MOHAMMED TAJ,KOLKATA vs. D.C.I.T., CC - 3(1), KOLKATA, KOLKATA

Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A), after reviewing and examining the submissions made by the assessee, granted partial relief to the assessee of Rs.50,35,265/- but sustained addition of the remining amount as unexplained expenditure.

. Before us, the primary contention of the assessee is that all transactions were duly recorded in its books of accounts and the addition u/s 69C of the Act of Rs.84,37,98,882/- was inappropriate. The ld. AR argued that if percentage of such purchases was calculated, the true income was not matched the figure of the unexplained expenditure. The ld. AR further argued that the ld. CIT(A) erred in only allowing partial relief without fully verifying the underlying records. The ld. AR stated that the complete books of account were maintained in a systematic matter in accordance with the dates of transactions and respective party or company details. The ld. AR highlighted that the transactions were mixed in nature including both purchases and sales.

2. Assessment Year: 2021-22 Mohammed Taj These transactions were segregated and duly produced with supporting evidences before the authorities below. That however the Assessing Officer erred in interpreting a transaction with a specific party, for instance, the transaction spanning over 8-9 months which involves rolling over of goods and payments was considered as independent transaction rather than cumulative transaction over the period. This misinterpretation leads to excessive addition to the income of the assessee. He, therefore, stated that the Assessing Officer treated this transaction as cumulative unexplained expenditure leading to incorrect assessment. The ld. AR also stated that the assessee submitted ledger copies for all major parties showing purchase and payment details during the relevant financial year before the ld. CIT(A) and also submitted details including reconciliation figures of payments of various companies related to the assessee. The cumulative figures of payments were incorrectly stated as unexplained expenses by the Assessing Officer, which is not correct. Another argument of the ld. AR is that even if the entries were treated as unexplained, only the profit element embedded in such transaction should be subjected to tax as held by various judicial precedents. The ld. AR in this context has referred to a judgment of the Gujarat High Court in the case of Vijay Trading v. ITO [2016] 388 ITR 377/76 taxmann.com 366. The principle enunciated in such judgment is that when undisclosed purchases of such nature are discovered, it is only the profit embedded in the transaction which can be added to the total income. The Gujarat High Court relied on some of its previous judgments to hold that "not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee." He, therefore, prayed before the Bench that the matter may be remanded to the file of the Assessing Officer with a direction to verify the books of accounts and reconcile the data.

5. We, after hearing the rival submissions of both the parties and perusing the records, note that the Assessing Officer made the addition 3 Assessment Year: 2021-22 Mohammed Taj of Rs.84,37,98,882/- primarily on the basis of back-up data collected from the assessee’s mobile device without properly corroborating with the entries in the books of accounts. The ld. AR argued that the figures in the digital data representing the transactions already reflected in the books of account of the assessee. Therefore, further addition of the same amount as unexplained expenditure would tantamount to double taxation of the same expenditure, which is not permissible in law. The Assessing Officer has neither explicitly rejected the books of account nor he found any discrepancy with them based on the records submitted by the assessee. We find that the ld. CIT(A) while granting partial relief to the assessee did not truly examine whether the profit percentage of the purchases could be taken as a reasonable addition to income of the assessee rather than the entire amount. It is established law as held by Hon’ble Supreme Court and various High Courts that Income Tax Authorities must strive to assessee the correct tax liability based on a fair examination of evidences. Even an assessee cannot be burdened with the taxes which the assessee otherwise is not liable to pay under the law. Even a duty has also been cast upon the Income Tax Authorities to charge the legitimate tax from the tax payers. We further note that the Assessing Officer shall examine the systematic records maintained by the assessee including ledger copies, details of transactions and WhatsApp records to correctly interpret the nature of the transactions. The Assessing Officer shall analyse relevant evidences to distinguish the transactions from the individual transaction by excluding cumulative rolling over transactions and recalculate the figures based on actual unexplained entries, if any. In the event of unexplained entries, only the profit element embedded in such transactions should be taxed. In view of our discussion made above, we hereby remit the matter to the file of the Assessing Officer with a direction to reexamine the issue of unexplained expenditure and verify the books of account of the assessee and also all supporting documents de novo after granting a reasonable opportunity 4 Assessment Year: 2021-22 Mohammed Taj to be heard to the assessee and reconcile the date found from the mobile device of the assessee with the books of account. The assessee is also directed to provide all necessary supporting documents and evidences to substantiate its claim before the Assessing Officer during the de novo assessment.