ITAT Delhi on reassessment based on third-party Tally data and denial of cross-examination: Chandra Mohan vs Office of the ACIT

1. Background and scope of the decision

The Delhi Bench of the Income Tax Appellate Tribunal dealt with a cluster of eight appeals filed by Chandra Mohan covering Assessment Years 2014-15 to 2021-22. All the appeals stemmed from reassessment proceedings initiated pursuant to a search under Section 132 conducted on 02.06.2022 in the case of M/s Ravindra Oil & Ginning Mills.

During that search, the Investigation Wing unearthed digital accounting records described as “Sanjeev Tally”, which, according to the Revenue, captured unaccounted sales and purchases. Based on this material, the Assessing Officer (“AO”) concluded that:

  • M/s Ravindra Oil & Ginning Mills was maintaining two parallel sets of books – one “official” for departmental purposes and another to record out-of-books transactions, and
  • The assessee, Chandra Mohan, Prop. M/s Buddhishah Brijbasi Lal, allegedly figured in the “Sanjeev Tally” as a purchaser of goods outside his regular books.

On this foundation, the AO:

  • Initiated reassessment proceedings under the amended regime of Section 147/Section 148, by invoking Explanation 2(iv) to Section 148, and
  • Made additions for all eight years by treating the impugned purchases as unexplained expenditure under Section 69C read with Section 115BBE.

The CIT(A)-3, Lucknow upheld the action of the AO. The assessee carried the matter in appeal to the ITAT, raising both jurisdictional and merits-related challenges, including additional legal grounds.

The Tribunal ultimately:

  • Struck down the reassessment for AYs 2014-15 to 2018-19 as being time-barred on a correct application of Section 149(1)(b) and the concept of “income chargeable to tax”, and
  • Further held that all eight assessments (AYs 2014-15 to 2021-22) were vitiated due to denial of cross-examination and reliance on uncorroborated third-party digital data, thereby not proceeding to examine the additions on merits.

2. Facts leading to reassessment

2.1 Search in the case of M/s Ravindra Oil & Ginning Mills

The Investigation Wing, Ghaziabad, conducted a search and seizure operation under Section 132 on 02.06.2022 at the business premises of M/s Ravindra Oil & Ginning Mills. The search revealed:

  • Two distinct Tally datasets:

    • One “official” set produced before the Income-tax Department, and
    • A separate Tally database named “Sanjeev Tally”, in which out-of-books purchases and sales were allegedly recorded.

  • The “Sanjeev Tally” data, according to the Department, covered transactions of the Ravindra Oil group with multiple entities, and reflected actual commercial dealings that were not fully disclosed in regular books.

From the “Sanjeev Tally” ledger, the Investigation Wing reported that:

  • Sales of Rs. 9,18,77,513/- during FY 2013-14 were recorded as made to “Buddishah Brijbasi Lal” (with address and PAN linked to the assessee),
  • In the official books of M/s Ravindra Oil & Ginning Mills for the same period, no sales were shown to the assessee, and
  • This was treated as evidence of unrecorded purchases made by the assessee from M/s Ravindra Oil & Ginning Mills.

The AO of the assessee received this information from the DDIT (Inv.)-III, Ghaziabad. After examining the assessee’s originally filed return for AY 2014-15, which disclosed total purchases of Rs. 2,40,97,573/-, the AO concluded that:

  • The assessee’s purchases from M/s Ravindra Oil & Ginning Mills amounting to Rs. 9,18,77,513/- did not figure in his regular books, and
  • The assessee had therefore allegedly made out-of-books purchases, forming income that had escaped assessment.

Proceedings under Section 148 were initiated for AYs 2014-15 to 2021-22 on this basis.

3. Assessment orders and first appellate outcome

3.1 Nature of additions

The AO treated the alleged unrecorded purchases from M/s Ravindra Oil & Ginning Mills as unexplained expenditure:

  • For each relevant assessment year, the AO computed undisclosed purchases from “Sanjeev Tally” and
  • Brought the entire purchase amounts to tax under Section 69C, applying Section 115BBE for the rate of tax.

3.2 Decision of the CIT(A)

On appeal, the CIT(A):

  • Confirmed the reopening under Section 147/Section 148,
  • Upheld the additions made under Section 69C read with Section 115BBE, and
  • Did not grant relief on the assessee’s pleas regarding jurisdiction, limitation, evidentiary value of third-party data, or denial of cross-examination.

This led to the present second appeal before the ITAT.

4. Key grounds urged before the ITAT

The assessee’s challenge before the Tribunal covered both original and additional grounds. In substance, the main legal issues were:

  1. Validity of satisfaction under Explanation 2(iv) to Section 148 for all years (Ground 13).
  2. Applicability of extended limitation under Section 149(1)(b) for AYs 2014-15 to 2018-19, in light of the Rs. 50 lakh threshold and the distinction between gross purchases vs. profit component (Ground 14).
  3. Whether years 2014-15 to 2016-17 were beyond the permissible six-year block, considering Section 153A, fourth proviso, and the definition of “asset” in Explanation 2 (Ground 15).
  4. Impact of non-issuance of Section 143(2) notice in AY 2014-15 (Ground 16).
  5. Validity of invoking Section 149(1)(b)(iii) by treating third‑party “Sanjeev Tally” as the assessee’s “books of account” for AYs 2016-17 to 2018-19 (Ground 17).
  6. Violation of principles of natural justice due to denial of cross-examination of persons connected to the seized “Sanjeev Tally” records for all years (Ground 8).

Alongside, several other grounds challenged:

  • Mechanical approval under Section 151,
  • Non-rejection of the assessee’s own audited books under Section 145(3), and
  • Taxation under Section 115BBE.

5. Tribunal’s findings on satisfaction under Explanation 2(iv) to Section 148

5.1 Statutory framework post-01.04.2021

The Tribunal first analysed the amended reassessment regime effective from 01.04.2021, particularly: