1,99,80,518 account of cash receipts from walk-in customers
Aggrieved by the order, the assessee preferred appeal which was dismissed by CIT(A) and against this impugned order, the assessee has preferred the present appeal mentioned herein above. Ground No. 1
This ground raised
by the assessee relates to legality and validity which has already been decided by the Bench in other bunch cases relating to the same group wherein the order of AO was found to be out of limitation, thus the findings of the order of the Bench in 3347, 3360, 3361, 3362, 4267, 4272, 4273, 4286, 4288 and 4289/Mum/2023 for A.Ys: 2016-17 to 2020
21. (except variance in figures) and the decision rendered in group case would apply mutatis mutandis for these appeal also. Accordingly, the ground of appeal of the present appeal also stands allowed.
Ground No. 2 Ground No. 3
This ground raised by the assessee is not pressed therefore the same stands dismissed as not pressed. Ground No. 4
This ground raised by the assessee relates to challenging the order Ld. CIT(A) in confirming the addition of Rs. 5 lakhs made u/s 69A of the Act. In this regard we have heard the counsels for both the parties, perused the material placed on record. From the records we notice that during the assessment proceedings, the AO issued notice dated 30.07.2022 under section 142(1) of the Act stating that the backup of Samsung Fold 2 phone of the Appellant was taken during the search and on perusal of WhatsApp messages, it was found that there was a conversation of Appellant with Dr. Satish Desai. The AO pasted the following snapshots of the conversation in the said notice:
The AO was of the view that from the above conversation the assessee had given Rs. 5 lakhs in cash to Dr. Desai, who had in AY 2020-21 Mr. Ismail Muhammad Khan turn given the Appellant a cheque of Rs. 5 lakhs for crediting in the books at a later date. The assessee was required to explain why addition of Rs. 5 lakhs may not be made under section 69A of the Act as unexplained money.
In response thereof the assessee filed reply dt. 10 08.2022 thereby stating that there had never been a transaction between the Appellant and Dr Desai The assessee also requested the AO that this fact could be verified from Dr. Desai also. The relevant part of reply filed by the assessee has been reproduced at in para 6.4 at page 5 of the assessment order as below:
"We world like to clarify that there has never been a transaction between the assessee and Dr. Salish Desal, further, we would also like to inform that the necessary details of Dr. Satish Desai is already available at your end and the same can he verified with him" (Emphasis added)
In spite of the express denial and without any inquiry or verification, the AO held that the Appellant had given cash of Rs. 5 lakh to Dr Desai and therefore, the AO made the impugned addition under section 69A of the Act which was also confirmed by the Ld. CIT(A).
It is important to mention here that there is no independent application of mind by the authorities below as it is evident , because it is evident from the WhatsApp chart reproduced above that in the entire conversation, there is no mention of the Appellant having received cash of Rs 5 lakh from Dr. Desai. Neither the Appellant has said that he has received cash nor Dr. AY 2020-21 Mr. Ismail Muhammad Khan Desai has said that he has given cash Therefore, the finding of the Ld.CIT(A) that "As per conversation between appellant and Dr. Desai the amount of Rs. 5,00,000/- was received in cash by the appellant from Dr Desal", is factually incorrect.
The Ld.CIT(A) has mechanically confirmed the addition based on the AO's findings and the Ld.CIT(A) has not made an independent and proper application of mind.
The lack of application of mind is also evident from the fact that in para 6.4 of the assessment order, the AO has given a clear finding that as per the WhatsApp conversation, the Appellant had given Rs. 5 lakh in cash to Dr. Desai and Dr. Desai issued a cheque of Rs. 5 lakh to the assessee for crediting in his books on a later date. The Ld. CIT(A) has given the finding in para 40.3 of his order as below:
"As per conversation between appellant and Dr. Desai the amount of Rs. 5,00,000/- was received in cash by the appellant from Dr. Desai....
Thus, the AO's finding is that the Appellant has given cash of Rs. 5 lakh to Dr. Desai whereas the Ld.CIT(A) has given his finding that the Appellant has received Rs. 5 lakh in cash from Dr. Desai. Both have given their findings based on the same WhatsApp chat. Inspite of these mutually contradictory findings, the Ld.CIT(A) has confirmed the addition made by the AO.
We noticed that while drawing presumption u/s 132(4A) of the Act the AO relied upon the said statements however the said presumption is not applicable in the case of the ILPL or the assessee as the Section 132(4A) provides as below: "(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed-
(i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;
(ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested."
Before the presumption to apply, the onus is upon the revenue to verify if the alleged transactions have actually taken place at all. In this regard reliance is being placed upon decision of the Hon'ble Bombay High Court in the case of PCTT vs UmeshIshrani [2019] 108 taxmann com 437 (Bombay), wherein the question of law before the Hon'ble High Court was as below:
"Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT was justified in deleting the addition on account of cash payment for purchase of shops by holding that the seized papers were not found fram the premises of the assessee and hence presumption u/s 13214A), u/s. 2920 of the IT Act, 1961 are not applicable, without appreciating that the seized papers were found during search in the premises of one of the partners Sri LaxmichandRohira of the same firm for purchase of shops by the firm and in the said seired documents, amounts of cash paid by all the partners are noted and assessments made in the case of the said partner Shri LaxmichandRohira relating to his share of cash payment has become final, and therefore, that evidence is also relevant for assessment of other partners, including the assessee?"
The Hon'ble High Court confirmed the order of the Hon'ble ITAT by holding that it was not so. Further, in the absence of any enquiry or verification by the AO, there was no corroborative evidence on record and hence, the additions could not be sustained. It was held as below:
"2. The Respondent Assessee is an individual. He was the partner of the firm The Income Tax Department had carried out search and seizure operation during which certain loose papers were collected. On the basis of loose papers additions were made in the hands of the individual partners and on protective basis on the hand of the firm. While deleting such addition in case of the present assessee the Tribunal noted that the documents nowhere show that any payments were made by same persons, no enquiry or verification was made with the seller of the shops or the developer. Tribunal thereforeconcluded that entries of the loose papers were not corroborated with any other evidence on record.”
It can thus be seen that the entire issue is based on appreciation of evidence on record. The Tribunal noted that the loose papers entries were not clear and not corroborated by any independent evidence. No question of law therefore arises. Income Tax Appeal is dismissed."
In the case of the Appellant, the addition has been made on the basis of pure surmises and conjectures and the presumption under section 132(4A) is not applicable in the case of the Appellant.
Even otherwise the provisions of Sec. 69A or Sec. 115BBE of the Act are not applicable as Section 69A of the Act provides as below:
"Unexplained money, etc. 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year."
Therefore the scope of section 69A is to cover by deeming fiction those incomes only which are represented in the form of money or other valuables. If an assessee is found to be the owner of any money or other valuable article found during the search, then the deeming fiction comes into operation However, this deeming fiction cannot be extended beyond the scope for which it was created A WhatsApp chat is not money or valuable article in itself. Therefore, the Appellant has not been found to be the owner of any money or valuable article. Hence, the provisions of section 69A or section 115BBE do not get attracted in the case of the Appellant.
In Dikesh Mehta v DCII & 3837/MUM/2023 dtd26/11/2024(Mum) (Trib) it was held that Section 69A cannot apply to chats in phones and actual cash is required to be found to invoke Section 69A.
"17. We shall examine as to the provisions of sec.69A can be invoked in the facts of the present case Section 69A of the Act reads as under:- "69A. Unexplained money, etc. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not in the opinion of the Assessing Officer satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year"
A careful perusal of the above said provision would show that this provision could be invoked only if the assessee is "found to be the owner of any money, bullion, jewellery or other valuable article" Thus, for invoking the provisions of sec 69A of the Act, it is required to be shown that the above said assets are available and further, the assessee was found to be the owner thereof. In the instant case, no physical money was found either with the assessee or with any other person and hence the question of the assessee, being owner of the same does not arise. Hence, we are of the view that the Ld CTT(A) was right in law in holding that the provisions of sec. 69A are not applicable to the facts of the present case."
In Assistant Commissioner of Income-tax, Circle-8(2), Mumbai vs. Ms. Katrina Rosemary Turcotte [2017] 87 taxmann.com 116 (Mumbai)/[2017] 190 TTJ 681 (Mumbai) additions made on basis of evaluation sheets and blackberry phone chats were deleted as there was no corroborative evidence of cash received.”
Considering the above proposition, we are of the view no such inference arises from the WhatsApp chat that any money had actually exchanged hands as alleged in the assessment order. It was clearly a mere conversation about money, which never actually happened at any stage Had this actually happened, it is natural that the parties would have exchanged messages about receipt/payment of cash also. The mobile of the Appellant was seized and the entire WhatsApp chat was extracted and no reference to exchange of cash was found.
