ITAT Rules ₹1.62 Cr Bogus Purchase Addition Based on WhatsApp Chats and Ex-Employee Statements as Unsustainable [Read Order]

The Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) held that additions towards alleged bogus purchases, made solely on the basis of WhatsApp chats and statements of former employees recovered during a search conducted after 1.04.2021, cannot be sustained when the mandatory statutory procedure prescribed under the reassessment regime is not followed.

The appellant, Malbros International Pvt. Ltd., is engaged in the manufacture and trading of grain-based Extra Neutral Alcohol, ethanol and country liquor. A search under Section 132 of the Income Tax Act, 1961 was conducted on 18.05.2023 on the assessee group as well as on certain third parties. During the search, the Revenue recovered WhatsApp conversations, digital tally data and statements, which were alleged to indicate that certain purchases made by the appellant were bogus. Additionally, payments made through banking channels were returned in cash.

Relying on this material, the Assessing Officer (AO) treated purchases aggregating to ₹9.40 crore as non-genuine and made corresponding additions while completing the assessment. TIn appeal, the Commissioner of Income Tax (Appeals) restricted the bogus purchase allegation to purchases of ₹6.60 crore and sustained an addition of ₹1.62 crore by applying a gross profit rate of 24.68 percent, against which the assessee approached the Tribunal.

The appellant argued that the purchases were genuine backed by documentary evidence, including purchase invoices, transport documents, weighment slips, bank statements and statutory records. Further, contended that the entire addition was based on third-party statements and WhatsApp chats, without granting any opportunity of cross-examination, rendering the additions legally unsustainable.

The Bench comprising Rajpal Yadav, Vice President and Manoj Kumar Aggrawal, Accountant Member, held that the addition of ₹1.62 crore towards alleged bogus purchases could not be sustained, observing that the search was conducted after the amendments introduced by the Finance Act, 2021, and therefore, any assessment based on material seized during such search was required to follow the reassessment framework under Section 148 read with Explanation 2 clause (iv) of the Income Tax Act, 1961.

Further, the absence of prior approval under Section 148B of the Income Tax Act, 1961 vitiates the order. The Tribunal noted that no cross-examination was provided in respect of the statements relied upon and that the seized digital material was not independently verified or even linked conclusively to the appellant’s books of account.

Ruling that mere suspicion cannot take the place of proof, the Tribunal quashed the bogus purchase addition sustained by the appellate authority, without examining the issue on merits.

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