Revenue's appeal dismissed as additions under sections 69A and 69C deleted due to uncorroborated third-party evidence

ITAT Mumbai dismissed revenue's appeal challenging CIT(A)'s deletion of additions under sections 69A and 69C. The AO made additions based on WhatsApp images and documents found in phones/possession of third parties (personal assistant and HR employee). ITAT held that abstract documents without corroboration are "dumb documents" and cannot support additions. For section 69A, physical possession of unexplained money must be established, which was absent. Third-party statements that were retracted and not confronted with assessee cannot form basis for additions. AO failed to conduct proper enquiries or bring corroborating evidence. All additions were deleted as they relied on uncorroborated evidence from third parties.

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ISSUES PRESENTED and CONSIDERED

The legal judgment involves several core issues, including:

• Whether the notice issued under section 143(2) of the Income Tax Act is valid without a notice under section 148.
• Whether the procedures under section 65B of the Indian Evidence Act were followed in relying on electronic documents.
• Whether the addition of Rs. 2.10 crores as unexplained money under section 69A is justified.
• Whether the deletion of Rs. 1.99 crores as unexplained expenditure under section 69C is justified.
• Whether the addition of Rs. 1,40,500 as unexplained expenditure under section 69C is justified.
• Whether the addition of Rs. 14,87,200 as unaccounted bonus payment is justified.
• Whether the addition of Rs. 59.00 lakhs as unexplained money under section 69A is justified.
• Whether the deletion of Rs. 24.00 lakhs as unexplained expenditure under section 69C is justified.
• Whether the addition of Rs. 17.00 crores based on a third-party statement is justified.
• Whether the addition of Rs. 80.00 lakhs based on a third-party statement is justified.

ISSUE-WISE DETAILED ANALYSIS

Notice under Sections 143(2) and 148

The Court determined that the notice under section 143(2) was valid as the search took place for AY 2022-23, and the time for regular assessment for AY 2021-22 was available. Thus, there was no requirement for section 148 notice.

Procedures under Section 65B of the Indian Evidence Act

The Court did not adjudicate this issue as the assessee requested time to review the documents. The issue was left open for future consideration.

Addition of Rs. 2.10 Crores under Section 69A

The Court found that the addition was based on an image found on an employee's phone, which was deemed a "dumb document" as it lacked corroborative evidence. The presumption under sections 292C/132(4A) could not be invoked as the document was not created by the employee. The Court directed the deletion of this addition.

Deletion of Rs. 1.99 Crores under Section 69C

The Court upheld the deletion of Rs. 1.99 crores as the source of payments was explained by the alleged receipt of Rs. 2.10 crores. The Court confirmed the relief granted by the CIT(A) based on the absence of credible evidence.

Addition of Rs. 1,40,500 under Section 69C

The Court found that the document on which the addition was based was not credible evidence. The statement by the employee was retracted, and no corroborative material was provided. The Court directed the deletion of this addition.

Addition of Rs. 14,87,200 as Unaccounted Bonus Payment

The Court noted that the addition was based on retracted statements and lacked corroborative evidence. The Tribunal had previously deleted a similar addition in a related case. The Court directed the deletion of this addition.

Addition of Rs. 59.00 Lakhs under Section 69A

The Court found that the addition was based on sticky notes, which were considered dumb documents due to lack of corroboration. The Court directed the deletion of this addition.

Deletion of Rs. 24.00 Lakhs under Section 69C

The Court confirmed the deletion as the source of expenses was explained. The sticky notes were deemed unreliable, and the relief by CIT(A) was upheld.

Addition of Rs. 17.00 Crores Based on Third-Party Statement

The Court found that the addition was based solely on a third-party statement, which was retracted and lacked corroborative evidence. The CIT(A) deleted the addition, and the Court upheld this decision.

Addition of Rs. 80.00 Lakhs Based on Third-Party Statement

The Court found that the addition was based on a whatsapp chat and a statement from a third party, which was not corroborated. The CIT(A) deleted the addition, and the Court upheld this decision.

SIGNIFICANT HOLDINGS

The Court established several core principles:

• Additions based on uncorroborated third-party statements or documents deemed "dumb" due to lack of evidence are not justified.
• The presumption under sections 292C/132(4A) cannot be invoked without credible evidence linking the document to the assessee.
• Loose papers or uncorroborated documents cannot be used as sole evidence for making additions.
• The burden of proof lies with the revenue to corroborate statements or documents with independent evidence.
• Section 69A requires physical possession of money or assets by the assessee to justify additions.

The final determinations on each issue were in favor of the assessee, with the Court directing the deletion of various additions and upholding the relief granted by the CIT(A) where applicable.

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