Shaibaz Mohammadullah Khan Vs DCIT (ITAT Mumbai)
Mumbai ITAT: WhatsApp Chats, Token Notes and Excel Sheets Cannot Justify Taxing Gross Receipts; Only Embedded Profit Taxable
The Mumbai ITAT held that WhatsApp chats, token notes, handwritten slips and Excel sheets recovered during a search could not justify taxing the entire gross amount reflected therein, where the seized material merely indicated unaccounted business transactions. The Tribunal observed that the assessee was engaged solely in the business of garment exports and that the seized material represented unrecorded business receipts, not unexplained money or expenditure under Sections 69A or 69C. Accordingly, following settled law that only the profit element embedded in unaccounted sales can be brought to tax, the Tribunal directed the Assessing Officer to apply a 1% gross profit rate (instead of the 3% adopted by the CIT(A)) on the aggregate unaccounted sales.
The Tribunal also deleted the addition towards alleged cash salary paid to an employee, holding that the Revenue had relied on contradictory statements which were later clarified during cross-examination, where the employee admitted that he had not received any salary from the assessee and was independently carrying on an angadiya (money transfer) business. Further, the addition relating to cash, foreign currency and a gold coin found during the search was deleted after accepting the explanations regarding recorded cash balances, the gifted gold coin and foreign currency belonging to a Yemeni client kept in safe custody. The Tribunal thus granted substantial relief to both assessees by holding that dumb electronic material without proper corroboration cannot result in taxation of gross receipts, and that at best only the profit attributable to unaccounted business transactions could be assessed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
