Loading judgment…
Facts
The appeals involved additions made by the Assessing Officer (AO) based on diaries found during a search and WhatsApp messages, related to alleged unaccounted cash transactions and interest income. The CIT(A) had partially granted relief in some instances.
Held
The Tribunal held that the presumption under Section 292C of the Act regarding documents found during a search would apply to Naresh Gupta, not the assessee, as the diaries were found in his brother's almirah. For WhatsApp messages, the Tribunal found no evidence of concluded transactions or suppression of zeros to warrant additions. Regarding interest income, the Tribunal noted that the AO made additions for notional interest, which is not empowered by the Act, and that Section 40A(2) was not applicable as interest was charged, not paid.
Key Issues
Whether additions made based on diaries and WhatsApp messages as unaccounted transactions are justified; and whether additions for notional interest on loans/advances are permissible.
Sections Cited
68, 69A, 292C, 132(4A), 40A(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCH “B”, JAIPUR
Before: Dr. S. SEETHALAKSHMI & SHRI GAGAN GOYAL
These appeals by assessee and revenue are directed against the order of Ld. CIT(A), Jaipur-04 dated 06.02.2025 respectively passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’).
Revenue’s Appeal The revenue has raised the following grounds of appeal vide (A.Y. 2017-18) as under:-
1. Whether on the facts and circumstances of the case, the Ld. CIT(A) is justified in reducing the addition of Rs. 2,62,65,500/- to Rs. 1,75,00,000/- which is based on the WhatsApp messages which establish that the assessee was involved in cash transaction which are not recorded in his books of account.
2. Whether on the fact and circumstances of the case, the Ld. CIT(A) is justified in granting relief of Rs. 1,69,233/- against the addition of Rs. 25,36,396/- made on account of interest income.
3. Appellant craves the right to add, alter or amend any of the grounds of appeal.
The revenue has raised the following grounds of appeal vide (A.Y. 2018-19) as under:-
1. Whether on the facts and circumstances of the case, the Ld. CIT(A) is justified in reducing the addition of Rs. 10,37,69,500/- to Rs. 1,66,00,000/- which is based on the WhatsApp messages which establish that the assessee was involved in cash transaction which are not recorded in his books of account.
2. Whether on the fact and circumstances of the case, the Ld. CIT(A) is justified in granting relief of Rs. 8,71,69,500/- deriving peak balance of the above unaccounted cash transaction?
3. Appellant craves the right to add, alter or amend any of the grounds of appeal.
Assessee’s Appeal
1. The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 2,76,68,300/- u/s. 68 made on the basis of diaries marked Exhibit 11 and Exhibit 24 by not accepting the contention of assessee that (i) diaries are not found from the possession of assessee but was found in the almirah of the bedroom of his brother Sh. Naresh Gupta (ii) it is a left over diary of some person not related to assessee/his family members/any of his business concerns (iii) diaries contain rough noting of some figures during demonetization period and none of the transactions noted in the diary is found relatable to the assessee (iv) no addition on the basis of such diary could be made u/s. 68/69A of the Act (v) amount noted in the receipt side cannot be added to income ignoring the amount noted on the payment side and (vi) presumption that assessee earned income of Rs. 2,76,68,300/- between 24.11.2016 to 19.12.2016 without any corresponding asset/investment/expenditure found in search is frivolous.
2. The Ld. CIT(A) has erred on facts and in law in confirming the addition to the extent of Rs. 1,74,00,000/- u/s 68 of the Act on the basis of WhatsApp messages by ignoring that (i) addition made u/s. 68 is illegal and bad in law as such WhatsApp messages cannot be equated with the books of accounts (ii) in certain WhatsApp message where KG is mentioned, the same has been interpreted as amount with suppression of five zeros (00000) ignoring the provisions of section 292C of the Act (iii)
in certain WhatsApp messages where amount is mentioned, some amount has been considered as with suppression of five zeros and certain amount has been considered as full amount (iv) these messages do not indicate materialization of the transaction as they are only memorandum messages and (v) presumption that assessee has earned such income without any corresponding asset/investment/expenditure found in search is frivolous.
3. The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 23,67,618/- by applying interest rate of 13% p.a. as against 9% p.a. charged on the advances given to Mohit Trading Company and Nand Lal Naresh Kumar by incorrectly holding that these two concerns are covered u/s. 40A(2) of the Act.
4. The appellant craves to alter, amend and modify any ground of appeal.
Necessary cost be awarded to the assessee.
The assessee has raised the following grounds of appeal vide (A.Y. 2018-19) as under:-
The Ld. CIT(A) has erred on facts and in law in confirming the addition to the extent of Rs. 1,66,00,000/- u/s 68 of the Act on the basis of WhatsApp messages by ignoring that (i) addition made u/s 68 is illegal and bad in law as such WhatsApp messages cannot be equated with the books of accounts (ii) in certain WhatsApp message where KG is mentioned, the same has been interpreted as amount with suppression of five zeros (00000) ignoring the provisions of section 292C of the act (iii) in certain WhatsApp messages where amount is mentioned, some amount has been considered as with suppression of five zeros and certain amount has been considered as full amount (iv) these messages do not indicate materialization of the transaction as they are only memorandum messages and (v) presumption that assessee has earned such income without any corresponding asset/investment/expenditure found in search is frivolous.
2. The Ld. CIT (A) has erred on facts and in law in confirming the addition of Rs. 25, 72,131/- by applying interest rate of 13% p.a. as against 6% p.a. and 9% p.a. charged on the advances given to Mohit Trading Company and Garg Trading Company respectively by incorrectly holding that these two concerns are covered u/s. 40A (2) of the Act.
The appellant craves to alter, amend and modify any ground of appeal.
2. These are four appeals, two filed by assessee & two filed by revenue against the two separate order of Ld. CIT (A) each DT. 06.02.2025 passed u/s. 250 of the Income Tax Act, 1961 for A.Y. 2017-18 & 2018-19 respectively. Since, common grounds are involved in these appeals we proceed to decide all these appeals by this common order. First we take up the appeal of the assessee in for A.Y. 2017- 18. The brief facts of the case are that assessee is engaged in the business of wholesale trading and commission agent of grain and share trading. A search was conducted on the assessee on 08.02.2018. During the search proceedings, notebook marked Exhibits 11 & 24 were found at 48, G Block, Gaushala Road, Sri Ganganagar, which is residential premises of the assessee and his brother Naresh Gupta. Exhibit 11 contains notings for the period 24.11.2016 to 15.12.2016 and Exhibit 24 contains notings for the period 02.12.2016 to 19.12.2016. These exhibits were found from the bedroom of Sh. Naresh Gupta. Sh. Naresh Gupta in his statement u/s. 132(4) of the Act DT. 10.02.2018, in reply to Q. No. 3 with reference to these two Exhibits stated that Exhibit 11 is a spiral diary having 12 written pages which is diary of children and he doesn’t know anything more about it and Exhibit 24 contain seven written pages for the period 02.12.2016 to 12.12.2016. The assessee in his statement recorded u/s. 132(4) of the Act DT. 10.02.2018 in reply to Q. No. 35 to 38 with reference to these two notebooks stated that they do not relate to him or any of his family members. The notebook is of demonetisation period but neither he nor any of his family member or business concern have made any cash deposit in the bank account during the demonetisation period. In post search statement u/s. 131 of the Act DT. 07.05.18, the assessee in reply to Q. No. 6 stated that these notebook do not pertain to them but appears to be leftover notebook of some person as no. of traders from different places comes to him and it is a leftover notebook of any such trader which he is not aware of but it is not related to him, his family concern or his business concern. However, the peak amount of these diaries is worked out at Rs. 76, 22,000/- with a reservation that providing such working is not taken that he has accepted such amount as his income.
The AO at Pg. 2 & 3 of the assessment order tabulated the date wise summary of the entries in these diaries as under: -
Exhibit 11
Page Date Opening Receipts Payments Closing No. 1 Rough noting of denomination of currency notes 2&3 24.11.2016 11,00,000/- 35,10,000/- 38,84,800/- 7,25,200/- 2(Right Rough noting totalling Rs. 12,00,000/- side) 4 26.11.2016 0 1,21,48,000/- 45,25,000/- 76,23,000/- 5(Left 27.11.2016 76,22,000/- 0 26,96,500/- 49,25,500/- side) 5(Right 29.11.2016 49,25,500/- 12,50,000/- 16,00,000/- 45,75,500/- side) 6(Left 30.11.2016 45,75,500/- 5,00,000/- 22,70,000/- 28,05,500/- Side) 6(Right 01.12.2016 28,05,500/- 8,16,900/- 15,76,700/- 20,45,700/- Side) 7(Left 03.12.2016 20,45,700/- 10,00,000/- 29,00,000/- 1,45,700/- Side) 7(Right 15.12.2016 1,46,000/- - - 1,46,000/-
Side) 8 Rough Noting 9 Some figures totalling Rs. 14,45,000/- and then struck off 10-12 Rough noting apparently by a child
Exhibit 24 Page No. Date Opening Receipts Payments Closing 1 02.12.2016 68,10,500/- 2,80,500/- 33,74,250/- 37,16,750/- 2(Left 03.12.2016 37,16,750/- 32,15,000/- 19,24,100/- 50,07,650/- Side) 2(Right 04.12.2016 50,07,650/- 46,050/- 1,34,200/- 49,19,500/- Side) 3(Left 05.12.2016 49,19,500/- 7,19,150/- 37,76,800/- 18,61,850/- Side) 3(Right 06.12.2016 18,61,850/- 10,63,000/- 3,50,750/- 25,74,100/- Side) 4(Left 13.12.2016 25,74,100/- 14,08,700/- 23,08,100/- 16,74,700/- Side) 4(Right 14.12.2016 16,74,700/- 2,10,000/- 4,560/- 18,80,140/- Side) 5(Left 15.12.2016 18,80,140/- 2,01,000/- 19,65,300/- 1,15,840/- Side) 18.12.2016 5(Right 19.12.2016 1,15,840/- 2,00,000/- 22,000/- 2,93,840/- Side) 6 Miscellaneous Expenses totalling Rs. 1,41,540/- 7 Rough calculation of currency denomination totalling Rs. 69,70,000/-
Thereafter the AO held that once the notebook is found from the premises of the assessee, the presumption u/s. 292C of the Act is that it belongs to the assessee and the contents of the documents are true. The notebook contains the details of opening balance, receipts, payments and closing balance. Therefore, the opening balance along with the receipts remains unexplained in the hands of the assessee. The same is worked out at Rs. 2, 03, 24,900/- as per
Exhibit 11 and Rs. 73, 43,400/- as per Exhibit 24 and thus addition of Rs. 2, 76, 68,300/- was made u/s. 68 of the Act.
