ITAT Deletes On-Money Addition as Unsigned Agreement & Third-Party Records Lacked Evidence

Smt. Ranjana Kumari/Kalta Vs DCIT/ACIT (Central) (ITAT Chandigarh)

The appeals involved three assessees belonging to the Kalta Group and covered Assessment Years (AYs) 2020-21 to 2023-24. Although several legal grounds were initially raised, the assessees did not press those grounds during the hearing. Accordingly, the Income Tax Appellate Tribunal (ITAT), Chandigarh, confined itself to deciding the quantum additions on merits.

The disputes primarily related to alleged cash payments for property purchases, alleged unaccounted purchases based on third-party seized documents, protective and substantive additions, undisclosed rental income, stock differences, unexplained investment in bullion, and alleged cash expenditure.

Issues relating to Smt. Ranjana Kalta

1. Addition of ₹90 lakh for alleged cash payment in purchase of Omaxe property

The Assessing Officer (AO) made an addition of ₹90 lakh under Sections 69/69A on the allegation that the assessee had paid cash over and above the registered purchase price while purchasing a flat.

The allegation was based on:

• Excel sheets recovered from a hard disk seized during search proceedings conducted on the Omaxe Group.
• A theory that figures in the excel sheet had been suppressed by a factor of 100.
• Certain documents recovered from another person’s premises mentioning property values exceeding ₹2 crore.

The assessee maintained that:

• Only one flat had been purchased jointly with Shri Inder Kalta for ₹1.2733 crore.
• The entire consideration had been paid through banking channels.
• No cash payment had ever been made.

The Tribunal observed:

• The seized documents related to a different project than the property actually purchased.
• Multiple prices appeared in the documents and they could not establish the actual purchase price.
• Shri Inder Kalta explained that the figures merely represented quoted prices of different properties.
• There was no admission by either the assessee or Shri Inder Kalta regarding any cash payment.
• The entire addition rested solely upon third-party documents without independent corroboration.

The Tribunal relied upon its earlier decision involving similar allegations arising from the Omaxe search and held that no addition could be sustained merely on presumptions and assumptions.

Accordingly, the addition of ₹90 lakh was deleted.

2. Addition of ₹27 lakh for alleged unaccounted purchases

The AO made an addition under Sections 69A/69C based on three diaries seized during the search conducted at the premises of Shri Kapil Gupta.

According to the AO:

• Entries mentioning “Kalta” represented unaccounted liquor purchases.
• Shri Inder Kalta had admitted making certain cash purchases.
• Therefore, the transactions belonged to Smt. Ranjana Kalta.

The assessee argued that:

• The diaries were recovered from a third party.
• Her name never appeared in the seized material.
• She denied carrying out any unaccounted transactions.
• All purchases were made through excise permits and banking channels.

The Tribunal noted:

• The diaries were recovered from Shri Kapil Gupta and not from the assessee.
• The statutory presumptions under Sections 132(4A) and 292C apply primarily to the person from whom documents are recovered.
• There was no concrete evidence connecting entries marked “Kalta” specifically with the assessee.
• No evidence of corresponding unaccounted sales was found.
• As a wholesale liquor dealer operating under State Excise regulations, all purchases and sales were through regulated channels.

The Tribunal held that no addition could be made merely on assumptions or third-party loose papers without corroborative evidence.

The additions for AYs 2020-21, 2021-22, 2022-23 and 2023-24 were deleted.

3. Protective addition of ₹230 lakh relating to Murray Field property (AY 2022-23)

The AO made a protective addition alleging payment of ₹230 lakh in cash based upon:

• An unsigned and unregistered agreement to sell.
• WhatsApp chats.
• Valuation reports.

The Tribunal found:

• The agreement was unsigned and unregistered.
• It was not executed between the actual purchaser and seller.
• It contained no reference to any cash payment.
• No enquiry had been conducted from the seller.
• Two valuation reports gave substantially different values.
• The valuation reports were merely opinions.

The Tribunal held that such documents had no evidentiary value for making an addition.

Accordingly, even the protective addition was held to be unsustainable.

4. Gross Profit addition due to stock shortage (AY 2023-24)

During search:

• Physical stock was lower than book stock by ₹3.93 lakh.

The assessee explained that certain bills had not yet been entered in Tally but failed to furnish supporting reconciliation.

The AO estimated Gross Profit on the alleged out-of-book sales and made an addition of ₹13,930.

The Tribunal observed that:

• Stock shortage remained unexplained.
• No reconciliation was produced.

Accordingly, the GP addition of ₹13,930 was confirmed.

Issues relating to Shri Inder Kalta

1. Protective additions for alleged unaccounted purchases

The AO made protective additions based upon diary entries recovered from Shri Kapil Gupta.

