ITAT Mumbai Deletes Addition Under Section 69: Joint Holder Cannot Be Taxed for On-Money Without Corroborative Evidence — Javeed Ismail Khatri Vs DCIT

Overview of the Case

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has rendered a significant ruling in the case of Javeed Ismail Khatri Vs DCIT (ITAT Mumbai), addressing multiple additions made during search assessment proceedings under Section 132 of the Income Tax Act, 1961. The Tribunal's decision touches upon critical principles governing the evidentiary value of statements recorded during search, the taxability of unaccounted business receipts, and the scope of additions under Section 69, Section 69A, and Section 69C.

The case arose from a search action conducted on 18.01.2023 at the business premises of the assessee, who operated as proprietor of M/s Zeeson, engaged in export of readymade garments and fabrics, primarily to Yemen. Following the search, the Assessing Officer framed assessments for multiple years and made substantial additions, dramatically raising the returned income of Rs. 281.25 lakhs to Rs. 838.19 lakhs.

Background: Search Proceedings and Assessment

Nature of the Assessee's Business

The assessee functioned as an intermediary between Indian suppliers and Yemeni customers, operating under a valid export license. Exports were conducted primarily on an FOB (Free On Board) basis through M/s Zeeson.

Key Findings During Search

During the search proceedings, the following incriminating materials were discovered:

• An Excel sheet named 'FINAL LALA' (last modified on 08.01.2022) found on a Samsung desktop at the business premises
• Token currency notes of small denominations with handwritten slips attached, found at the desk of Shri Shaibaz Mohammadullah Khan
• WhatsApp chats recovered from the mobile phones of both the assessee and Shri Shaibaz Khan
• Foreign currency (USD 10,070 and Riyal 4,000), Indian currency of Rs. 9,16,500, and a gold coin of 10 grams — collectively valued at Rs. 18,14,596

Additions Made by the Assessing Officer

The aggregate additions made amounted to Rs. 5,56,94,000, bringing the total assessed income to Rs. 838.19 lakhs.

Dispute Points and Assessee's Submissions

Regarding the 'FINAL LALA' Excel Sheet

The assessee contended that:

• The statement recorded under Section 132(4) was retracted through an affidavit dated 23.01.2023, citing coercion
• The sheet contained only rough working notes of maximum rates chargeable, not actual receipts
• As an exporter operating on FOB terms, the assessee was not a transporter and did not charge separate freight
• The Excel sheet was a dumb document without evidentiary value, lacking certification under Section 65B of the Indian Evidence Act, 1872
• All actual freight charges were included in export bills and offered to tax

Regarding Token Note Transactions

The assessee's position was that:

• The token notes and the slips attached thereto pertained to Shri Shaibaz Khan's independent angadiya (money transfer) business
• Shri Shaibaz Khan operated as a money transfer agent, earning commission of 0.2% to 0.3%, from the assessee's shared premises
• No salary was paid to Shri Shaibaz Khan, nor was any rent or expense charged to him for using the office space
• The assessee had no role in these cash transfer transactions

Regarding WhatsApp Chats

The assessee argued that:

• The WhatsApp conversations recovered from Shri Shaibaz Khan's phone pertained to his angadiya business, not the assessee's garment exports
• Commission income from such transactions had already been offered to tax by Shri Shaibaz Khan
• No addition could be made in the assessee's hands on this basis