5. The Ld. CIT(A) at Pg. 39-44 of the order held that since the diary was found from the premises of assessee, the statutory presumption u/s. 132(4A) and u/s. 292C of the Act is that it belongs to the assessee and the contents of the documents are true, more so as it is unbelievable that third person will make the notebook and put the same in appellant’s room in the almirah of the bedroom more particularly when it is claimed that on some pages the notings are made by the children. The Ld. CIT (A) also observed that the claim of notebook having found from the almirah of the bedroom of his brother is a mere afterthought and therefore it is held that AO correctly considered the Exhibit in the hands of the assessee but if in further appeal it is held that the same was found from the possession of the bedroom of Naresh Gupta, in that situation the addition confirmed in case of assessee be taxed in the hands of Naresh Gupta. The Ld. CIT (A) further held that addition u/s. 68 of the Act is justified as books of accounts defined u/s. 2(12A) of the Act also includes other books. He further held that even if notebooks are not treated as books of accounts, then income from these Exhibits needs to be taxed u/s. 69A of the Act, being the money in possession of the assessee. Also the claim that the evidences regarding application of income was not found during search is not acceptable as there can be countless possibility regarding application of such income. Accordingly the addition made by the AO is confirmed.
We have thoroughly gone through the order of AO & Ld. CIT (A) and given our thoughtful consideration to the arguments of Ld. AR & Ld. DR. We find that both the lower authorities have made/ confirmed the addition by relying on the provision of section 132(4A)/ 292C of the Act. Though presumption made under these two sections are rebuttable presumption but section 292C of the Act, provides that if any document is found from the possession of the searched person, it is presumed that the same belongs to him and the contents are true. It does not make any difference whether the handwriting in these documents are of assessee or not or there is any reference of any of the family members or business concern or relative or employee of the assessee in these documents. Therefore they are not inclined to accept the contention of the Ld. AR of the assessee that these are leftover rough diaries of some person without identifying the name and address of such person. However at the same time we find that the revenue has not disputed the fact that the diary was found from the almirah of the bedroom of brother of assessee Sh. Naresh Gupta. The presumption of section 292C of the Act is that the document found in the possession or control of a person in course of search is true. Thus presumption of section 292C of the Act would apply to Sh. Naresh Gupta and not to the assessee. Even the Ld. CIT(A) at Pg 40, Para 3 of the order has appreciated this legal provisions in stating that if in further appeal, the addition is not upheld in the hands of assessee, the same should be taxed in the hands of the brother of assessee as per the procedure the Act. We further note that on the contention of the assessee regarding addition made u/s. 68 of the Act, the Ld. CIT (A) at Pg 41, in the last para of the order has observed that even if notebooks are not treated as books of accounts and technically the provisions of section 68 is not applicable, even then the amount needs to be taxed as unexplained money in the possession of the assessee u/s. 69A of the Act.
Thus, we find that the Ld. CIT(A) has in principal has accepted that the diaries were found from the possession of Sh. Naresh Kumar Gupta and that technically the provisions of section 68 of the Act is not applicable. Therefore though prima facie it appears that the addition made in the hands of the assessee is not justified but from a close look to the diaries we find that Exhibit 11 is having transaction of 24.11.16, 26.11.16, 27.11.16, 29.11.16, 30.11.16, 01.12.16, 03.12.16 & 15.12.16, and Exhibit 24 is having transaction of 02.12.16 to 06.12.16, 13.12.16 to 15.12.16, 18.12.16 & 19.12.16. Thus in both the notebooks, certain dates are missing and certain dates are overlapping. The notebook contains noting of certain receipts, certain payments, and the balance left with breakup of the denomination of the currency note of the balance left. The currency notes are of Rs.2000/-, Rs.1000/-, Rs.500/-, Rs.100/-, Rs.50/- & Rs.10/-. All the dates are of demonetisation period. The assessee or any of his family members or any of its business concerns have not made any cash deposit in the bank account during demonetisation period. All these facts indicate that whosoever has written this notebook, he has noted the receipts on the one side and the amount given or expenditure incurred and the balance left on the other side. Therefore, the entire receipt cannot be added to income. The maximum net receipt on any one date is Rs. 76, 23,000/-. Though the transactions in the notebook do not contain the name of the assessee or any of his family members or any of his business concerns but since it is found from the residence of the assessee and the transactions are of demonetisation period, it would be appropriate to infer that the person who has written the transaction has done so to exchange the old currency note with new currency note and thus earned commission in providing such services. Since, assessee has not provided the name of any such person, considering the statement of the assessee during post search proceedings, a reasonable income is required to be assessed in the hands of the assessee with reference to the total of transactions noted in these diaries in as much as the total receipt as such cannot be held to be income, more particularly when no corresponding asset or investment or expenditure was found in search. Therefore, considering the fact that the transactions are during demonetisation period it would be appropriate to assess the income by applying appropriate commission rate on the total transaction of Rs. 2,76,68,300/- to meet the end of the justice. Hence, we direct the AO to apply commission rate of 10% on the amount of Rs. 2, 76, 68,300/- and thus the addition is confirmed to the extent of Rs. 27, 66,830/- and the balance addition of Rs. 2, 49, 01,470/- is deleted. Thus, this ground of the assessee is partly allowed.
Ground No. 2 of the assessee and Ground No. 1 of the revenue is on the same issue where part relief is allowed by Ld. CIT (A). The Ground raised
by the assessee and by the revenue are already reproduced (supra). The brief facts of the grounds are that during the course of post search proceedings, certain printout of chat conversation found in the mobile phone were taken out and marked as Exhibit 45 to Exhibit
58. Statement of the assessee was not recorded on these WhatsApp chats. The AO in its show cause notice DT. 17.01.2019 observed that assessee was talking in code words about receiving and paying cash to other person. There are also reference/images of note numbers of Rs. 10/- notes which are frequently used for the purpose of transfer of cash through hawala. In most of the messages only the reference to the note no. is mentioned. In some messages the amount of cash in code word i.e. 10 kg is mentioned. The AO further observed that in Exhibit 45, 48 kg, in Exhibit 46, 25 kg and in Exhibit 51, 55 kg is noted which appears to have five zero suppression. The assessee explained that these WhatsApp messages are simply memorandum messages and majority of messages are from one mobile to another mobile no. of the assessee, which is sent while the assessee was on travel. Some message has reference of ‘Kg’ which is in relation to receipts of commodity either for sample purpose or delivering to relatives or known persons. Some messages contain some figure with the remark ‘cash’, which do not mean that it is unrecorded transaction. In support of the same assessee referred to Pg. 35 of Exhibit 45 where figures in crores is noted with the word ‘cash margin’, ‘total margin’, ‘total debit’, which represent the account of Suresh Gupta in the books of M/s. Ganpati Multi Commodity B.I. Pvt. Ltd. and therefore, no adverse inference should be drawn simply on the basis of reference of the word ‘cash’. The details of such messages were provided. Some messages contain the reference of RTGS, which is verifiable from regular books of accounts. Accordingly it is stated that no cognizance is required to be given to these messages.
The AO reproduced some of the messages at Pg. 7 to 10 of assessment order and observed that if the transactions are simply memoranda noting, then why the same is sent along with the picture of Rs. 10/- note. The assessee accepted that the amounts are written with suppression of five zero. In some messages, the word ‘cash’ is mentioned, in some messages the word ‘Kg’ is appearing but the same is not substantiated by evidence. In respect of cash transaction assessee could not furnish the source of such transaction. Accordingly AO tabulated these transactions as Table 1 and Table 2 at Pg 11 to 13 of the assessment order as under:- Table 1
Exhibit Pg No. Msg. Kg. Date Amount (in No. No. Rs.) 51 139 9 55 15.05.2017 55,00,000/- 51 127 72 10 01.05.2017 10,00,000/- 51 121 99 130 26.04.2017 1,30,00,000/- 51 121 103 130 26.04.2017 1,30,00,000/- 51 113 148 50 12.01.2017 15,00,000/- 51 88 279 35 08.02.2017 35,00,000/- 51 51 594 5 12.09.2016 5,00,000/- 45 56 21 25 24.07.2017 25,00,000/- 46 14 819 25 15.03.2017 20,00,000/- 46 108 61 10 21.12.2017 10,00,000/- 46 109 60 25 21.12.2017 25,00,000/- 57 21 10 16.09.2017 10,00,000/- 50 138 25 25,00,000/- 46 3 1338 5 23.06.2016 5,00,000/-
Table 2
Exhibit Pg Msg. Kg Date Amount (in Description of No. No. No. Rs.) Message 45 49 514 25 20.10.2016 25,00,000/- 25 Delhi cash bhi le lega 45 47 1 48 29.09.2017 48,00,000/- 48 cash kahai 45 44 9 18.04.2017 50,00,000/- Bhai Ji please thoda time nikal kar Delhi cash karwa do 50. Aage ke liye problem create ho rahi hai ab. 45 40 6 17.09.2016 5,00,000/- Cash 5 45 38 3 17.10.2016 3,50,000/- Dinesh Ji ko 3.5 cash dene hai kya phone ayaa tha jamin pete 45 38 2 10.12.2017 15,00,000/- 15 cash 15 Mahadev 45 35 4 04.12.2017 50,00,000/- 50 cash ka msg. ayega 45 28 1 10.05.2017 45,000/- Cash saved 45000 45 28 2 10.01.2017 15,500/- 15500 ka maal bahar se. Says cash payment mei. 45 28 4 21.09.2017 17,000/- Cash at drawer 17000 45 27 6 21.09.2017 3,25,000/- Cash in hand 3,25,000/- 45 26 13 13.09.2017 5,82,500/- Cash was 5,82,500/- less for home expense 2,05,000/- =3,77,500/- 45 5 270 05.04.2017 85,00,000/- Cash 85 karwa do bhaiya 45 48 519 10 20.10.2016 10,00,000/- 10 from Gampati 45 48 520 10 20.10.2016 10,00,000/- 10 From madam 46 17 779 27.03.2017 1,19,00,000/- 119 dil wara hahun 46 20 626 17.04.2017 10,00,000/- 75 S 452014 10 rs For 10 46 35 421 24.05.2017 10,00,000/- Collect 10 from Mohan Ji 46 108 65 21.12.2017 35,00,000/- 25+10 2 note dunga alag alag 46 115 29 26.12.2017 20,00,000/- 20 ki aayi thi 20 karwa di Baaki aane wali hai Aate he ho jayegi 46 115 27 50 26.12.2017 50,00,000/- Total 50 ayegi 2.24 ki kal parson Kisi ko dekar karwa dunga Iski 50 hi thi 46 116 20 26.12.2017 20,00,000/- abhi 20 hi hua hai kya 57 27 09.07.2017 1,10,00,000/- Rajesh ji 50+30+20+10 57 27 09.07.2017 65,00,000/- Ashok ji 15+50 Accordingly AO made addition of Rs. 80,00,000/- on the basis of Table 1 & Rs. 1,72,65,500/- on the basis of Table 2 for the year under consideration u/s. 68 of the Act and addition of Rs. 4,60,00,000/- on the basis of Table 1 & Rs. 5,77,69,500/- on the basis of Table 2 for A.Y. 2018-19.
