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

ITA 1184/KOL/2024

AI Insights

The case involves Mohammed Taj, the appellant, who contested the addition of Rs.84,37,98,882 as unexplained expenditure under section 69C of the Income Tax Act, following a search and seizure operation. The Assessing Officer initially added this amount to the appellant's income, which was partially relieved by the CIT(A). The appellant argued that all transactions were recorded in the books of accounts and that the addition was based on a misinterpretation of the transactions. The Tribunal found that the Assessing Officer had not properly corroborated the digital data with the books of accounts and directed a reexamination of the matter.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 28753 (ITAT-KOLKATA)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2021-2022
• Appeal Filed On: 24-05-2024
• Other Referred Cases: Vijay Trading v. ITO [2016] 388 ITR 377/76 taxmann.com 366
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Unexplained expenditure
• Section: 142(1); 143(2); 250; 132; 69C

Judgement Text

" आयकर अपीलȣय अͬधकरण, कोलकाता पीठ, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH KOLKATA Before Shri Sonjoy Sarma, Judicial Member and Shri Sanjay Awasthi, Accountant Member I.T.A. No.1184/Kol/2024 Assessment Year: 2021-22 Mohammed Taj……….………………………..……….………….…..……Appellant 11, Balmukund Macker Road, Kolkata – 700007. [PAN: AACCPT0441J] vs. DCIT, Central Circle-3(1), Kolkata.…....…………..…........……...…..…..Respondent Appearances by: Shri Manish Tiwari, AR, appeared on behalf of the appellant. Shri A. Kundu, CIT-DR, appeared on behalf of the Respondent. Date of concluding the hearing : November 12, 2024 Date of pronouncing the order : November 20, 2024 ORDER Per Sonjoy Sarma, Judicial Member: The present appeal has been filed by the assessee against the order dated 28.03.2024 of the Commissioner of Income Tax (Appeals)-21, Kolkata [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’). 2. The brief facts of the case are that the assessee is an individual and filed its return of income on 26.03.2022 declaring total income of Rs.38,93,560/- u/s section 139 of the Act. Subsequently, a search and seizure operation u/s 132 of the Act was conducted on 13.01.2021 in the case of Hospitality Group of cases to which the assessee belongs. The search operation extended to the premises of the assessee at 11, Bal Mukund Mackar Road, Khaja House, Barabazar, Kolkata-700007. Following the search operation, the case of the assessee was centralized with Central Circle-3(1), Kolkata and subsequently, the case was transferred to the Pr. CIT-13, Kolkata. Consequently, a notice u/s 143(2) of the Act was issued which was followed by issuing a notice u/s 142(1) I.T.A. No.1184/Kol/2024 Assessment Year: 2021-22 Mohammed Taj 2 of the Act requiring the assessee to provide various details related to the business income. During the assessment proceedings, the Assessing Officer noted certain unexplained expenditure and discrepancies in digital data backed up from assessee’s mobile which included multiple WhatsApp images showing daily purchases by the assessee over different financial periods. In response, the assessee contended that all expenditure were accounted in books of accounts and duly disclosed. However, the assessee failed to produce supportive books of accounts, bills or vouchers as proof of the recorded expenses. Therefore, the Assessing Officer considered an amount of Rs.84,37,98,882/- as unexplained expenditure u/s 69C of the Act and added the same into the income of the assessee. 3. 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. 4. Dissatisfied with the above decision of the ld. CIT(A), the assessee filed the present appeal before this Tribunal raising multiple grounds of appeal. 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. I.T.A. No.1184/Kol/2024 Assessment Year: 2021-22 Mohammed Taj 3 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 I.T.A. No.1184/Kol/2024 Assessment Year: 2021-22 Mohammed Taj 4 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 I.T.A. No.1184/Kol/2024 Assessment Year: 2021-22 Mohammed Taj 5 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. 6. In terms of the above, the appeal of the assessee is allowed for statistical purposes. Kolkata, the 20th November, 2024. Sd/- Sd/- [Sanjay Awasthi] [Sonjoy Sarma] Accountant Member Judicial Member Dated: 20.11.2024. RS Copy of the order forwarded to: 1. Mohammed Taj 2. DCIT, Central Circle-3(1), Kolkata 3. CIT(A)- 4. CIT- , 5. CIT(DR), //True copy// By order Assistant Registrar, Kolkata Benches "