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2024 (11) TMI 236 - AT - Income Tax


Issues Involved:

1. Addition made under Section 69C of the Income Tax Act regarding unexplained expenditure.
2. Addition related to unexplained purchases based on digital evidence.
3. Addition based on the list of debtors found from a partner's phone.

Issue-wise Detailed Analysis:

1. Addition under Section 69C of the Income Tax Act:

The primary issue was the addition made under Section 69C of the Income Tax Act for unexplained expenditure in the assessment years 2020-21 and 2021-22. During a search, digital files were found on a partner's phone, which the Assessing Officer (AO) presumed to be invoices and shipping details from Chinese vendors. The AO concluded that these represented unaccounted purchases, leading to additions of Rs. 24,02,088 for AY 2020-21 and Rs. 59,56,592 for AY 2021-22. The assessee argued that these files were mere quotations and not actual purchases, asserting that they did not import goods from China. The appellate authority, Ld.CIT(A), confirmed the addition for AY 2020-21 but modified it for AY 2021-22, considering fund rotation and estimating a profit on the supposed sales. The tribunal found that the AO failed to establish the authenticity of the documents or conduct necessary inquiries, such as consulting customs authorities. The tribunal ruled the documents as "dumb documents," lacking corroborative evidence, and directed the deletion of the additions for both years.

2. Addition related to unexplained purchases based on digital evidence:

The tribunal scrutinized the digital evidence, noting the AO's reliance on the appearance of the files as invoices and shipping details without verifying their authenticity. The tribunal emphasized that the AO did not follow the procedure under Section 65B of the Information Technology Act, 2000, which is crucial for relying on digital evidence. The tribunal highlighted the lack of independent inquiry and corroborative materials supporting the AO's presumption. The tribunal cited precedents where loose papers or digital files without corroboration were deemed inadmissible as evidence. Consequently, the tribunal concluded that the AO could not substantiate the additions based on these digital files and ordered their deletion.

3. Addition based on the list of debtors found from a partner's phone:

The AO added Rs. 17,75,92,611 as unexplained money under Section 69A of the Act, based on Excel files found on a partner's phone, presumed to be a list of sundry debtors. The assessee contested this, stating the files did not pertain to their business. The Ld.CIT(A) partially upheld the addition, estimating a capital requirement and profit element. The tribunal noted several deficiencies: the files lacked dates, the AO did not verify if the debtors were linked to the assessee, and the provisions of Section 69A were misapplied as they pertain to tangible assets, not debtor lists. The tribunal highlighted the absence of evidence showing unaccounted sales or purchases by the assessee. The tribunal reiterated that the AO failed to conduct necessary inquiries or provide corroborative evidence. Thus, the tribunal deemed the debtor list as "dumb documents" and directed the deletion of the addition.

Conclusion:

The tribunal allowed the assessee's appeals, dismissing the Revenue's appeal, and directed the deletion of all contested additions, emphasizing the need for corroborative evidence and proper procedural adherence when relying on digital documents.

 

 

 

 

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