The Ld. CIT (A) at Pg. 57-82 of the order observed that the judgment relied by the assessee are under criminal law where the standards of evidence are different than under the Income tax law. There is presumption provided u/s. 292C of the Act. The WhatsApp msg. shows execution of actual transaction. There are two categories of transactions. One category is of transaction where cash is mentioned and another is of transaction where kg is mentioned. The onus is on the appellant to explain each and every message. The Ld. CIT (A) thereafter at Pg. 61-75 of the order tabulated each of the transaction for which addition is made by AO and categorized such transaction as receipt and payment. As per this working, the messages where the word kg is mentioned, the total of receipt is worked out at Rs. 2.75 crores and the total of the payment is worked out at Rs.1 crore. Further the messages where the word cash is mentioned, the total of receipt is worked out at Rs. 2.65 crores and the total of payment is worked out at Rs. 4,20,65,500/-. Thereafter the Ld. CIT(A) considering the transaction noted in Exhibit 11 & 24 worked out the peak amount at Pg. 76-81 of the order and thus confirmed the addition of Rs. 1.74 crores u/s. 69A of the Act as against addition of Rs. 2,52,65,500/- made by the AO. Similarly for A.Y. 2018-19 the Ld. CIT (A) confirmed the addition of Rs. 1.66 crores u/s. 69A of the Act as against addition of Rs. 10, 37, 69,500/- made by the AO. Against this finding of Ld. CIT (A) both the assessee and revenue are in appeal before us.
We have pursued the material available on record & given thoughtful consideration to the argument advanced by both the parties. We note that from the mobile of the assessee more than 1500 WhatsApp chats were retrieved and placed in Exhibit 45 to Exhibit 58. The AO, after considering the explanation of the assessee made addition with reference to those WhatsApp chats where ‘Kg’ is mentioned or where cash or note no. is mentioned by presuming suppression of five zeros, but we do not find that any material brought on record by the lower authorities for such presumption in as much as nothing is brought on record by ld. DR that assessee accepted that there is suppression of five zeros with reference to the WhatsApp chat for which addition is made by the AO. The details of these WhatsApp chats is as under: -
Exb. Pg. Msg. PB Date Description Mobile No. Remark No. No. No. No. 51 139 9 82 15.05.17 For 55 kg 9373525252 Incoming message 51 127 72 83 01.05.17 10 kg 9373525252 Outgoing message 51 121 99 84 26.04.17 130 kg 9373525252 Incoming message at 9.56.49 am 51 121 103 84 26.04.17 130 kg 9373525252 Incoming message at 9.49.46 am 51 113 148 85 12.01.17 Delhi 50 kg 9373525252 Incoming message 51 88 279 86 08.02.17 35 Kg Ravi Ji 9373525252 Incoming 64641039 message 51 51 594 87 12.09.16 Msg. for 5 9373525252 Incoming kg Delhi message 45 56 21 88 24.07.17 2 Rs. note 9926800042 Incoming 29Q478681 message for 25 kg
Delhi, Nilesh Ji 9999997194 46 14 819 89 15.03.17 10 ka note 9414630611 Incoming 60D046628 message 20 kg 46 108 61 90 21.12.17 72V897164 9414630611 Incoming 1 Rs note message 9899868643 10Kg 46 109 60 91 21.12.17 1 ka 9414630611 Incoming 46A215078 message 25 kg 57 21 - 92 16.09.17 For 10 kg. - From Sonu Delhi to Umang Trading Pvt. Ltd. with bank detail 50 138 - 93 - Unjha - Coriander delivery in seeds 25 kg PP 25Kg. Net Product of India 46 3 1338 94 23.06.16 29931 mei 9414630611 Incoming baaki 5 kg message bhi kaat diye guld
From the above we note that in most of the WhatsApp messages only ‘kg’ is mentioned. Only in four WhatsApp messages at Exhibit 45 & 46 both ‘kg’ and note no. is mentioned. These WhatsApp messages do not show that any transaction is concluded. Further the WhatsApp message of 130 kg on 26.04.17 is a repeat message in as much as the first message is given at 9.49.46 am which is repeated at 9.56.49 am. Again message at Pg. No.138 of Exhibit 50 is only inquiry for delivery of coriander seeds in 25 kg PP bags. Whether transaction materialized or not is not evident from this message. Similarly, WhatsApp message at Pg No. 3, Msg. No. 1338 of Exhibit 46 is between the same mobile no. and do not lead to any conclusion. Hence, on the basis of these WhatsApp messages, the total kg involved is 375 kg. (535 kg - 130kg - 25kg - 5kg). This is accepted by Ld. CIT (A). Even assuming that ‘kg’ reflects the amount, there is no basis to consider the suppression of five zeros. Therefore, the addition of Rs. 80,00,000/- made by AO in A.Y. 2017-18 and addition of Rs. 4,60,00,000/- made by AO in A.Y. 2018-19 which is partly reduced by CIT(A) is not justified as there is no indication from these messages that transaction is concluded. Hence, the addition made on the basis of these messages is deleted.
The another category of transaction where ‘cash’ is mentioned, the AO made addition of Rs.7,50,35,000/- (Rs.1,72,65,500/- for A.Y. 2017-18 & Rs. 5,77,69,500/- for A.Y. 2018-19). We find that these messages do not indicate that the transaction has materialized or whether they are receipt of amount or payment of amount. The individual messages are tabulated as under:-
Exb. Pg Msg. PB Date Description of Remarks No. No. No. No. msg. 45 49 514 95 20.10.16 25 Delhi cash bhi This incoming msg. le lega from mobile no. 9414090911 do not indicate that the transaction has materialized 45 47 1 96 19.09.17 48 cash kahai It is an outgoing msg. from mobile no. 9910521199 45 44 9 97 18.04.17 Bhai Ji please This incoming msg. thoda time nikal from mobile no. kar Delhi cash 9414630611 do not karwa do 50. indicate that the Aage ke liye transaction has problem create materialized ho rahi hai ab. 45 40 6 98 17.09.16 Cash 5 This outgoing msg. from mobile no. 9829037135 do not indicate as to what is the nature of msg. nor indicate that transaction has materialized, when it is read with the subsequent msg. that ‘Shiv Ji ko cash nahi chalega’. 45 38 3 99 17.10.16 Dinesh Ji ko 3.5 This incoming msg. cash dene hai kya from mobile phone ayaa tha no.9414090911 is only jamin pete an inquiry when read with subsequent msg. stating that ‘Cash abhi manga hai’. 45 38 2 100 10.12.17 15 cash This is outgoing msg. 15 Mahadev from mobile no.9982958900. The prior outgoing msg. is that ‘ess no. pe call kar keen ko bol do cash le le’. This does not lead to any inference that any transaction has materialized.
45 35 4 100 4.12.17 50 cash ka msg. This outgoing msg. ayega from mobile no. 9811162471 does not show that any transaction has materialized. 45 28 1 101 10.05.17 Cash saved This incoming msg. 45000 from mobile no. 9991500945 does not lead to any inference that it is any undisclosed receipt. 45 28 2 101 10.01.17 15500/- ka maal This incoming msg. bahar se. Says from mobile cash payment no.9991500945 does mei. not indicate that transaction has materialized. 45 28 4 101 21.09.17 Cash at drawer This incoming msg. 17,000/- from mobile no.9991500945 only indicate placement of cash in the drawer. 45 27 6 102 21.09.17 Cash in hand It is incoming msg. 3,25,000/- from mobile no.9991500945. There is other incoming msg. from same mobile no. on same date indicating that the cash at drawer, cash at bank and cash in hand. This does not lead to any inference that it is undisclosed cash; in as much as cash balance as per the books of the assessee is more. 45 26 13 103 13.09.17 Cash was This is incoming msg. 5,82,500/- less from mobile no. for home 9991500945. The expense subsequent msg. 2,05,000/- states that ‘Sorry cash =3,77,500/- in hand was wrong’. 45 5 270 104 05.04.17 Cash 85 karwa do This is incoming msg. bhaiya from mobile no. 9314089373 and do not indicate that transaction has materialized nor does it states inflow or outflow of cash. Further, there is no basis why 85 has been considered as Rs. 85,00,000/- 45 48 519 105 20.10.16 10 from Ganpati This outgoing msg. from mobile no. 9414090911 does not indicate that transaction has materialized. Further, there is no basis why 10 has been considered as Rs. 10, 00,000/-. 45 48 520 105 20.10.16 10 From madam This is outgoing msg. from mobile no. 9414090911and it does not indicate that transaction has materialized. There is no basis why 10 has been considered as Rs. 10, 00,000/-. 46 17 779 106 27.03.17 119 dilwa raha This is outgoing msg. hun from mobile no. 9414630611 and does not indicate that transaction has materialized. There is no basis why 119 has been considered as Rs. 1, 19, 00,000/-. Further, the subsequent msg. states ‘rtgs ka bol dena’ indicates that it was not a cash transaction. . 46 20 626 107 17.04.17 75 S 452014 This is incoming msg. 10 rs from mobile no. For 10 9414630611 and does not indicate that any transaction has materialized. Further, there is no basis why 10 has been considered as Rs. 10,
00,000/-. 46 35 421 108 24.05.17 Collect 10 from This outgoing msg. Mohan Ji from mobile no. 9414630611 does not indicate that any transaction has materialized nor does it specify that it is a cash transaction. Further, there is no basis why 10 has been considered as Rs. 10, 00,000/-. 46 108 65 109 21.12.17 25+10 This is incoming msg. 2 note dunga alag from mobile no. alag 9414630611 do not indicate that any transaction has materialized. Further, there is no basis why 35 has been considered as Rs. 35, 00,000/-. 46 115 29 110 26.12.17 20 ki aayi thi This is incoming msg. 20 karwa di from mobile no.
Baaki aane wali 9414630611 do not hai indicate that any Aate he ho jayegi transaction has materialized nor does it specify whether the transaction was in cash. Further, there is no basis why 20 has been considered as Rs. 20, 00,000/-. 46 115 27 110 26.12.17 Total 50 ayegi This incoming msg. 2.24 ki kal parson from mobile no. Kisi ko dekar 9414630611 does not karwa dunga indicate that any Iski 50 hi thi transaction has materialized nor does it specify whether the transaction was in cash. The previous msg. states that ‘thoda fast kara do bank ko jana bohot jada urgent hai’ and the subsequent msg. states ‘ho gai mere pass se’. This indicates that transaction did not materialize. Further, there is no basis why 50 has been considered as Rs. 50, 00,000/-. 46 116 20 111 26.12.17 abhi 20 hi hua hai This is outgoing msg. kya from mobile no. 9414630611 and this amount of Rs. 20, 00,000/- indicates RTGS transaction which is specified in the msg. prior to this msg..Therefore, it cannot be taken as a cash transaction. 57 27 - 112 09.07.17 Rajesh ji This is incoming msg. 50+30+20+10 from ‘Sonu’ to ‘Rajesh Ji’. It does not indicate that what is the nature of transaction, whether transaction has materialized and whether it denotes the amount in Rupee. Further, there is no basis why 110 has been considered as Rs. 1, 10, 00,000/-. 57 27 - 112 09.07.17 Ashok ji 15+50 This is incoming msg. from ‘Sonu’ to ‘Ashok Ji’. It does not indicate that what is the nature of transaction, whether transaction has materialized and whether it denotes the amount in Rupee. Further, there is no basis why 65 has been considered as Rs. 65, 00,000/-.
From the above we find that none of the message concludes any receipt or payment of cash. In no. of messages even cash is not mentioned. These are unconcluded messages. The presumption of Sec.292C is that contents of document are true. Thus when the WhatsApp message does not establish that transaction has concluded, no addition can be made. Further, when the message do not reflect that there is suppression of five zero, addition can’t be made by presuming suppression of five zero. No evidence of unrecorded asset/expenditure corresponding to the addition made by the AO or confirmed by Ld. CIT (A) was found in search.
We also note that the Ld. CIT (A) presumed certain messages as incoming messages, i.e. receipt of the amount and certain messages as outgoing messages, i.e. payment of amount and on that basis observed that messages where the word kg is mentioned, the total receipt is Rs. 2.75 crores and the total payment is Rs.1 crore and the messages where the word cash is mentioned, the total receipt is Rs. 2.65 crores and total payment is Rs. 4, 20, 65,500/-. Thereafter on Pg. 78-81 of the order, he worked out the peak amount for each of the A.Y. 2017-18 & 2018-19 and thus confirmed addition of Rs. 1.74 crores in A.Y. 2017-18 and Rs. 1.66 crores in A.Y. 2018-19. The entire working of the Ld. CIT (A) is as per his own assumption & presumption without bringing on record any evidence that the WhatsApp chat has concluded into any financial transaction. Therefore, we do not find any justification in the addition confirmed by the Ld. CIT (A). Resultantly, we delete the addition made by AO and partly confirmed by Ld. CIT (A) by allowing the ground of the assessee and dismissing the ground of the revenue.
Ground No. 3 of the assessee and Ground No. 2 of the revenue is on the same issue where part relief is allowed by Ld. CIT (A). The brief facts of this ground is that The AO at Pg 14 & 15 of the assessment order observed that assessee has charged interest on loans and advance given to various parties other than the family concerns which ranges from 10% p.a. to 18% p.a. but from the family concerns it has charged interest at lower rate. Considering the rate of interest to be charged at 13% p.a., the AO made addition of Rs. 25,36,751/- in respect of the following concerns:-
Name of party to Interest charged Interest to be charged @ Difference whom loan/ 13% p.a. on average rate advance is given of interest charged from other parties Shree Hari Agro Rs. 17,200/- Rs. 1,86,333/- Rs. 1,69,133/- Industries Ltd., (@1.2%) Jaipur Mohit Trading Rs. 38, 30,000/- Rs. 55,32,222/- Rs. 17,02,222/- Company, Sri (@9%) Ganganagar Nand Lal Naresh Rs. 14, 97,140/- Rs. 21,62,536/- Rs. 6,65,396/- Kumar, (@9%) Sri Ganganagar Total Rs. 25,36,751/-
The Ld. CIT(A) at Para 6.2, Pg. 96-100 of the order held that the transaction with Shree Hari Agro Industries Ltd. are business transaction and not the loans given. Thus the rate of interest on the same shall be governed by the rate of interest applicable to market outstanding and not by the rate of interest applicable to loans. There is no finding or basis in the assessment order that the interest charged is less in comparison to the interest charged from the other parties with respect to the trading outstanding. Thus addition in case of Shree Hari Agro Industries Ltd. Is deleted. The Ld. CIT (A) further held that in the assessment order a clear-cut finding has been given that the entities in question are the family concerns of the appellant. In the appeal proceedings the appellant has not made any factual substantive submissions against this finding of the assessment order. Once that is the case and the parties are related parties, the applicability of section 40A(2) of the Act is very much in force and thus the addition made by the AO with respect to the two parties Mohit Trading Company, Sri Ganganagar and Nand Lal Naresh Kumar, Sri Ganganagar is confirmed.
