ITAT Mumbai Quashes Ad-Hoc Purchase Additions and Rejects Uncorroborated WhatsApp Evidence in Section 69A Assessment

In a significant judicial pronouncement, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has delivered a comprehensive ruling in the case of Brij Bihari Kaushik Vs ACIT. The Tribunal's decision for Assessment Year 2023-24 addresses several critical issues in income tax assessments, particularly the invocation of Section 69C for alleged bogus purchases, the evidentiary value of electronic records like WhatsApp messages under Section 69A, and the legality of ad-hoc disallowances under Section 37 of the Income-tax Act, 1961.

This detailed summary explores the Tribunal's rationale in dismantling the Revenue's additions, emphasizing the necessity for corroborative evidence and strict adherence to procedural mandates.

Background of the Dispute

The assessee, operating as the proprietor of M/s. S R Artifact, is primarily engaged in the business of construction and fabrication. The genesis of the dispute traces back to a search and seizure operation conducted under Section 132 of the Income-tax Act, 1961. Following this operation, the assessee's case was picked up for compulsory scrutiny.

For the Assessment Year 2023-24, the assessee had filed a return of income declaring a total income of Rs. 5,07,62,220. However, during the assessment proceedings, the Assessing Officer (AO) scrutinized various business transactions and made several high-value additions, ultimately determining the total income at Rs. 12,23,13,000.

The Assessing Officer's Additions

The AO's assessment order was characterized by three primary areas of contention:

1. **Alleged Bogus Purchases (Section 69C)😗* The AO identified purchases amounting to Rs. 7,64,21,334 from 27 different vendors. After issuing notices under Section 133(6) of the Income-tax Act, 1961, the AO concluded that these purchases were non-genuine accommodation entries. This conclusion was drawn based on incomplete responses, non-responses from certain vendors, and alleged documentary deficiencies. Consequently, the entire amount of Rs. 7,64,21,334 was added to the assessee's income as unexplained expenditure under Section 69C.
2. **Unexplained Money (Section 69A)😗* The AO made a further addition of Rs. 13,50,000 under Section 69A. This was heavily reliant on WhatsApp communications extracted from the mobile phone of an employee, alongside statements recorded under Section 132(4) from the assessee's Accountant (Shri Ramesh Kumar) and Purchase Head (Shri Satpal Singh). The AO alleged that these communications indicated the generation of unaccounted cash.
3. **Business Expenditure Disallowances (Section 37)😗* The AO disallowed various routine business expenses, including Staff and Labour Welfare Expenses (Rs. 31,93,147), Rent Expenses (Rs. 4,39,500), and Vehicle Running and Maintenance Expenses (Rs. 1,46,794), citing a lack of verifiable supporting evidence or presuming personal use.

The First Appellate Authority's Intervention

Aggrieved by the assessment order, the assessee escalated the matter to the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) provided partial relief but introduced new complications: