The Dy. CIT, Central Circle-1(1), Ahmedabad V. Kamlesh Pravinchandra Shah, Bhavnagar

ITSSA 39/AHD/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 6431 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 19-06-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-06-2024
• Assessment Year: 2020-2021
• Appeal Filed On: 02-05-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SARJU MEHTA
• Keywords: Unexplained expenditure; Corroborative evidences; Set aside
• Section: 132; 69A

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ “B”, अहमदाबाद अहमदाबादअहमदाबाद अहमदाबाद । ।। । IN THE INCOME TAX APPELLATE TRIBUNAL “ B ” BENCH, AHMEDABAD ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTNAT MEMBER IT(SS)A No.39/Ahd/2023 Assessment Year : 2020-21 The Dy.CIT Central Circle-1(1) Ahmedabad Vs Kamlesh Pravinchandra Shah 1038/A-1, ‘Surmal’ Meghani Circle Bhavnagar – 364 001 (Gujarat) PAN: ANKPS 8719 F / (Appellant) / (Respondent) Assessee by : Shri Sarju Mehta, AR Revenue by : Shri Sudhendu Das, CIT-DR /Date of Hearing : 13/06/2024 /Date of Pronouncement: 20/06/2024 आदेश/O R D E R PER SHRI MAKARAND V. MAHADEOKAR, AM: The appeal has been filed by the Revenue against the order of the Ld.Commissioner of Income Tax (Appeals)–11, Ahmedabad [hereinafter referred to as “the Ld.CIT(A)”], who deleted the addition of Rs.78,09,680/- and Rs.18,19,714/- out of the total addition of Rs.84,09,680/- and Rs.27,00,000/- respectively made by the Assessing Officer (hereinafter referred to as “AO”) in his assessment order passed u/s.143(3) r.w.s. 153B(1)(b) of the Income Tax Act,1961 (hereinafter referred to as “the Act”) for the Assessment Year (AY) 2020-21 on the basis of WhatsApp chat analysis after giving the benefit of telescoping against the confirmed IT(SS)A No.39/Ahd/2023 The Dy.CIT vs. Kamlesh Pravinchandra Shah Asst. Year : 2020-21 2 addition in the form of net profit on ‘on-money’ received on behalf of the firm. Brief Facts of the case: 2. The original return of income was filed by the assessee on 02-02-2021 declaring the total income of Rs.9,09,030/-. A search and seizure action under section 132 of the Act was conducted by the Investigation Wing on 19-11-2019 in the case of Priya Blue Group, including the residential premises of the assessee, Shri Kamlesh P. Shah. During the search, a backup of the assessee's mobile was taken, revealing 38 ‘WhatsApp’ chats. The proceedings u/s.153A of the Act were initiated against the assessee for AYs 2014-15 to 2019-20. The present AY 2020-21 was picked up for compulsory scrutiny as per provisions of section 153B(1)(b) of the Act and the assessment order was passed u/s.143(3) r.w.s. 153B(1)(b) of the Act. 2.1. While passing the order, the AO analyzed the ‘WhatsApp’ chat between the assessee and Shri Hitesh Pithadiya (an employee of Nazir H. Kaliwala, a partner of the assessee in the firm) and found instructions to receive and give cash transactions amounting to Rs.59,50,000/-. Similarly, another chat with Shri Jatin indicated unaccounted cash transactions amounting to Rs.24,59,680/-. Consequently, the AO made additions under Section 69A of the Act for the total amount of Rs.84,09,680/-. The AO also analyzed the ‘WhatsApp’ chat between the assessee with Shri Sanjay V. Patel, Angadiya and found that the said chat related to the delivery of cash through angadiya and their undisclosed cash transaction amounting to IT(SS)A No.39/Ahd/2023 The Dy.CIT vs. Kamlesh Pravinchandra Shah Asst. Year : 2020-21 3 Rs.27,00,000/- The AO also added this amount in the hands of the assessee u/s 69A of the Act. 2.2. The assessee preferred an appeal before Ld.CIT(A) against the order of the AO. The Ld.CIT(A) observed that the addition was based solely on ‘WhatsApp’ chats, which can only be used as corroborative evidence. The Ld.CIT(A) held that the assessee had not provided sufficient explanation or evidence related to the cash transactions found in the chats. The Ld.CIT(A) acknowledged a typographical error in the AO's assessment order, correcting the addition amount from Rs. 69,50,000/- to Rs. 59,50,000/-. The Ld.CIT(A) allowed the benefit of telescoping by considering the net profit from ‘on-money’ receipts in earlier years, which was available as cash in hand for the assessee. The Ld.CIT(A), after considering the written submissions and the assessment order, granted partial relief by deleting Rs.78,09,680/- and Rs.18,19,714/- out of Rs.27,00,000/- of the total addition, giving the benefit of telescoping. 3. Aggrieved by the order of the Ld.CIT(A), now the Revenue is in appeal before us with following grounds of appeal: “1. In the facts and on the circumstances of the case, Ld.CIT(A) erred in deleting the addition of Rs. 78,09,680/- out of total addition of Rs.84,09,680 (24,59,680 + 59,50,000) made on account of whatsapp chat with Shri Hitesh Pithadiya and Shri Jatin, after giving the benefit of telescoping against the confirmed addition in the form of Net profit on on-money receipt in cash in the case of M/s Orchid Infracon and M/s Orchid Developers despite the fact that the assessee did not furnish any explanation with documentary evidences which could established that the said unaccounted cash. on-money received from project of the Orchid Developers and Orchid Infracon, was used in unaccounted expenditure for development of the project. IT(SS)A No.39/Ahd/2023 The Dy.CIT vs. Kamlesh Pravinchandra Shah Asst. Year : 2020-21 4 2. In the facts and on the circumstances of the case, Ld.CIT(A) erred in deleting the addition of Rs.18,19,714/- out of total addition of Rs.27,00,000/- made on account of unaccounted cash as per whatsapp chats with Sanjay V Patel, Angadiya, after giving the benefit of telescoping against the confirmed addition in the form of Net profit on on-money receipt in cash in the case of M/s Orchid Infracon and M/s Orchid Developers and the confirmed additions of Rs.600,000/- and Rs.5,00,000/- despite the fact that the assessee did not furnish any explanation with documentary evidences which can establish that the said unaccounted cash on-money received from project of the Orchid Developers and Orchid Infracon, was used in unaccounted expenditure for development of the project. 3. In the facts and on the circumstances of the case and in law, the Ld.CIT(A) ought to have upheld the order of the A.O. 4. It is, therefore, prayed that the order of the Ld.CIT(A) be set aside and that of the A.O. be restored to the above extent. On the Grounds of Appeal: 4. The Ld.Departmental Representative (DR) contested the Ld.CIT(A)'s order, arguing that the ‘WhatsApp’ chats provided clear evidence of unaccounted cash transactions and should be fully added to the assessee's income. The Ld.DR drew our attention to the observation of the Ld.CIT(A) at para 6.3 of the order of the Ld.CIT(A) that neither during the course of search proceedings nor assessment proceedings, the appellant had furnished the explanation with sufficient supporting evidence related to the transactions found from the ‘WhatsApp’ chat from the mobile. 5. The Ld.Counsel for the assessee submitted that this observation of the Ld.CIT(A) is not towards the ground of telescoping request taken by the assessee, but towards another alternative ground taken by the assessee to IT(SS)A No.39/Ahd/2023 The Dy.CIT vs. Kamlesh Pravinchandra Shah Asst. Year : 2020-21 5 Ld.CIT(A) which is mentioned at para 6.2, which was on merits that ‘WhatsApp’ chat can only be used as corroborative evidence. 6. In rejoinder, the Ld.DR also drew our attention to the benefit of telescoping is given by the Ld.CIT(A) before the income over expense/payments. The Ld.Counsel for the assessee stated that this argument is erroneous as the Ld.CIT(A) had specifically not accepted that part of telescoping request where profit was pertaining to the same AY 2020-21 and the Ld.CIT(A) has restricted benefit of telescoping only to the extent of profits of the firm for prior year and has specifically mentioned about the same at para 7.4 of his order and, therefore, arguments of the Ld.DR that telescoping where income is earned after the expenses/ payments were made is already taken care of and that part of telescoping request is very much rejected by the Ld.CIT(A) which is evident in order of the Ld.CIT(A). 7. We have carefully examined the assessment order, the order of the Ld.CIT(A) and the submissions made by both parties. We have noted that the Ld.CIT(A) has granted telescoping of Rs.85,29,384/- against the actual addition of Rs.6,00,000/-, Rs.53,50,000/- and Rs.24,59,680/- totalling to Rs.78,09,680/- as detailed below: i. Expenses allowed as relief for the same assessment year, i.e. AY 2020-21 in appeal of partnership firm M/s. Orchid Infracon of Rs.36,80,000/-. ii. Expenses allowed as relief for the same assessment year, i.e. AY 2020-21 in appeal of partnership firm M/s.Orchid Developers of Rs. 31,88,066/-. IT(SS)A No.39/Ahd/2023 The Dy.CIT vs. Kamlesh Pravinchandra Shah Asst. Year : 2020-21 6 iii. Profit confirmed in the case of M/s. Orchid Infracon in earlier year, i.e. AY 2019-20 of Rs.2,00,000/-. iv. Profit confirmed in the case of M/s.Orchid Developers in earlier years, i.e. Rs.9,61,318/- in AY 2017-18 & Rs.5,00,000/-, in AY 2018- 19 of Rs.14,61,318/-. 7.1. This excess amount of Rs.7,19,704/- is available for telescoping in other grounds of appeal. 7.2. While granting this relief, the Ld.CIT(A) has recorded that – “6.7 Further, with regards to appellant's claim regarding telescoping, it is observed that the claim of the appellant is correct because, it is a facts that the appellant is key partner of the firms M/s. Orchid Infracon and M/s. Orchid Developers and engaged actively in receiving cash in the form of on-money and making unaccounted expenditure. It is also important to note that the undersigned has decided the appeal of the said two firms where the appellant is partner and estimated the NP @20% of the total receipt (for A.Y.2017-18, 2018-19 & 2020-21 in the case of M/s. Orchid Developers and for A.Y.2019-20 & 2020-21 in the case of M/s. Orchid infracon. Therefore, I agree with the contentions of appellant that when addition is made on the basis of net profit of sales being difference between expenses and sales, then question of making further additions towards unaccounted expenses does not arise. Moreover, it is only net result of unaccounted purchase and sales needs to be taxed. It is also found that the income in the form of Net Profit on on-money receipt in cash in earlier years were available as cash in hand in the hands of appellant and the benefit of telescoping of the same needs to be given to the appellant. Therefore, the appellant is entitled for telescoping of the unexplained expenditure out of sale proceeds received on account of unrecorded sales during the current year and cash on hand available in lieu of profit confirmed in the case of firms for earlier years. Thus, the telescoping benefit of Rs. 78,09,680/- is allowed to the appellant out of total amount of benefit available as detailed in earlier table at para 6.4 for avoiding of double taxation. Hence, directed to delete the addition of Rs.78,09,680/- 6.8 In the nutshell from the above discussion, the AO is directed to consider the confirmed addition @ Rs.6,00,000/- out of the total addition of Rs.94,09,680/. IT(SS)A No.39/Ahd/2023 The Dy.CIT vs. Kamlesh Pravinchandra Shah Asst. Year : 2020-21 7 Remaining amount of Rs.88,09,680/- stands deleted. Thus, the grounds of appeal no. 1 & 2 are partly allowed.” 7.3. Further, the Ld.CIT(A) has granted telescoping of Rs.35,36,731/- relating to the same assessment year against the actual addition of Rs.27,00,000/- on account of unexplained money totalling as detailed below: i. Addition made on account of Receipt of Rs.5,00,000/-. ii. Addition made on account of Receipt of Rs.6,00,000/-. iii. Remaining telescoping benefit from earlier para- 7.1. of Rs. 7,19,714/-. iv. Profit Confirmed in case of M/s Orchid Developers and M/s. Orchid Infracon in the same year Rs.17,17,017/-. 