We have perused material available on record and considered the arguments advanced by both the parties. From the ledger account of Shri Hari Agro Industries Ltd. we note that the assessee has advanced Rs. 5,00,000/- as margin money and thereafter it purchased custard seeds for Rs. 31.50 lacs on Arat on 16.09.2016 which was sold on Arat on 17.01.2017 for Rs. 36,79,200/-. On this transaction interest of Rs. 17, 200/- was charged. Thus it is not a case of giving loan or advances but a trade transaction. Hence the Ld. CIT (A) has rightly deleted the addition and thus the ground of the revenue is dismissed.
So far as ground of the assessee is concerned, we find from the ledger account of Mohit Trading Co. (PB 128) and Nand Lal Naresh Kumar (PB 129-130), that interest charged by assessee from these concerns is @ 9% p.a. The Ld. CIT(A) has invoked section 40A(2) of the Act in confirming the addition ignoring that AO has not disallowed the expenditure but has made addition for notional interest. There is no section in the Act which empowers the AO to make addition on account of notional income. In search also no evidence/document was found to indicate that assessee has charged interest from the above parties at rate more than what is recorded in books of accounts. Hence in the absence of any incriminating material found in search, no addition for notional interest can be made. Further how much interest is to be charged is to be decided by the businessman. The AO cannot put himself in the shoes of the businessman to decide as to at what rate he should charge the interest as held by Hon’ble Supreme Court in case of Hero Cycles (P.) Ltd. Vs. CIT(Central) (2015) 379 ITR 347.The Ld. CIT(A)has confirmed the addition invoking Sec.40A(2) of the Act ignoring that this section is applicable when interest is paid to a related party which is excessive or unreasonable. In the present case interest is not paid to these parties but rather interest is charged from these parties and therefore Section 40A (2) of the Act is not applicable. In view of above the addition of Rs. 23, 67,618/- confirmed by Ld. CIT (A) is deleted by allowing the ground of the assessee.
Now we proceed to decide the appeal of the assessee in & appeal of the revenue in for A.Y. 2018- 19. Ground No. 1 of the assessee and ground Nos. 1 & 2 of the revenue which is common ground is there for adjudication. The facts & the arguments raised by both the parties on these grounds is same as is considered by us in para no. 9 to 16 supra. Hence, the finding given by us above would mutatis mutandis apply to these grounds also. Hence, the appeal of the assessee is allowed and that of the revenue is dismissed.
Ground No. 2 of the assessee, The AO at page 9 and 10 of the assessment order observed that assessee has charged interest on loans and advance given to various parties other than the family concerns which ranges from 10% p.a. to 16.5% p.a. but from the family concerns it has charged interest at lower rate. Considering the rate of interest to be charged at 13% p.a., the AO made addition of Rs. 25,72,131/- in respect of the following concerns:-
Name of party to Interest charged Interest to be charged @ Difference whom loan/ advance 13% p.a. on average rate of is given interest charged from other parties Mohit Trading Rs. 21, 97,000/- Rs.47,60,167/- Rs.25,63,167/- Company, Sri (@6%) Ganganagar Garg Trading Rs.20,170/- Rs.29,134/- Rs.8,964/- Company, Sri (@9%) Ganganagar Total Rs.25,72,131/-
The Ld. CIT (A) confirmed the addition on the basis of its finding given in A.Y. 2017-18. We have perused the material available on record. From the ledger account of Mohit Trading Co. (PB 74) and Garg Trading Co. (PB 75), we find that the interest charged from these concerns is @ 6% p.a. & 9% p.a. respectively. The Ld. CIT (A) has incorrectly invoked section 40A (2) of the Act ignoring that AO has not disallowed the expenditure but has made addition for notional interest. There is no section in the Act which empowers the AO to make addition on account of notional income. In search also no evidence/document was found to indicate that assessee has charged interest from the above parties at rate more than what is recorded in books of accounts. Hence in the absence of any incriminating material found in search, no addition for notional interest can be made. Further how much interest is to be charged is to be decided by the businessman. The AO cannot put himself in the shoes of the businessman to decide as to at what rate he should charge the interest as held by Hon’ble Supreme Court in case of Hero Cycles (P.) Ltd. vs. CIT (Central) (2015) 379 ITR 347. The Ld. CIT (A) has confirmed the addition invoking Section 40A (2) of the Act ignoring that this section is applicable when interest is paid to a related party which is excessive or unreasonable. In the present case interest is not paid to these parties but rather interest is charged from these parties and therefore Sec 40A (2) of the Act is not applicable. In view of above the addition of Rs. 25, 72,131/- confirmed by Ld. CIT (A) is deleted by allowing the ground of the assessee.
In the result appeal of the assessee in A.Y. 2017- 18 is partly allowed and that of the revenue in is dismissed and the appeal of the assessee in for A.Y. 2018- 19 is allowed and that of revenue in is dismissed. Order pronounced in the open court on 14th day of August 2025.