The Tribunal observed:

• Entries merely contained the word “Kalta.”
• No reference specifically identified Shri Inder Kalta.
• No ledger existed in the name of M/s Himgiri Beverages in the books of M/s Kalta Wines.
• No corroborative evidence linked the entries to his proprietorship concern.
• No unaccounted sales were found.

The Tribunal held that additions based merely upon presumptions could not survive.

The protective additions for AYs 2021-22 to 2023-24 were deleted.

2. Protective additions relating to alleged unaccounted sales

The AO made protective additions based upon WhatsApp communications between salesman Shri Munish and Shri Inder Kalta.

The Tribunal observed that:

• Shri Munish was an employee of M/s Kalta Liquors.
• The AO himself had made substantive additions in the hands of M/s Kalta Liquors.
• Therefore, protective additions in Shri Inder Kalta’s hands were unjustified.

These additions were deleted.

3. Undisclosed rental income

The addition was based upon the statement of Shri Hempal Kalta, who admitted rental income from shops shared among three brothers.

The assessee claimed the rental belonged to an HUF.

The Tribunal found:

• No evidence regarding existence of the HUF was produced.
• The alleged HUF had no PAN.
• The statement under Section 132(4) supported the addition.

The additions for undisclosed rental income for AYs 2021-22 to 2023-24 were confirmed.

4. Protective additions relating to alleged purchases from Shri Rajesh Thakur

The AO relied upon:

• WhatsApp chats.
• Digital evidence.
• Entries marked “Kalta.”

The Tribunal held:

• Entries did not specifically relate to M/s Kalta Wines.
• No evidence connected the alleged purchases to the assessee’s business.
• No corresponding unaccounted sales were discovered.
• The assessee functioned as a regulated wholesaler.

The protective additions were deleted.

5. Addition of ₹331 lakh relating to Murray Field property

The AO added:

• ₹230 lakh alleged cash payment.
• ₹88 lakh gift.
• ₹13 lakh margin money.

The Tribunal held:

• The unsigned agreement had no evidentiary value.
• It did not mention any cash payment.
• No corroborative evidence existed.
• No enquiry had been conducted from the seller.
• Bank transfers of ₹88 lakh and ₹13 lakh could not themselves constitute taxable income.

The entire addition was deleted.

6. Stock shortage addition

The AO found physical stock lower than book stock by ₹3.34 lakh.

The explanation regarding pending entries remained unsupported.

The GP addition of ₹16,430 was confirmed.

7. Addition of ₹5 lakh for alleged unexplained investment in bullion

The AO relied upon a rough slip recovered during search.

The assessee demonstrated:

• Withdrawal of ₹5 lakh from his capital account.
• Remaining payment through cheque.
• Supporting bills.
• Entries in books.

The Tribunal held that the source stood established.

The addition was deleted.

8. Addition of ₹14.50 lakh for alleged cash expenditure

The addition rested upon rough loose papers containing handwritten jottings.

The Tribunal found:

• No dates.
• No acknowledgements.
• No corroboration.
• No admission by the assessee.

The loose papers lacked evidentiary value.

The addition was deleted.

Issues relating to M/s Kalta Liquors

AY 2021-22

The AO estimated profit on alleged unaccounted sales based upon WhatsApp chats and admissions.

The Tribunal observed:

• Digital evidence and admissions justified the addition.
• However, GP estimation required moderation.

Instead of 5.59%, the Tribunal estimated profit at 3% of cash collections and restricted the addition accordingly.

AYs 2022-23 and 2023-24

The AO made additions for:

• Alleged unaccounted purchases.
• Gross profit on unaccounted sales.

The Tribunal held:

• Unaccounted purchases and sales formed part of the same business cycle.
• The purchases were necessarily linked with corresponding sales.
• Separate addition for gross purchases would amount to duplication.

Accordingly:

• Additions for unaccounted purchases of ₹182 lakh and ₹356.12 lakh were deleted.
• GP on unaccounted sales was estimated at 3% of cash collections instead of higher rates adopted by the AO.

Tribunal’s Overall Findings

The Tribunal repeatedly emphasized that:

• Additions cannot be sustained merely on presumptions, assumptions or surmises.
• Third-party documents require independent corroboration before they can be used against another assessee.
• Presumptions under Sections 132(4A) and 292C generally apply to the person from whose possession the material is recovered.
• Unsigned and unregistered agreements lacking evidentiary value cannot form the sole basis for additions.
• Loose papers, rough jottings and WhatsApp communications without corroborative evidence cannot by themselves justify additions.
• Where documentary evidence established banking transactions and explained sources, additions could not survive.
• Stock shortages not properly reconciled justified limited GP additions.

Ultimately, the Tribunal partly allowed all the appeals, deleting several major additions while sustaining only those supported by adequate evidence, including undisclosed rental income, limited GP additions arising from unexplained stock shortages, and recomputation of profit on certain unaccounted sales.