Unexplained cryptocurrency trades remanded; tax officer must share Koinex data and give fair chance before additions

The ITAT set aside the addition for unexplained cryptocurrency transactions and remanded the matter to the AO. It held that, since assessee denied having entered into the impugned Koinex transactions and no linked bank account was identified, the Department must confront the assessee with all material in its possession, including complete transaction statements from Koinex. Only after affording a fair opportunity to rebut such evidence can the AO validly determine whether the transactions and corresponding investments are attributable to the assessee. The AO was directed to pass a de novo order in accordance with law. The appeal was allowed for statistical purposes.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the addition treating crypto-currency purchases as unexplained investment under section 69, based solely on information from a third-party exchange, was sustainable when the assessee denied such transactions and furnished all bank accounts evidencing lower quantum of investment.

1.2 Whether principles of natural justice were violated by not confronting the assessee with the underlying transaction-wise data or documentary material received from the crypto exchange before making the addition.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Addition under section 69 on the basis of third-party information from Koinex Exchange; denial of natural justice by non-supply of material

Interpretation and reasoning

2.1 The Tribunal noted that the Department's case rested on information stated to have been received from the Koinex Exchange, according to which the assessee allegedly made crypto-currency purchases of Rs. 1,31,31,481/- and sales of Rs. 1,28,58,585/- during the relevant financial year.

2.2 The assessee specifically denied having entered into such high-value transactions and asserted that total crypto investments were only about Rs. 11 lakhs, fully routed through disclosed bank accounts. It was also contended that crypto-currency transactions cannot be carried out in cash and must necessarily pass through banking channels, all of which were produced before the authorities.

2.3 The Tribunal observed that the Department had not detected or brought on record any additional bank accounts, outside those disclosed by the assessee, through which the higher quantum of alleged purchases could have been funded or routed.

2.4 The Tribunal further observed that once the assessee denies the correctness of information received from a third party, any documentary material or statement forming the basis of such information must be confronted to the assessee so that he has a fair opportunity to meet and rebut the same.

2.5 It was specifically noted that the statement or details of the Koinex transactions (showing purchases of Rs. 1,31,31,481/- and sales of Rs. 1,28,58,585/-) had not been supplied to the assessee. In such circumstances, proceeding to treat the difference between departmental information and explained bank transactions as unexplained investment, without confronting the assessee with the underlying material, was held to be procedurally deficient.

2.6 The Tribunal held that the Assessing Officer is required to share with the assessee the details and evidence in possession of the Department regarding the crypto-currency transactions alleged to have been carried out through the Koinex Exchange, and then re-examine the matter after considering the assessee's response.

Conclusions

2.7 The addition treating Rs. 1,20,31,481/- as unexplained investment under section 69, based solely on un-confronted information from the Koinex Exchange, could not be sustained in its present form.

2.8 The matter was remitted to the Assessing Officer with a direction to:

(a) furnish to the assessee the details and evidence of the alleged Koinex transactions available with the Department; and

(b) after affording the assessee an opportunity to respond and rebut such material, pass a fresh order in accordance with law.

2.9 In view of the remand, the appeal was treated as allowed for statistical purposes.

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