In the case of CIT vs. Lavanya Land (P) Ltd (2017)(397 ITR 246) (Bom), it was held that where entire decision is based on huge amounts revealed from seized documents but not supported by actual cash passing hands, no addition can be made
Thus considering the above factual position we are of the view that the addition made by the AO is on factually incorrect basis, based on mere surmises and conjectures and without any inquiry or verification made by the AO from Dr. Desai in spite of specific request made by the Appellant, which is duly reproduced by the AO in the assessment order. This clearly shows that the AO himself did not actually believe that any cash was exchanged and was well aware that his assumptions will not sustain on verification of facts therefore considering the above facts we allow this ground and direct the AO to delete the addition.
Ground No. 5
This ground raised by the assessee relates to challenging the order of CIT(A) in sustaining additions u/s 68 of the Act, in this regard we have heard the counsels for both the parties and perused the material placed on record. From the records we noticed that the AO has stated in para 7 at page 6 of the assessment order that during the course of search proceedings, certain empty envelopes with cash amounts were found, on which some amounts were super scribed. The AO observed that the total cash receipts involved in the writing on these envelopes was Rs. 56,09,400/-, out of which an amount of Rs.26.29,400/- pertained to A.Y. 2019-20 and in para 7.3 at page 12 of the order, the AO has candidly admitted that since no dates were mentioned in the other envelopes, cash receipts amounting to
The AO asked the Appellant to explain this issue and in response, the Appellant filed reply on 10.08.2022 stating that the Appellant was not aware about any envelope and the alleged cash receipts were denied. However, the AO made the addition under section 69A of the Act.
The Ld. CT(A) observed that the issue was identical in A.Y 2019-20 also and relying on the same. the Ld.CIT(A) dismissed the appeal filed by the Appellant on this issue.
Even otherwise the additions made in the present case are on the basis of assumptions, surmises and conjunctions as even the dates of the alleged cash receipts are assumed and not available with the AO The same has candidly been admitted by the AO in the assessment order. In the absence of any dates, it is absolutely arbitrary on the part of the AO to ascribe the date himself on the basis of assumptions.
The envelopes are dumb documents in the absence of dates and names of the parties to which the alleged amounts pertain. No inquiry or verification has been made by the AO to ascertain the facts However, the assumptions made by the AO are not factually correct. The AO has held these alleged cash receipts as the amounts received by the Appellant. Had this been true, then the envelopes would be more likely to be of the parties, which sent the cash whereas in the case of the Appellant, all the envelopes are of the company ILPL only. Therefore, even the assumption made by the AO is not having any rational basis.
In our view the provisions of section 69A or section 115BBE of the Act are not applicable in the case of the assessee as Section 69A of the Act provides as below.
"Unexplained money, etc. 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year."
From the above we noticed that the scope of section 69A is to cover by deeming fiction those incomes only which are represented in the form of money or other valuables If an assessee is found to be the owner of any money or other valuable article found during the search. then the deeming fiction comes into operation. However, this deeming fiction cannot be extended beyond the scope for which it was created. The empty envelopes are not money or valuable article in themselves. Therefore, the Appellant has not been found to be the owner of any money or valuable article Hence, the provisions of section 69A or section AY 2020-21 Mr. Ismail Muhammad Khan 115BBE do not get attracted in the case of the assessee therefore this ground raised by the assessee is allowed and AO is directed to delete the addition.
Ground No. 6
This ground raised by the assessee relates to challenging the order of CIT(A) in sustaining addition of Rs. 1,99,80,518/- made by the AO on protective basis under section 68 read with section 115BBE of the Act. In this regard we have hear counsels of both the parties, perused the material placed on record. From the records we noticed that since the additions have also been made on protective basis in the present case, whereas the substantive additions have been made by the AO in the case of ILPL. for A.Y. 2021-22. Since we have deleted the additions on merits in the case of ILPL for A.Y 2021-22 in ground No. 3 therefore our findings of the said case are applicable to the said case (except variance in figures) and the decision rendered in group case would apply mutatis mutandis for these appeal also. Accordingly, the ground of appeal of the present appeal also stands allowed.
Ground No. 7
In the result the appeal filed by the assessee stands partly allowed.
Order pronounced in the open court on 09/07/2025