7.4 While granting this relief, the Ld.CIT(A) has recorded that – “7.4 Further, it is observed that while adjudicating the ground of appeal no. 1 & 2, the undersigned has confirmed the addition of Rs.6,00,000/- on account of unaccounted receipt in cash. It is further noticed that after giving the benefit of telescoping of Rs.78,09,680/-, the appellant had available excess telescoping of Rs.7,19,704/- (Rs.85,29,384 - Rs.78,09,680) and appellant has requested to grant the same in the other grounds of appeal, which is correct. However, it is important to note that the claim of the appellant regarding granting the benefit of telescoping of the addition confirmed in the case of both the firms M/s. Orchid infracon and M/s. Orchid Developers for the year under consideration i.e. A. Y.2020-21 is not acceptable because it is settled law that benefit of telescoping of income for expenses will be given in case income occurred before the expenses. However, in the instant case, the appellant is requesting for grant of telescoping of income which was earned after making expenses. Thus, this claim of the appellant is rejected. Accordingly, the benefit of telescoping amounting to Rs. 18,19,714/- (Rs.5,00,000 + Rs.6,00,000 + Rs.7,19,714) is allowed against the total addition of Rs.27,00,000/- . Therefore, the AO is directed to delete the addition of Rs.18,19,714/-- 7.5 In the nutshell from the above discussion, the AO is directed to consider the enhanced confirmed addition @ Rs.5,00,000/- which was discussed in the para 3. 1bof the assessment order. Further, the AO is directed to consider the confirmed addition @ Rs.8,80,286/- (Rs.27,00,000 - Rs.18,19,714) Out of the total addition of IT(SS)A No.39/Ahd/2023 The Dy.CIT vs. Kamlesh Pravinchandra Shah Asst. Year : 2020-21 8 Rs.27,00,000/- Remaining amount of Rs.18,19,714/- stands deleted. Thus, the ground of appeal no. 3 is party allowed.” 7.5. We also acknowledge the correction of the typographical error in the AO's assessment order regarding the addition amount of Rs.10,00,000/- (Considered as addition of Rs.69,50,000/- instead of Rs. 59,50,000/-). 7.6. From the discussions made above, it is seen that the issue under appeal is mainly related to granting of telescoping of income, admitted by the assessee and the firm in which the assessee is partner. Telescoping is a judicially accepted concept in income tax law which allows a taxpayer to explain the source of an expenditure or asset found during the same year by showing it has been funded by income or receipts, whether disclosed or undisclosed, of the same year. Essentially, it allows the income added under one head to be set off against the unexplained expenditure or investments. 7.7. So far as the Ld.DR’s contention that the assessee did not furnish any explanation with documentary evidences which could establish that the said unaccounted cash on-money received from project of the M/s.Orchid Developers and Orchid Infracon, was used in unaccounted expenditure for development of the project, it is very clear that office of the Ld.CIT(A) itself has decided the appeals relating to the firms in which the assessee is a partner and the Ld.CIT(A) has mentioned this fact in his order before giving the relief by way of telescoping. The Ld.DR has not objected to that. IT(SS)A No.39/Ahd/2023 The Dy.CIT vs. Kamlesh Pravinchandra Shah Asst. Year : 2020-21 9 7.8. Given the above observations of the Ld.CIT(A) and discussions, we find no reason to interfere with the order of the Ld.CIT(A), which is upheld. 8. In the result, the appeal filed by the Revenue is hereby dismissed. Order pronounced in the Open Court on 20 th June, 2024 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER (MAKARAND V.MAHADEOKAR) ACCOUNTANT MEMBER Ahmedabad, Dated 20/06/2024 . ी. य , . . ./T.C. NAIR, Sr. PS ! "# /Copy of the Order forwarded to : 1. "!ी $% / The Appellant 2. &य$% / The Respondent. 3. '(')* य य + / Concerned CIT 4. य य + )"!ी (/ The CIT(A)-11, Ahmedabad 5. . /ीय )* , य "!ी य ")* , ज /DR,ITAT, Ahmedabad, 6. / 12 3 /Guard file. / BY ORDER, &य ! //True Copy// ह य !'जी (Asstt. Registrar) य "!ी य ")* , ITAT, Ahmedabad 1. Date of dictation (word processed by Hon’ble AM in his laptop) : 18.6 .2024 2. Date on which the typed draft is placed before the Dictating Member. : 18.6.2024 3. Date on which the approved draft comes to the Sr.P.S./P.S : 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 20.6.24 7. Date on which the file goes to the Bench Clerk. : 20.6.24 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order :