2025 (4) TMI 267 - AT - Income Tax

Unexplained expenditure u/s 69C r.w.s. 115BBE - as submitted by the DR that the Whatsapp conversation recovered from Shri Shailendra Rathi stated to be a key associate and consultant of Rucha Group which he admitted during the course of his statement is in the nature of corroboration which is sufficient for making the addition HELD THAT - Admittedly no opportunity of cross examination was granted to the assessee to cross examine Shri Shailendra Rathi. The assessee has in his statement denied having entered into any such transaction. He has even stated that he does not know any person by name Shri Vinod. A bare perusal of the statement as reproduced above would indicate that the payment was to be made . Thus even going by the statement it cannot be said that the payment was actually made by assessee in cash to Shri Shailendra Rathi. As noticed earlier although the assessee was himself searched no incriminating or corroborating material has been found. It is trite that suspicion however strong cannot take the place of proof. We find that the impugned addition could not have been made in the hands of the assessee placing reliance on the statement of a third party Shri Shailendra Rathi and recovery of Whatsapp conversation. It is significant to note that no attempt was made to find whether there is a corresponding message received by the assessee. In any event we find that the CIT(A) was justified in deleting the addition and no case for interference is made out. The appeal deserves to be dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether the addition of Rs. 1 crore as unexplained expenditure under Section 69C of the Income Tax Act, 1961, based on a Whatsapp conversation and statement of a third party, is justified.

2. Whether the provisions of Section 115BBE of the Income Tax Act were correctly invoked by the Assessing Officer.

3. Whether the deletion of the addition by the Commissioner of Income Tax (Appeals) was appropriate.

4. The appropriateness of the Cross Objection filed by the assessee despite having succeeded before the CIT(A).

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of Addition under Section 69C

- Relevant Legal Framework and Precedents: Section 69C of the Income Tax Act pertains to unexplained expenditure. If an assessee incurs any expenditure and offers no explanation about the source of such expenditure, or the explanation offered is not satisfactory, the amount may be deemed to be the income of the assessee.

- Court's Interpretation and Reasoning: The Tribunal noted that the only evidence relied upon by the Assessing Officer was a Whatsapp conversation and the statement of a third party, Shri Shailendra Rathi. The Tribunal emphasized that suspicion, however strong, cannot replace proof. The statement by Shri Rathi was retracted, and no incriminating evidence was found directly from the assessee's premises.

- Key Evidence and Findings: The primary evidence was a Whatsapp conversation between Shri Shailendra Rathi and the respondent, which was allegedly corroborated by Shri Rathi's statement. However, the Tribunal found that no opportunity for cross-examination was provided to the assessee, and the statement merely indicated that a payment 'was to be made', not that it was actually made.

- Application of Law to Facts: The Tribunal applied the principle that mere suspicion or third-party statements without direct evidence cannot substantiate an addition under Section 69C.

- Treatment of Competing Arguments: The Revenue argued that the Whatsapp conversation was sufficient corroboration, while the assessee contended that it could not be used against him without direct evidence or compliance with the Indian Evidence Act's requirements.

- Conclusions: The Tribunal concluded that the addition was not justified and upheld the CIT(A)'s decision to delete it.

Issue 2: Invocation of Section 115BBE

- Relevant Legal Framework: Section 115BBE deals with tax on income referred to in Sections 68, 69, 69A, 69B, 69C, or 69D. It provides for a higher tax rate on such income.

- Court's Interpretation and Reasoning: The Tribunal did not find it necessary to delve deeply into the invocation of Section 115BBE, given the primary issue of the addition itself was resolved in favor of the assessee.

- Conclusions: The Tribunal implicitly supported the CIT(A)'s view that the invocation was erroneous, given the lack of substantiating evidence for the addition.

Issue 3: Deletion of Addition by CIT(A)

- Court's Interpretation and Reasoning: The Tribunal found no error in the CIT(A)'s decision to delete the addition, as it was based on a lack of direct evidence and the improper reliance on third-party statements.

- Conclusions: The Tribunal confirmed the CIT(A)'s order, dismissing the Revenue's appeal.

Issue 4: Appropriateness of Cross Objection

- Court's Interpretation and Reasoning: The Tribunal noted that the Cross Objection was unnecessary since the assessee had already succeeded before the CIT(A). The Tribunal clarified that a Cross Objection is only warranted when the respondent is aggrieved by a part of the order.

- Conclusions: The Cross Objection was disposed of as infructuous.

SIGNIFICANT HOLDINGS

- Core Principles Established: The judgment reinforces the principle that suspicion cannot substitute for evidence in tax proceedings, particularly when relying on third-party statements without direct corroboration.

- Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeal, confirming the deletion of the addition by the CIT(A) and disposed of the Cross Objection as infructuous.

- Verbatim Quotes: "It is trite that suspicion, however strong, cannot take the place of proof." This statement underscores the Tribunal's reasoning in dismissing the addition based on insufficient evidence.