Loose Papers, WhatsApp Chats Not Enough: ITAT Quashes S. 69A Additions in Balmukund Group Cases [Read Order]

The Kolkata Bench of Income Tax Appellate Tribunal (ITAT), has held that additions for alleged unaccounted income cannot be sustained merely on the basis of loose papers, rough cash jottings, or WhatsApp chats, in the absence of independent corroborative evidence, and has consequently quashed additions made under Section 69A of the Income Tax Act, 1961.

The appeals before the Tribunal arose from search and reassessment proceedings involving Balmukund Sponge and Iron Private Limited, along with other group entities of the Balmukund Group. A search operation under Section 132 of theIncome Tax Act, 1961, was conducted in the Kanodia Group cases, during which the Balmukund entities were also covered.

Based on seized documents described as rough jottings and cash notings, as well as WhatsApp chats extracted from mobile phones of directors and employees, the Assessing Officer treated certain amounts as unexplained money and made substantial additions under Section 69A of the Income Tax Act, 1961.

In some years, additions were also made by treating the amounts reflected in WhatsApp chats as unaccounted cash receipts. The Commissioner of Income Tax (Appeals) partly sustained some additions by estimating profit on alleged unaccounted transactions, while deleting the balance. Both the assessee and the Revenue filed cross-appeals before the Tribunal challenging the reliefs granted and additions sustained.

On behalf of the assessee company Manish Rastogi, contended that the seized documents were nothing more than rough notings and internal jottings, which, when read as a whole, reflected proposed investments or inter-group financial dealings rather than income. It was argued that no actual receipt of cash was proved and that no corroborative material, such as evidence of cash movement, bank deposits, or confirmation from third parties, was brought on record.

With respect to WhatsApp chats, the assessee submitted that the chats did not specify whether the figures represented receipts or payments and were not supported by any documentary or circumstantial evidence. It was further argued that presumption under Section 292C of the Income Tax Act, 1961, is rebuttable and cannot substitute proof of real income.

The Revenue represented by Pankaj Pandey, argued that the seized loose papers and WhatsApp chats clearly indicated unaccounted cash transactions and that the assessee failed to satisfactorily explain the nature and source of such amounts. It was submitted that the material found during search justified invoking Section 69A of the Income Tax Act, 1961, and that the Commissioner of Income Tax (Appeals) had already taken a balanced view by sustaining profit-based additions instead of confirming the entire amount.

The Bench comprising Rajesh Kumar, Accountant Member and Pradip Kumar Choubey, Judicial Member, allowed the appeals of the assessee and dismissed the appeals of the Revenue. The Tribunal held that loose sheets and rough jottings must be read in their entirety and cannot be selectively relied upon to draw adverse conclusions.

It observed that the seized documents, on their face, referred to investments and advances and did not establish that the amounts constituted undisclosed income of the assessee. The Bench further ruled that WhatsApp chats, by themselves, do not constitute reliable evidence of income unless supported by independent corroboration such as proof of actual receipt or utilization of cash.

The Tribunal ruled that Section 69A of the Income Tax Act, 1961, can be invoked only when unexplained money is found to be owned by the assessee, which was not established in the present case. Therefore, the Bench held that suspicion, however strong, cannot take the place of proof.

Accordingly, directed deletion of all additions sustained on the basis of loose papers and WhatsApp chats.

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