Non-Disclosure of Forensic Report and Tally Data Amounts to Breach of Natural Justice — ITAT Kolkata

Background and Overview

The Income Tax Appellate Tribunal, Kolkata, recently adjudicated a batch of cross-appeals filed by both the assessee and the Revenue, each challenging separate orders passed by the Commissioner of Income Tax (Appeals), Kolkata-27, across multiple assessment years. Given that the factual matrix and the grounds raised were substantially identical across all the years under appeal, the Tribunal consolidated the proceedings and designated the appeal in ITA No. 912/Kol/2025 for Assessment Year 2013-14 as the lead case, with its findings to govern all connected appeals.

The central disputes revolved around three broad issues: (i) the legitimacy of reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961; (ii) the evidentiary weight accorded to tally data and statements recorded during search; and (iii) the appropriate rate at which commission income from alleged accommodation entry operations ought to be estimated.

Facts of the Case: Kailash Kumar Patwari Vs DCIT

Search Operations and Original Return Filing

The assessee had originally filed his return of income under Section 139(1) of the Income Tax Act, 1961 on 30.09.2013, declaring total income of ₹1,84,740. Subsequently, a search operation under Section 132 of the Act was conducted on 08.03.2022 covering the following premises:

  • 5th Floor, Room No. 501, Todi Mansion, P-15, India Exchange Place, Kolkata – 700073 (Office)
  • Flat No. 302, 3rd Floor, 71 Metcalfe Street, Esplanade, Kolkata – 700013 (Residence)
  • Flat No. 5M, Block – 1, Space Town, VIP Road, Kolkata – 700052 (Residence)
  • Locker No. 4/8, Indian Overseas Bank, Baguihati Branch, VIP Road, Kolkata – 700159

During the course of the search, various documents and electronic data were seized and catalogued. On the basis of these materials, the case was reopened for AY 2013-14 under Section 148 of the Act on 02.11.2023, following approval from the competent authority. In response to the notice, the assessee filed a revised return disclosing income of ₹7,43,819.

Reliance on Third-Party Tally Data

During reassessment proceedings, the Assessing Officer placed significant reliance on tally data maintained under the label "SGJN", which was allegedly recovered from a laptop seized at Todi Mansion, 11th Floor, Unit No. 1108 — a premises that the assessee consistently denied owning, occupying, or controlling. The assessee contended that both the laptop and the said tally data belonged to one Shri Sonu Garg @ Sonu Agarwal and had no connection with him whatsoever.

Notwithstanding this objection, the Assessing Officer concluded that the assessee had facilitated accommodation entries aggregating ₹1,334.10 crore during AY 2013-14, applied a commission rate of 1.5%, and accordingly estimated commission income at ₹21,82,45,191/-, framing the assessment under Section 144/147 of the Act on 18.10.2024.

Proceedings Before the CIT(A)

Assessee's Contentions

Before the first appellate authority, the assessee raised multiple objections:

  • The tally data had been seized from third-party premises and could not be attributed to him
  • The forensic analysis report forming the basis of the AO's computations was never furnished to him
  • Statements recorded during the search under Section 132(4) had been retracted on 06.05.2022
  • The statutory presumption under Section 132(4A) of the Income Tax Act, 1961 was inapplicable since the material did not originate from premises belonging to the assessee
  • No independent corroboration in the form of cash trails, beneficiary examinations, or documentary evidence existed to support the AO's conclusions

CIT(A)'s Findings

The CIT(A) rejected these objections in large measure. The appellate authority found that:

  1. A search and seizure operation under Section 132 had been duly conducted and incriminating material, including the SGJN tally data, had been found and seized
  2. During his statement recorded under Section 132(4) on 08.03.2022, the assessee had candidly admitted to earning commission by facilitating accommodation entries in the form of unsecured loans, share capital, and share premium through entities under his control
  3. The retraction made on 06.05.2022 — nearly two months after the statement was recorded — was without adequate explanation and therefore unreliable

The CIT(A) relied on the following judicial precedents to reject the belated retraction: