ITAT Delhi Removes Section 69A Addition: Third-Party Statement Alone Cannot Justify Income Inclusion Without Supporting Evidence
In a significant judgment, the Income Tax Appellate Tribunal, Delhi Bench, set aside an addition amounting to Rs. 1.80 crore that was made under Section 69A of the Income Tax Act. The case of Jyoti Ahuja Vs ITO (ITAT Delhi) establishes critical principles regarding the evidentiary standards required when tax authorities seek to make additions based on allegations of unexplained money or assets.
Background of the Dispute
The assessee in this matter had filed her income tax return on 12th October 2022, declaring total income of Rs. 4,06,410/-. The return was subsequently picked up for detailed scrutiny through the Computer Assisted Scrutiny Selection (CASS) mechanism. Following this selection, the Assessing Officer issued statutory notices under Section 143(2) and Section 142(1) of the Income Tax Act 1961 to the assessee.
The primary objective behind selecting this case for scrutiny was to examine the authenticity of certain transactions that had been uploaded through the Verification of Returns and Utilizing (VRU) system, establish the identity of parties involved in these transactions, and determine whether the income shown in the Income Tax Return was accurate and complete.
Revenue Department's Investigation Findings
During the assessment proceedings, the Assessing Officer discovered that the assessee had declared commission income in her return. When asked to provide supporting documentation for this declared income, the assessee initially submitted that she had earned commission of Rs. 4,05,000/- through the sale of lottery tickets.
However, when pressed for further documentary proof regarding the sale of tickets and the applicable commission percentage, the assessee changed her position. She subsequently claimed that the income actually comprised earnings from tuition fees provided to nursery and primary school students up to 3rd standard, along with miscellaneous receipts from other sources. The assessee clarified that the amount of Rs. 4,05,000/- was not related to lottery ticket sales as previously stated.
The Revenue authorities remained unconvinced by this explanation, particularly as the assessee could not furnish adequate supporting evidence for the tuition income claim.
Search and Seizure Operations
The matter took a different turn when the Assessing Officer brought to the assessee's attention certain information available with the department based on a statement recorded from an individual named Shri Sanjay Garg. This statement emerged from search and seizure operations conducted under Section 132 of the Income Tax Act 1961 in the case of Sri Aditya Kumar Jha and other connected persons on 10th October 2021.
The investigation revealed that these individuals were allegedly operating multiple domestic entities through which substantial foreign outward remittances were being facilitated. According to the investigation findings:
- Mr. Aditya Kumar Jha was receiving RTGS entries from Shri Manoj Kumar Gupta
- These funds were subsequently routed and remitted to foreign entities
- The foreign entities were purportedly managed and controlled by Shri Manoj Kumar Gupta himself
- The parties sending RTGS transfers were allegedly bogus entities also controlled by Manoj Gupta
In his recorded statement, Shri Sanjay Garg admitted knowing Shri Manoj Gupta and disclosed that he had purchased mobile phone covers from China. According to his statement, cash payments were made to Shri Manoj Gupta, who then arranged for the amounts to be sent to China through intermediaries.
Alleged Modus Operandi
The investigation wing of the Income Tax Department outlined the following modus operandi:
- Various traders and customers operating in Karol Bagh, Delhi were allegedly purchasing goods from China using under-invoiced bills
- This under-invoicing was done with the specific intent to evade or reduce import duties and customs charges
- No proper books of accounts were maintained for these transactions
- All paper records related to these transactions were allegedly destroyed on the same day
- The actual payment for goods was settled through cash payments routed through accommodation entry operators
Based on this investigation and the statement of Shri Sanjay Garg, the Assessing Officer concluded that the assessee was one of the beneficiaries of such accommodation entry arrangements and had imported goods from China. The allegation was that the assessee had paid cash of Rs. 1.80 crore to facilitate foreign remittances for import of goods.
Assessing Officer's Determination
The Assessing Officer rejected the assessee's explanations and contentions, observing that:
- The assessee was not a registered importer of goods
- No license or registration from relevant import authorities was held by the assessee
- Despite this, the contention that cash was paid to Mr. Sanjay Garg for import purposes could not be dismissed
- The modus operandi described was perfectly suited to unregistered persons seeking to import goods cheaply and sell them at substantial profits
- The assessee showed inconsistency in explaining the source of declared commission income
- First claiming lottery commission, then tuition income, demonstrated lack of credibility
Consequently, the Assessing Officer proceeded to make an addition of Rs. 1,80,00,000/- under Section 69A of the Income Tax Act 1961, treating this amount as unexplained money in the hands of the assessee.
First Appellate Authority's Decision
Dissatisfied with the assessment order, the assessee filed an appeal before the National Faceless Appeal Centre (NFAC), Delhi. The assessee submitted extensive written submissions spanning pages 5 to 22 of the appellate order, raising multiple grounds of challenge.
The primary contentions raised before the Commissioner of Income Tax (Appeals) included: