Mumbai ITAT Upholds Taxability of ‘On-Money’ Indicated by WhatsApp Chats but Restricts Addition to 25% Profit; Section 69C Held Inapplicable

DCIT Vs Kamal Shrigopal Khetan (ITAT Mumbai)

Mumbai ITAT Upholds Taxability of ‘On-Money’ Indicated by WhatsApp Chats but Restricts Addition to 25% Profit; Section 69C Held Inapplicable

The Mumbai ITAT upheld the CIT(A)’s finding that WhatsApp chats and related electronic material recovered during survey established receipt of unaccounted cash (“on-money”) by the promoter of a real estate group. Rejecting the Assessing Officer’s approach, the Tribunal held that the material did not establish unexplained expenditure under Section 69C, but instead indicated cash receipts arising from the assessee’s real estate business. Consequently, the Tribunal agreed that the entire receipts of ₹23 crore could not be taxed as unexplained expenditure and that only the profit element embedded in the alleged on-money receipts was liable to tax.

The Tribunal also rejected the assessee’s plea for complete deletion of the addition. It held that the WhatsApp messages had evidentiary value in income-tax proceedings, observing that the strict rules of the Indian Evidence Act do not govern assessment proceedings and that electronic records seized during survey/search could be relied upon along with surrounding circumstances and human probabilities. Accepting the CIT(A)’s estimation of 25% of the alleged on-money receipts as taxable business profit, the Tribunal dismissed both the Revenue’s appeal seeking taxation of the entire amount under Section 69C and the assessee’s appeal seeking deletion of even the estimated addition. It also upheld the validity of the reassessment proceedings initiated under Sections 148A/147.

Cases Discussed

• Raymond Woollen Mills Ltd. (Supreme Court of India), 236 ITR 34
• ACIT vs. Rajesh Jhaveri Stock Brokers (P.) Ltd. (Supreme Court of India), 161 Taxman 316
• Central Provinces Manganese Ore Co. Ltd. vs. ITO (Supreme Court of India), 191 ITR 662
• Sri Krishna (P) Ltd. vs. CIT (Supreme Court of India), 221 ITR 538
• Phool Chand Bajrang Lal & Anr. vs. ITO & Anr. (Supreme Court of India), 203 ITR 456
• ITO vs. Lakhmani Mewal Das (Supreme Court of India), 103 ITR 437
• Kalyanji Mavji & Co. vs. CIT (Supreme Court of India), 102 ITR 287
• Godhra Electricity Co. Ltd. vs. CIT (Supreme Court of India), (1997) 225 ITR 746
• Prime Developers vs. DCIT (ITAT Mumbai), ITA Nos. 175 to 178/Mum/2010 and ITA Nos. 321 to 324/Mum/2010
• DCIT vs. Panna Corporation (Gujarat High Court), ITA Nos. 323 to 325 of 2000
• CIT vs. Shri Hariram Bhambhani (Bombay High Court), I.T.A. No. 313 of 2013
• CIT v. President Industries (Gujarat High Court), [2002] 258 ITR 654
• Anand Builders (Gujarat High Court), ITA No. 52 of 2002
• Nalini V Shah vs. ACIT (ITAT Mumbai), ITA No. 6183/M/2006
• Kishor Mohanlal Teliwala vs. ACIT (ITAT Ahmedabad), 64 TTJ 543
• Mrs. Mehroo N. Irani vs. ACIT (ITAT Mumbai), 75 Taxmann (Mag.) 123
• CIT v/s Golani Brothers (Bombay High Court), ITXA 17, 19, 26, 27 & 42 of 2015
• Pranav Construction Co. v ACIT (ITAT Mumbai), [1998] 96 TAXMAN 323
• CIT v C Najeeb (Kerala High Court), [2019] 104 com 250
• DCIT v Adarsh Industrial Estate Pvt Ltd (ITAT Mumbai), [2021] 130 com 142
• Hersh W Chadha vs DDIT (ITAT Delhi), ITA No. 3088 to 3098 & 3107/Del/2005
• Addl. CIT v. Jay Engg. Works Ltd. (Delhi High Court), [1978] 113 ITR 389
• CIT v. Metal Products of India (Punjab & Haryana High Court), [1984] 150 ITR 714
• CIT v. S. Kader Khan (Madras High Court), 300 ITR 157
• CIT v. Mantri Share Brokers (P.) Ltd. (Rajasthan High Court), [96 taxmann.com 280]
• Arjun Panditrao Khotkar v. Kailash Kishanrao Goratyal (Supreme Court of India), Civil Appeal Nos. 20825-20826 of 2017
• Ravinder Singh Kaku Vs State of Punjab (Supreme Court of India), Criminal Appeal No. 1307 of 2019 @ SLP (Crl.) 9431 of 2011
• Vetrivel Minerals v. Assistant Commissioner of Income-tax, Central Circle-2, Madurai (Madras High Court), [2021] 129 taxmann.com 126

FULL TEXT OF THE ORDER OF ITAT MUMBAI

These cross-appeals have been filed by the Department and the assessee against the respective order of the Ld. Commissioner of Income Tax (Appeals)-51, Mumbai, dated 17 September 2025, for the Assessment Year 2020-21.

Since the issues involved in these appeals are identical, therefore, they were clubbed together, heard together, and are being disposed of by this consolidated order.

Firstly, we shall take ITA No. 7626/Mum/2025 (appeal filed by the Department and ITA No. 7530/Mum/2025 (appeal filed by the assessee) (AY: 2020-21)

The Department has raised following grounds:

1. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting addition Rs. 17,25,00,000/- as against the addition made u/s.69C of the Income Tax Act, 1961 on account of unexplained expenditure without appreciating the incriminating evidences found during the course of survey proceedings.

2. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting invoking the provision of Section 115BBE of the Income Tax Act without appreciating the facts that the cash transactions have remained unverified and unexplained.

3. Whether on the facts and the circumstances of the case, the Ld. CIT(A) erred in holding the receipts as “on-money” instead of unexplained expenditure.

4. Whether on the facts and the circumstances of the case, the Ld. CIT(A) erred in applying ‘profit element” theory without factual basis.

The assessee has raised following grounds:

1. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in restricting the addition made by the Learned Assessing Officer to the extent of Rs 5,75,00,000/-by considering the 25 percent net profit earned by the appellant on the alleged on money received of Rs. 23,00,00,000/-, without considering the facts and circumstances of the case

2. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in not appreciating the fact that Learned Assessing Officer has made the addition without issuing the show cause notice to the appellant, which is against the provision of law and violation of the principal of the natural justice.

3. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the 3 Learned Assessing Office in invoking provision u/s. 15588E of the Income Tax Act, without considering the facts and circumstances of the case.

4. The appellant craves leave to add, amend, alter OR DLEETE the said ground of appeal.

5. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in reopening the atsessment proceeding u/s.147 of the Income Tax Act, 1961, without considering the facts and circumstances of the case.

6. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in holding that the appellant has received Rs.23,00,00,000/- as alleged on money, without considering the facts and circumstances of the case.

2. Ground Nos. 1 to 4 raised by the Department are interrelated, interconnected, and relates to challenging the order of the CIT(A) in deleting the addition of Rs. 17,25,00,000 made under Section 69C of the Act and Ground Nos. 1 to 4 and 6 raised by the assessee are also interrelated, interconnected, and relates to challenging the order of the CIT(A) in restricting the addition to the extent of Rs. 5,75,00,000 under Section 69C of the Act. Since all these grounds have arisen out of the common order passed by the Ld. CIT(A), therefore, we have decided to adjudicate these grounds through the present consolidated order.

3. The Ld. DR, appearing on behalf of the Department, while relying upon the order of the AO, submitted that the CIT(A) erred in deleting the addition of Rs. 17,25,00,000 as against the addition made under Section 69C of the Act on account of unexplained expenditure, without appreciating that incriminating evidence was found during the course of the survey proceedings. It was further submitted that the Ld. CIT(A) also erred in deleting the applicability of Section 115BBE of the Income-tax Act, which was rightly invoked by the AO.

4. It was also submitted that the Ld. CIT(A) wrongly held the receipt to be “on-money” instead of unexplained expenditure, despite the same having been admitted by the assessee during the course of the assessment proceedings. Therefore, the Ld. CIT(A) was also wrong in applying the profit element theory without any factual basis. Accordingly, it was prayed that the order of the Ld. CIT(A) be set aside and that of the AO be restored.

5. On the other hand, the Ld. AR reiterated the same arguments as were raised before the Revenue authorities and also relied upon the written submissions filed before us and the same is reproduced herein below:

SUBMISSIONS ON GROUND NOS. 1,2,3 & 6 – ADDITION OF RS. 23,00,00,000/ – UNDER SECTION 69C AND INVOCATION OF SECTION 115BBE

(Grounds Nos. 1,2 3 and 6 are interlinked and are addressed together)

A. Statement Recorded During Survey Has No Evidentiary Value

5.1 The Ld. AO has made the impugned addition solely on the basis of the statement of Shri Kamlesh Agarwal recorded during the survey under Section 133A of the Act. It is a well-settled position in law that a statement recorded in a survey under Section 133A has no evidentiary value and cannot form the sole basis for making an addition.

5.2 The Income Tax Officer is not empowered under Section 133A to examine any person on oath. As a consequence, any statement recorded during a survey and any admission made in such a statement cannot be treated as conclusive evidence or form the basis of an addition.

CIT v. S. Kader Khan [300 ITR 157] (Madras HC) Court SLP dismissed by Supreme

“An ITO was not empowered under Section 133A to examine any person on oath and therefore a statement recorded in a survey under Section 133A has no evidentiary value and any admission made during such statement cannot be made the basis of an addition.”

CIT v. Mantri Share Brokers (P.) Ltd. [96 taxmann.com 280] (Rajasthan HC) – SLP dismissed by Supreme Court

The Hon’ble Court held that a statement made under survey proceedings, particularly one made under threat or compulsion, unsupported by any documentary evidence such as cash, bullion, jewellery or other material, cannot be made the sole basis for an assessment.

B. The Basic Precondition for Invoking Section 69C Is Not Fulfilled

5.3 Section 69C of the Act applies where an assessee has incurred expenditure, which is not recorded in the books of account and the assessee offers no satisfactory explanation as to the source of such expenditure. The essential ingredient of Section 69C is that the assessee must have ‘incurred’ the expenditure in question.

5.4 In the present case, the statement of Shri Kamlesh Agarwal which is the sole basis for the addition categorically states that he received amounts on behalf of the Appellant. At no point does the statement allege that the Appellant incurred any expenditure. Receipt of money on one’s behalf cannot be equated with incurrence of expenditure. The term ‘expenditure’ necessarily Implies an outgoing or depletion of funds. Since the impugned amount was received on behalf of the Appellant and not spent by the Appellant, the fundamental condition for invoking Section 69C is not satisfied.

5.5 The Ld. AO, therefore, grossly erred in invoking Section 69C of the Act on a factual matrix that does not fulfil the preconditions for its application.

5.6 Furthermore, it is respectfully submitted that whatsapp messages, including any images, text exchanges or documents shared through the platform, do not, by themselves, constitute as admissible evidence under the Indian Evidence Act, 1872, unless it is in accordance with the provisions of Sec 65B of the relevant Act. According to the provisions of the law, any electronic record sought to be admitted as evidence, if it is accompanied by a valid certificate under Section 65B, certifying the authenticity, integrity, and proper retrieval of the electronic record. In the absence of such a certificate, the electronic evidence is inadmissible and cannot be acted upon by the adjudicating authority. In support of the same, reliance is placed on the recent ruling of the Hon’ble Supreme Court dated 14.07.2021 in the case of A2Z Infra services Ltd. Vs. Quippo Infrastructure Ltd. SLP(C) No. 8636/2021[1] wherein it was held that WhatsApp messages. cannot be used as evidence in court as they hold no evidential value. It further stated that the author of such WhatsApp messages cannot be tied to them. It is a well-settled principle that no addition can be sustained solely on the basis of uncorroborated or unauthenticated electronic communications. Further, it is submitted that neither Mr. Kamlesh Agarwal nor the appellant have been provided with the Section 65B Certificate under the Indian Evidence Act, 1872. In the absence of proper certification under Section 65B of the Evidence Act and without any verification or corroborative evidence, such electronic records cannot be relied upon to form the basis of any addition or adverse conclusion. Furthermore, it has been consistently held by various Hon’ble Tribunals and High Courts that unverified and unauthenticated electronic data, such as WhatsApp messages and images are inherently unreliable and lacks evidentiary and probative value, in the absence of proper authentication and verification. It is well decided judicial principle that no reliance can be placed on any electronic evidence in the absence of a Certificate under Section 65B of the Indian Evidence Act. Reliance is placed on the following case laws in this regard:

• • The Hon’ble Supreme Court, in the case of Arjun Panditrao Khotkar v. Kailash Kishanrao Goratyal (Civil Appeal Nos.20825-20826 of 2017)
  • The Hon’ble Supreme Court in the case Ravinder Singh Kaku Vs State of Punjab (Criminal Appeal No. 1307 of 2019 @ SLP (Crl.) 9431 of 2011)
  • Hon’ble Madras High Court in the case of Vetrivel Minerals v. Assistant Commissioner of Income-tax, Central Circle-2, Madurai[2021] 129 com 126 (Madras)

On perusal of the above, it is respectfully submitted that the reliance placed by the Ld.AO on WhatsApp messages/ images is inappropriate, devoid of legal validity, and should be disregarded in totality. Accordingly, the said addition deserves to be deleted in entirety.

5.6 The Learned CIT(A), while adjudicating the appeal against the reassessment order passed under section 147 r.w.s. 144B of the Income Tax Act, substantially disagreed with the findings of the Assessing Officer insofar as the addition under section 69C was concerned. The CIT(A) specifically held that the WhatsApp chats and statements relied upon by the Assessing Officer merely indicated receipt of cash and did not establish incurrence of unexplained expenditure. It was observed that the Assessing Officer’s conclusion that the alleged cash represented unexplained expenditure was not corroborated by the contents of the messages themselves. The Learned CIT(A), therefore, accepted that the impugned amount could at best be regarded as cash receipts and not unexplained expenditure under section 69C of the Act. Thereafter, the CIT(A) proceeded on the footing that the alleged receipts represented “on-money” received in the course of the appellant’s real estate business and restricted the addition to 25% of the alleged receipts and sustained an addition of Rs. 5,75,00,000/ – as business income, while deleting the balance addition of Rs. 17,25,00,000/ -. Thus, the Learned CIT(A) granted substantial relief to the appellant by rejecting the Assessing Officer’s action of taxing the entire alleged receipts as unexplained expenditure under section 69C of the Act and by holding that only the estimated profit element embedded in the alleged on-money receipts could be subjected to tax.

5.6 The findings of the Learned CIT(A), though granting substantial relief, are internally inconsistent, unsupported by evidence and contrary to settled principles governing additions based on alleged “on-money” receipts. At the outset, it is pertinent to note that the entire addition is founded solely upon selective WhatsApp chats, assumptions and conjectures without there being any corroborative evidence whatsoever establishing actual receipt of unaccounted income by the appellant. The Learned CIT(A) himself has categorically recorded a finding that the material relied upon by the Assessing Officer does not establish unexplained expenditure under section 69C and that the alleged amounts could, at best, be construed as alleged receipts. Once the very basis adopted by the Assessing Officer stood rejected and the provisions of section 69C were held to be inapplicable, there remained no legal or factual foundation to sustain any addition merely on presumptive basis.

The Learned CIT(A), after accepting that the Assessing Officer proceeded on an entirely erroneous premise, could not have sustained an ad hoc addition of 25% in absence of any material evidencing actual profit generation. The impugned sustenance is purely arbitrary and devoid of any rational nexus with the material available on record. There is absolutely no incriminating material demonstrating.

• • actual receipt of cash by the appellant;
  • utilization of such alleged receipts in business;
  • corresponding unaccounted sales;
  • suppression of recorded revenue;
  • or existence of any unaccounted profit.

In absence of such foundational facts, estimation of profit itself becomes unsustainable. The CIT(A) has fundamentally erred in proceeding on the assumption that the WhatsApp chats necessarily represented “on-money” receipts from real estate transactions. The alleged chats neither mention any specific project, nor identify any purchaser, property, unit number, agreement value, date of transaction or mode of receipt. No corresponding buyer statements, loose sheets, diaries, books of account, bank entries or independent corroborative evidence were brought on record to establish that any actual unaccounted consideration was received by the appellant. It is a settled proposition of law that suspicion, however strong, cannot take the place of evidence.

Furthermore, the CIT(A) has himself observed that the electronic chats merely indicate “cash receipts.” However, mere reference to cash in isolated electronic communication cannot automatically lead to inference of taxable income unless supported by cogent corroborative material. In the absence of any supporting evidence, the entire exercise remains purely inferential and hypothetical. Such observation is entirely conjectural and based upon surmises rather than evidence. Tax liability cannot be determined on presumptions relating to the financial standing or business profile of the assessee. Most importantly, the CIT(A) failed to appreciate that even the judicial precedents relied upon by him for taxing only the “profit element” are applicable only in cases where:

• • actual unaccounted sales or receipts are first conclusively established; and
  • the dispute pertains only to quantification of taxable profit embedded therein.

In the present case, the very existence of unaccounted receipts itself has never been established. Therefore, the question of estimating profit embedded in such alleged receipts does not arise at all.

The reliance placed on decisions such as CIT vs. President Industries, DCIT vs. Panna Corporation and similar judgments is entirely misplaced. In all those cases:

• • actual unaccounted sales were detected;
  • suppression of turnover stood established;
  • books and transactions were identifiable; and
  • only the extent of profit attributable to such sales was under dispute. Conversely, in the appellant’s case:
  • no unaccounted project receipts have been established;
  • no suppression of turnover has been detected;
  • no discrepancy in books of account has been found;
  • no buyer or transaction has been identified; and
  • no nexus between the alleged chats and actual business receipts has been demonstrated.

Hence, the ratio of those judgments has no application whatsoever. The impugned sustenance effectively amounts to taxation based merely on presumption layered upon another presumption:

1. firstly presuming that the chats represented actual cash receipts;

2. thereafter presuming that such receipts pertained to real estate transactions;

3. thereafter presuming that such receipts constituted unaccounted turnover;

4. and finally presuming that 25% thereof represented taxable profit.

Such cascading presumptions are impermissible in law and render the addition wholly unsustainable. It is respectfully submitted that the CIT(A), having accepted that the Assessing Officer wrongly invoked section 69C and having found no direct evidence of unexplained expenditure, ought to have deleted the entire addition instead of sustaining an arbitrary percentage thereof merely on equitable considerations. Income-tax proceedings, though civil in nature, nevertheless require additions to be based upon cogent evidence and not on suspicion, conjecture or estimation devoid of factual foundation.

Accordingly, it is humbly submitted that even the addition sustained by the CIT(A) to the extent of Rs. 5,75,00,000/ – deserves to be deleted in entirety.

E. Consequential Inapplicability of Section 115BBE

5.12 The Ld. AO has directed that tax be computed under Section 115BBE of the Act. Since Section 69C itself is not validly invoked, Section 115BBE – which is triggered by additions under Section 69C also cannot apply. If this Hon’ble Tribunal deletes or restricts the addition under Section 69C, the charge under Section 115BBE would consequently fail.

VI. PRAYER

In the light of the facts, circumstances, legal submissions and judicial precedents set out hereinabove, it is most humbly prayed that this Hon’ble Tribunal may be pleased to:

(i) Quash the impugned assessment order passed under Section 147 read with Section 143(3) of the Act dated 30.03.2024, on the ground that the reassessment proceedings were initiated without independent application of mind and without tangible material giving rise to a valid ‘reason to believe’ that income had escaped assessment;

(ii) In the alternative, quash the impugned assessment order on the ground that it has been passed in flagrant breach of the mandatory provisions of Section 144B of the Act and the principles of natural justice, inasmuch as no show cause notice was issued to the Appellant before making the addition;

(iii) In the further alternative, delete the addition of Rs. 23,00,00,000/ – made under Section 69C of the Act, on the ground that the same is based solely on a survey statement having no evidentiary value, the basic preconditions for invoking Section 69C are not fulfilled, and the AO has proceeded on surmises and conjecture;

(vi) Consequently, delete the charge under Section 115BBE of the Act; and

Further protective addition has been made in the hands of Shri Kamlesh Agarwal (ITA No 7625/ Mum/ 2025) which has been deleted by the CIT(A). Similar findings can be provided against the appeal filed by the department.

6. We have heard the counsels for both parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. From the records, we noticed that the addition in the present case was made under Section 69C of the Act on account of unexplained expenditure during the course of the assessment proceedings.

7. It was noticed by the AO that a survey under Section 133A was conducted in the case of Sunteck Group entities on 22.12.2021 and that the assessee, Shri Kamal Khetan, is the Promoter, Chairman and Managing Director of the said Sunteck Group. Therefore, in that sense, Kamal Khetan was also covered during the survey action.

8. Kamlesh Agarwal admitted that he had received cash of Rs. 23 crores from various individuals as per the directions of Shri Kamal Khetan, Founder, Chairman and CMD of Sunteck Group. During the assessment proceedings, the assessee was asked to provide complete details regarding the cash transactions aggregating to Rs. 23 crores. In response, vide letter dated 02.02.2024, the assessee submitted that the cash amount was given to Kamlesh Agarwal out of the cash balance available with the group companies for the purpose of incurring various expenses and that the amounts mentioned in the WhatsApp chats were in thousands and lakhs, and not in lakhs and crores.

9. The assessee also submitted that Kamlesh Agarwal, in his affidavit dated 27.12.2021 filed before the Investigation Wing, clarified that the amounts received by him were for incurring cash expenditure and that the amounts mentioned in the WhatsApp chats were in thousands and lakhs only.

10. However, after considering the entire facts on record, the AO made the addition under Section 69C of the Act by holding that the assessee had failed to provide any justification regarding the above cash expenditure referred to in the statement of Kamlesh Agarwal recorded during the survey proceedings.

11. During the assessment proceedings as well as the appellate proceedings, it was noticed by the Ld. CIT(A) that the various WhatsApp chats found in the mobile phones of the assessee, Shri Kamlesh Agarwal and Shri Anand Shroff were suggestive of cash transactions. However, in the order of the AO, it was indicated that the receipt of cash by Shri Kamlesh Agarwal and its subsequent movement through Shri Anand Shroff, the accountant of the Sunteck Group, was for making unaccounted expenses, though the same was not corroborated by the contents of the messages. Therefore, the Ld. CIT(A) concluded that the addition of the entire amount as cash expenditure was not justified.

12. The Ld. CIT(A), after appreciating the messages contained in the WhatsApp chats of all the three persons, namely the assessee, Kamlesh Agarwal and Anand Shroff, concluded that the receipt of money had been acknowledged by Kamlesh Agarwal in his statement, but the purpose thereof had not been explained. Therefore, the said cash could only be treated as receipt and not as expenditure. It was also noticed that the statement made by Shri Kamlesh Agarwal had subsequently been withdrawn/retracted.

13. The Ld. CIT(A), taking a realistic view, observed that a person of the stature of the assessee, being the Chairman and Managing Director of the Sunteck Group, would not exchange messages on his personal number with another person/employee regarding a few thousand rupees. Therefore, it was concluded that it was wholly improbable and against the normal course of human conduct that the Managing Director of a large and reputed business group, responsible for overseeing strategic operations and high-value financial decisions, would engage in casual WhatsApp exchanges with subordinate employees for receiving petty sums of a few thousand rupees. Accordingly, the Ld. CIT(A) found no infirmity in the action of the AO in decoding the figures as being in lakhs and crores, as outlined in para 6.4 of the assessment order.

14. It was also appreciated that the addition in the instant year had been made on the basis of WhatsApp chats recovered from various persons who admitted that the same pertained to cash received from various persons as per the instructions of the assessee. Since these messages formed part of the assessment order passed by the AO, the Ld. CIT(A) held that the evidentiary value of the WhatsApp chats was not in dispute and the operative portion of the same is reproduced herein below:

The provisions of Income Tax Act enable the authorities to seize, place identification marks, make a note or an inventory, etc. In fact, section 132(1) specifically provides that “(iib) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (t) of subsection (1) of section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorized officer the necessary facility to inspect such books of account or other documents”. Besides S. 132(4) categorically states that they can be used in evidence in any proceeding under the Income Tax Act. Further, S. 132(4A) states that there is a presumption that such contents are true and they belong to such person. Apart from the above, S. 292C of the Act also categorically speaks of presumption as regards the material found in the possession or control of any person in the course of a search.

7.6 In the case of Hersh W Chadha vs DDIT, ITA no.3088 to 3098 & 3107/ Del/ 2005, the Hon’ble ITAT held as follows: “The tax liability in the cases of suspicious transactions, is to be assessed on the basis of the material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information/ evidence available with AO.” It was further held as “6.3 Rules of evidence do not govern the income-tax proceedings, as the proceedings under the Income-tax Act are not judicial proceedings in the sense in which the phrase ‘judicial proceedings” is ordinarily used. The Assessing Officer is not fettered or bound by technical rules about evidence contained in the Indian Evidence Act, and he is entitled to act on material which may not be accepted as evidence in a court of law.” The Hon’ble Delhi High Court in Addl. CIT v. Jay Engg. Works Ltd. [1978] 113ITR 389 (Delhi) held that the Assessing Officer has, no doubt, to hear “evidence”, but such evidence may consist of material which would be wholly inadmissible in a court of law. In CIT v. Metal Products of India [1984] 150 ITR 714 (Punj. & Har.), it was held that the Assessing Officer may gather information in any manner he likes, behind the back of the assessee and utilize the same against the assessee, even if it does not, in all respects satisfy the requirements of the Indian Evidence Act. What is necessary is that he should have material upon which to base the assessment; “material” as distinguished from “evidence” which includes direct and circumstantial evidence.

7.7 The sum and substance of the above decisions is that unlike criminal proceedings where the charge has to be proved beyond doubt, income-tax proceedings are quasi-judicial. Tax liability in cases of suspicious transactions has to be assessed on the basis of the material available on record, surrounding circumstances, human conduct and preponderance of probabilities. Rules of evidence do not govern income tax proceedings and the AO is not fettered or bound by technical rules contained in the Indian Evidence Act and is entitled to act on material which may not be accepted as evidence in a court of law.

7.8 In the above background, the specific safeguards of presumptions laid down in the provisions of the Income Tax Act in favour of the department cannot be ignored. In every search and seizure action, the seizure is made in the presence of independent witnesses and a detailed panchnama including how the electronic evidences were handled / seized is given to the search person. Thus, I have no doubt in my mind that WhatsApp chats and other electronic evidences, loose papers etc seized during the search proceedings have ample evidentiary value to the extent they are corroborative in nature. The rigors of Evidence Act do not apply to Income Tax proceedings and in my considered view the evidentiary value of WhatsApp chat is not disputable. Thus, the WhatsApp messages indicating cash receipts are valid and indestructible evidence of actual cash receipt. It is also to be noted that even the appellant has not denied the fact of eash receipt and he has only disputed the quantum. Based on the detailed discussion above, I hold that the WhatsApp messages found on the mobile phone of Shri Kamlesh Agarwal is clearly indicative of cash receipt of Rs.23,00,00,000/ – from various person and that the cash actually belongs to the appellant as was admitted by Shri Agarwal in his statement.

7.9 Having held that the cash belongs to the appellant, I now proceed to decide on the taxability of the cash receipt. The appellant is the Chairman and Managing Director of the Sunteck Group, a well-established real estate developer engaged in the business of constructing and selling premium and high-end residential flats in Mumbai and other metropolitan areas. In this line of business, it is a matter of common industry practice that, apart from the accounted consideration recorded in the registered documents, certain part of the sale consideration is also received in cash as “on-money” from purchasers of luxury flats. Therefore, any cash found in the possession of the appellant, or any cash receipts linked to the projects of the Group, are more reasonably attributable to on-money receipts from the sale of flats rather than being unaccounted income from any other source. It is also to be noted that the survey did not reveal any other activity or methodology by which such amount of cash can be generated. The cash received by Shri Kamlesh Agarwal on the direction of Shri Kamal Khetan is therefore nothing but on money received for the sale of flats and is likely to be taxed as such.

7.10 The next logical step is to determine the quantum of income element embedded in such “unaccounted receipts”. The Hon’ble Supreme Court in the case of Godhra Electricity Co. Ltd. -Vs- CIT reported th [1997] 225 ITR 746 held that only real income has to be taxed in the hands of the assessee by observing as follows:

…..  14. The question whether there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realisation in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity which were added by the ITO while passing the assessment orders in respect of the assessment years under consideration. The AAC was right in deleting the said addition made by the ITO and the Tribunal had rightly held that the claim at the increased rates as made by the assessee- company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the ITO did not represent the income which had really accrued to the assessee-company during the relevant previous years. The High Court, in our opinion, was in error in upsetting the said view of the Tribunal.

15.  In the result, the appeals are allowed, the impugned judgment of the High Court is set aside and the questions referred by the Tribunal for opinion are answered in favour of the assessee-company and against the revenue. But in the circumstances, there will be no order as to costs.”

7.11 Further, it is seen that in numerous judgments it has been laid down by the Hon’ble Courts that there does not have to be direct evidence co-relating the receipt and the expenditure and a reasonable estimate on the basis of seized documents to be made while computing the undisclosed income pursuant to search. The following observation of the jurisdictional Hon’ble Mumbai Tribunal in the case of Prime Developer vs. DCIT ITA 175 to 178/ M/ 2010 and ITA 321 to 324/M/2010 are relevant:

“42. Scope of Reasonable Expenditure: Assessee needs to expend in order to earn income / profit and it is basic and universal principle in any business. This principle applies to both accounted and unaccounted profits. In a case of unaccounted profits due to its very nature of unaccounting, normally, the parties do not maintain evidences and therefore, evidencing such accounted evidences is impossibility. Probably, for the reason, the courts have taken conscious view that it for the assessing authority to quantify reasonable expenditure considering the facts of the case and industry. Legally speaking, the judgments are uniform in asserting that entire sale proceeds should not be added as income. Hon’ble High Court of Ahmedabad ruled in the case of Panna Corporation that the ‘assessee ought to have spent reasonable amount for the purpose of receiving such gross profit’ (Para 14 of Tax Appeal No. 325 of 2000 dt. 16.06.2012). Further, Hon’ble High Court of Madhya Pradesh held in the case of President Industries 258 ITR 654 that ‘entire sale proceeds of the assessee should not be added in his income’. Further, from the judgment in case of Panna Corporation (Supra), it is settled proposition that there is no need for the assessee to demonstrate the genuineness of the claim of unaccounted expenditure in the cases of this kind. The underlined logic is that the unaccounted expenditure is always unevidenced and never maintained. Therefore, transferring onus on to the assessee in matters of this kind is not approved. Ex consequenti, it is for the AO allow necessarily reasonable deduction towards such unaccounted expenditure without demanding evidences, considering the nature of industry and also evidences relating to extents of net profits earned by the assessee. Considering the above legal position on the matter, we are of the clear-cut opinion, the AO’s conclusions on this issue are certainly erroneous. In principle, we uphold the views of the CIT(A) in this regard. Therefore, relevant grounds raised in the revenue’s appeals are dismissed”.

7.12 The said judgment has been affirmed by the Jurisdictional High Court vide ITA No. 2452 of 2013. Further, there are number of decisions wherein various High Courts have held that net income has to be estimated on the unaccounted business receipts offered by the assessee. In this regard, the Hon’ble Gujrat High Court in case of DCIT vs. Panna Corporation reported in ITA No. 323/ 325 of 2000 held that there is a consistent view which the various High Courts have been following and that is the principle that even upon detection of “on money” receipts or unaccounted cash receipts what can be brought to tax is the profit embedded in such receipts and not the entire receipts themselves. If that be the legal position, then reasonable profit is to be estimated. The relevant extracts are as under:

It can, thus, be seen that consistently, this Court and some other Courts have been following the principle that even upon detection of on money receipt or unaccounted cash receipt, what can be brought to tax is the profit embedded in such receipts and not the entire receipts themselves. If that be the legal position, what should be estimated as a reasonable profit out of such receipts, must bear an element of estimation.

(8.) IN view of the legal position that not the entire receipts, but the profit element embedded in such receipts can be brought to tax, in our view, no interference is called for in the decision of the Tribunal accepting such element of profit at Rs.26 lakhs out of total undisclosed receipt of Rs. 62 lakhs. In other words, we accept the legal proposition, the Tribunal accepting Rs.26 lakhs disclosed by the assessee as profit out of total undisclosed receipt of Rs. 62 lakhs, would not give rise to any question of law. In the result, the tax appeals are dismissed.

7.13 Similar view also been held in case of CIT vs. Shri Hariram Bhambhani reported in ITA No. 313 of 2013 (Bom.) and CIT vs. President Industries (2002) reported in 258 ITR 654 (Guj.). Further, in fact the Hon’ble Jurisdictional High Court in case of Golani Brothers (Supra) has held that once the receipts are taxed or sought to be taxed, the deduction of expenditure incurred therefrom must be allowed.

7.13.1 The relevant extracts of the decision of the Hon’ble Bombay High Court in the case of CIT vs. Shri Hariram Bhambhani reported in ITA No. 313 of 2013 (Bom.) are as under:

6. On further Appeal, the Tribunal by the impugned order held that the entire sales which are unaccounted cannot be undisclosed income of the assessee, particularly as the purchase had been accounted for. It was held that only net profit which would arise on such unaccounted sales can rightly be taken as the amount which could be added to the Respondent Assessee’s income for the purpose of tax.

7. The grievance of the Revenue is that Section 69C of the Act is to be invoked and entire amount of undisclosed sales has to be brought to tax. We are unable to appreciate how Section 69C of the Act which speaks of unexplained expenditure is all at relevant for this appeal. We are not concerned with any unexplained expenditure in this case.

8. In any view of the matter, the CIT(A) and Tribunal have came to the concurrent finding that the purchases have been recorded and only some of the sales are unaccounted. Thus, in the above view, both the authorities held that it is not the entire sales consideration which is to be brought to tax but only the profit attributable on the total unrecorded sales consideration which alone can be subject to income tax. The view taken by the authorities is a reasonable and a possible view. Thus, no substantial question of law arises for our consideration.

7.14 There are several other decisions viz in case of Anand Builders ITA No. 52 of 2002 in which Hon’ble Gujarat High Court has upheld the order of the Hon’ble ITAT directing the Assessing Officer to tax only 8% of the unaccounted money receipt instead of fully taxing it in the absence of any evidence of expenditure, the SLP (C) No. 14166 of 2003 filed by the department against the order of Hon’ble Gujarat High Court has not been admitted reported in 265ITR 337 (Statutes).

7.15 Similar decision in case of Hon’ble Mumbai ITAT in the case of Nalini V Shah vs. ACIT ITA No. 6183/ M/ 2006 AY 2002-03 dated 20.05.2009 in which the Hon’ble ITAT have held that 15% profit rate of “on money” is a reasonable rate.

7.16 Further, Hon’ble Ahmedabad ITAT in case of Kishor Mohanlal Teliwala vs. ACIT 64 TTJ 543 held that 8% profit of unaccounted turnover was reasonable by the ITAT. The relevant extracts are as under:

Thus, what can be added as the undisclosed income of the assessee under section 158BC, is a reasonable amount of profit which the assessee could have earned by charging “on money” in respect of flats and the Mumbai Bench of the Tribunal in the case of Mrs. Mehroo N. Irani in ITA No. 1140/ Bom/ 89 has taken the view that when a person is found to have been engaged in building construction activity and has received unaccounted money, what is required to be taxed is not the receipt but only 5 per cent of the receipt which is to be taken as a net profit. As against the above decision the assessee has himself offered 8 per cent profit on the total receipts which should be considered fair and reasonable. In any case it is to be seen that after the exhaustive search and obtaining the disclosure of Rs. 17 lakhs the search party has not been able to find any unaccounted assets except those which have been referred to in the statement of the assessee and a broad break-up of which was given by the assessee in his statement aggregating to Rs. 17 lakhs. These assets are by way of application of the unaccounted income which have been earned by the assessee from Hare Krishna Apartment project, part of which was reflected on the piece of paper found during the course of search against which the assessee himself has offered a sum of Rs. 1 7 lakhs as his unaccounted income. Thus, it is clear that the assets found at the time of search were the application of the unaccounted income of Rs. 17 lakhs which was offered to tax by the assessee in his return filed in response to notice under section 158BC. Thus, keeping in view the totality of the facts and circumstances of the case we are of the opinion that the Assessing Officer was not justified in making the addition of Rs. 1,47,91,840 as the concealed income of the assessee because the profit earned on the unaccounted receipts on the basis of the special provisions at 8 per cent as per section 44AD of the Act will be less than the amount of Rs. 17 lakhs disclosed by the assessee as undisclosed income in the return filed in response to notice under section 158BC. Accordingly we do not find any justification in the action of the Assessing Officer in making the addition of Rs. 1,47,91,840 which is directed to be deleted.

7.17 Also, the Hon’ble Mumbai Bench of ITAT in case of Mrs. Mehroo N Irani vs. ACIT 75 Taxmann (Mag.) 123 held that 5% of the gross receipts was found to be reasonable as income out of unaccounted money received. The relevant extracts are as under:

In the instant case, from a perusal of the seized material, it could be said that no conclusive inference could be drawn from these papers that the assessee in fact had received Rs. 50 per sq. ft. on sale of flats. The papers did indicate that ‘on money’ would have exchanged hands on such sale. But what made out a case for additions were the seized papers which go to show that the assessee could have incurred cash expenditure for purchase of scarce material like cement and steel. The contention of the assessee that merely because unrecorded expenditure might have been incurred by the assessee, an inference that there could be receipt of ‘on money’ had to be rejected, had merely to be stated to be rejected. The assessee had embarked on a business venture, i.e., construction of multistoreyed building and such action on the part of the assessee could not have been motivated by altruism or philanthrophy. The papers which indicated that the assessee could have incurred unaccounted expenditure were seized at the premises of the assessee. It would be idle to speculate that papers did not represent any real expenditure. No staff member would be expected to make a jotting of this nature and keep it in the file of the office. There, therefore, had to be some truth in the whole thing. The totality of the facts, if considered in a dispassionate manner, could lead to a conclusion that the assessee in fact had received ‘on money’ and had also incurred expenditure out of the same. An estimated addition to the total income based on the ground realities would be a better way out. In doing so, one should take into consideration the net profit disclosed by the assessee and also the net profit that would be reflected after the additions finally sustained were taken into consideration. In the instant case, having regard to the totality of the facts and circumstances of the case, a net addition of 5 per cent of the gross receipts exclusive of receipts on account of garages and installation of generator would meet the ends of justice. Moreover, no separate addition ofon money’ would be necessary in regard to sale of garages which were nothing but parking spaces.

7.18 Further, the following legal precedents have held that only the profit element embedded in the “on money” / a reasonable percentage of “on money” can be taxed.

• • CIT v/s Golani Brothers reported in ITXA 17, 19, 26, 27 & 42 of 2015 (Bombay High Court)
  • Pranav Construction Co. v ACIT [1998] 96 TAXMAN 323 (MUM.)
  • CIT v C Najeeb [2019] 104 com 250 (Kerala)
  • DCIT v Adarsh Industrial Estate Put Ltd [2021] 130 com 142 (Mumbai – Trib.)
  • DCIT v/s Panna Corporation reported in ITA No. 323/ 325 of 2000 (Gujrat High Court)

7.19 Further, apart from the above cases related to “on money” earned by builders, there are general legal precedents which have held that if any undisclosed sales are found during the search, only the profit element can be taxed:

CIT vs. Shri Hariram Bhambhani reported in I.T.A. No.313 of 2013 (Bombay)

CIT v. President Industries [2002] 258 ITR 654 (Gujarat)

7.20 The common thread of the above judicial precedents shows that if the “on money” receipts are unearthed during a search action, it is but obvious that the entire undisclosed receipts cannot be taxed but only the profit element can be taxed.

7.21 After considering the decision of various Hon’ble High Courts and ITAT as mentioned above it is clear that it has consistently been held that the reasonable profit has to be estimated on detection of “on money” receipts. As held in above paragraphs, the WhatsApp messages can at best be held to be suggestive of on money receipt. The WhatsApp messages do not contain the details of the project or the flat for which the said cash is received and since it is found on the mobile of the appellant, who is the Chairman cum Managing Director of the Sunteck group having various projects, it is my considered view that the on money can be added in the hands of the appellant without identifying the specific project or the flat to which it relates. In the real estate trade, such cash receipts are inextricably linked with cash outgoings towards site labour, raw material purchases from unorganised vendors, brokerage, facilitation payments, municipal and liaison expenses, and other incidental project-related costs. A portion of the on-money is necessarily ploughed back into these cash-based expenditures without which the project cannot be executed. Therefore, only the net surplus or profit element embedded in the on-money receipts represents real income liable to tax, and not the gross cash inflow in its entirety. Accordingly, based on the consistent judicial view and the appellant’s nature of business as a builder, it would be appropriate to estimate the taxable income by applying a reasonable net profit margin to the alleged unaccounted receipts. Given the facts and the absence of precise working or verification of actual amounts involved, a net profit rate of 25% is considered just and reasonable. Therefore, the addition is restricted to Rs. 5,75,00,000/ -, being 25% of the originally added amount to be taxed as business income and the balance amount of Rs. 17,25,00,000/- is deleted. These grounds of appeal are partly allowed.

15. After meticulously considering the facts of the present case, the submissions of the parties and the orders passed by the Revenue authorities, we are also of the view that tax liability in cases founded on suspicion has to be assessed on the basis of the material available on record, surrounding circumstances, human conduct and the preponderance of probabilities. The rules of evidence do not strictly govern income-tax proceedings and the AO is not fettered or bound by the technical rules contained in the Indian Evidence Act. The AO is entitled to act upon material which may not be accepted as evidence in a court of law.

16. Therefore, we are also of the view that WhatsApp chats and other electronic evidence, loose papers, etc., seized during the survey proceedings have ample evidentiary value to the extent that they are corroborative in nature. Thus, in our view, the rigours of the Evidence Act do not apply to income-tax proceedings and the evidentiary value of the WhatsApp chats is not disputed. Therefore, WhatsApp messages indicating cash receipts constitute valid and reliable evidence of actual cash receipts.

17. We also notice that even the assessee has not denied the transactions; he has only disputed the quantum. Therefore, the WhatsApp messages found on the mobile phone of Shri Kamlesh Agarwal are clearly indicative of cash receipts of Rs. 23 crores from various persons, and the cash actually belonged to the assessee, as already admitted by Shri Kamlesh Agarwal in his statement.

18. As far as the taxability of the cash is concerned, it is an undisputed fact that, in the line of business of the assessee, it is a common industry practice that apart from the accounted consideration recorded in the registered documents, a part of the consideration is also received in cash as “on-money” from the purchasers of the respective flats. The said fact has also been evaluated by the Ld. CIT(A), who rightly concluded that any cash found in the possession of the assessee or any cash receipts linked to the projects of the group are more reasonably attributable to on-money receipts from the sale of flats rather than being unaccounted income from any other source.

19. We also appreciate that the entire survey did not reveal any other activity or methodology by which such cash could have been generated by the assessee. Therefore, the cash received by Shri Kamlesh Agarwal on the directions of Shri Kamal Khetan was nothing but on-money received from the sale of flats. Thus, the next logical question is to determine the quantum of income embedded in such unaccounted receipts.

20. In this regard, reliance has rightly been placed on the decision of the Hon’ble Supreme Court in the case of Godhra Electricity Co. Ltd. vs. CIT reported in (1997) 225 ITR 746, wherein it was held:

“….. 14. The question whether there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realisation in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity which were added by the ITO while passing the assessment orders in respect of the assessment years under consideration. The AAC was right in deleting the said addition made by the ITO and the Tribunal had rightly held that the claim at the increased rates as made by the assessee- company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the ITO did not represent the income which had really accrued to the assessee-company during the relevant previous years. The High Court, in our opinion, was in error in upsetting the said view of the Tribunal.

15. In the result, the appeals are allowed, the impugned judgment of the High Court is set aside and the questions referred by the Tribunal for opinion are answered in favour of the assessee-company and against the revenue. But in the circumstances, there will be no order as to costs.”

21. Further, it has also been held by higher judicial authorities that there need not be direct evidence correlating the receipt and the expenditure and that a reasonable estimation on the basis of seized documents is required to be made while computing the undisclosed income. In this regard, reliance has been placed on the decision of the Coordinate Bench of the ITAT in Prime Developers vs. DCIT, ITA Nos. 175 to 178/Mum/2010 and ITA Nos. 321 to 324/Mum/2010, wherein it was held:

“42. Scope of Reasonable Expenditure: Assessee needs to expend in order to earn income / profit and it is basic and universal principle in any business. This principle applies to both accounted and unaccounted profits. In a case of unaccounted profits due to its very nature of unaccounting, normally, the parties do not maintain evidences and therefore, evidencing such accounted evidences is impossibility. Probably, for the reason, the courts have taken conscious view that it for the assessing authority to quantify reasonable expenditure considering the facts of the case and industry. Legally speaking, the judgments are uniform in asserting that entire sale proceeds should not be added as income. Hon’ble High Court of Ahmedabad ruled in the case of Panna Corporation that the ‘assessee ought to have spent reasonable amount for the purpose of receiving such gross profit’ (Para 14 of Tax Appeal No. 325 of 2000 dt. 16.06.2012). Further, Hon’ble High Court of Madhya Pradesh held in the case of President Industries 258 ITR 654 that ‘entire sale proceeds of the assessee should not be added in his income’. Further, from the judgment in case of Panna Corporation (Supra), it is settled proposition that there is no need for the assessee to demonstrate the genuineness of the claim of unaccounted expenditure in the cases of this kind. The underlined logic is that the unaccounted expenditure is always unevidenced and never maintained. Therefore, transferring onus on to the assessee in matters of this kind is not approved. Ex consequenti, it is for the AO allow necessarily reasonable deduction towards such unaccounted expenditure without demanding evidences, considering the nature of industry and also evidences relating to extents of net profits earned by the assessee. Considering the above legal position on the matter, we are of the clear-cut opinion, the AO’s conclusions on this issue are certainly erroneous. In principle, we uphold the views of the CIT(A) in this regard. Therefore, relevant grounds raised in the revenue’s appeals are dismissed”.

22. It is important to mention here that the above judgment of the Coordinate Bench of the ITAT has also been affirmed by the jurisdictional High Court in ITA No. 2452 of 2013. Apart from that, several other decisions have consistently held that only the net income has to be estimated in respect of unaccounted business receipts. In this regard, reliance has also been placed on the decision of the Hon’ble Gujarat High Court in DCIT vs. Panna Corporation in ITA Nos. 323 to 325 of 2000, wherein it was held:

It can, thus, be seen that consistently, this Court and some other Courts have been following the principle that even upon detection of on money receipt or unaccounted cash receipt, what can be brought to tax is the profit embedded in such receipts and not the entire receipts themselves. If that be the legal position, what should be estimated as a reasonable profit out of such receipts, must bear an element of estimation.

(8.) IN view of the legal position that not the entire receipts, but the profit element embedded in such receipts can be brought to tax, in our view, no interference is called for in the decision of the Tribunal accepting such element of profit at Rs.26 lakhs out of total undisclosed receipt of Rs.62 lakhs. In other words, we accept the legal proposition, the Tribunal accepting Rs.26 lakhs disclosed by the assessee as profit out of total undisclosed receipt of Rs. 62 lakhs, would not give rise to any question of law. In the result, the tax appeals are dismissed.

23. Since the Ld. CIT(A), after considering the facts of the present case, followed the consistent judicial principles holding that only a reasonable profit has to be estimated on detection of on-money receipts, and considering the assessee’s nature of business as a builder, estimated the taxable income by applying a reasonable net profit margin on such unaccounted receipts, and in the absence of precise working or verification of the actual amount involved, adopted a net profit rate of 25% as just and reasonable, we find no infirmity therein.

24. No facts or circumstances have been brought before us by either of the parties to controvert or rebut the well-reasoned order passed by the Ld. CIT(A). Therefore, we find no reason to interfere with or deviate from the order passed by the Ld. CIT(A). Accordingly, Ground Nos. 1 to 4 raised by the Revenue and Ground Nos. 1 to 4 and 6 raised by the assessee are dismissed.

25. Ground No. 5 raised by the assessee relates to challenging the order of the CIT(A) in confirming the action of the AO in reopening the assessment under Section 147 of the Act.

26. In this regard, we noticed that a survey under Section 133A of the Act was conducted on the Sunteck Group on 22.12.2021. The assessee, Kamal Khetan, being the Promoter, Chairman and Managing Director of the said group, was also covered during the survey action. Another person, namely Kamlesh Agarwal, was also covered. During the course of the survey, WhatsApp messages found on the mobile phones of Kamal Khetan, Kamlesh Agarwal and Anand Shroff indicated large-scale receipt of cash by Kamlesh Agarwal.

27. In his statement, Kamlesh Agarwal admitted that the cash had been received from various persons at the directions of Kamal Khetan. The total of such WhatsApp messages came to Rs. 23,00,00,000/-. On the basis of the information gathered during the survey proceedings, the AO initiated proceedings under Section 148A by issuing notice under Section 148A(b) on 27.10.2022. Thereafter, the AO passed an order under Section 148A(d) on 24.12.2022 and reopened the assessment by issuing notice under Section 148 dated 27.12.2022.

28. During the reassessment proceedings, the AO did not accept the contention of the assessee that the quantum of cash appearing in the messages was in thousands and that the same had been handed over from the cash-in-hand of various companies of the Sunteck Group. The AO held that the cash received by Kamlesh Agarwal, as reflected in the WhatsApp messages, actually belonged to the assessee, Kamal Khetan, and accordingly added Rs. 23,00,00,000/- as unexplained expenditure under Section 69C of the Income-tax Act. The same amount was also protectively added in the hands of Kamlesh Agarwal.

29. After hearing both sides at length on this issue, we find that the reassessment proceedings arose out of the findings recorded pursuant to the survey action. The WhatsApp messages found during the survey on the mobile phone of Kamlesh Agarwal indicated large-scale cash transactions and, as per his statement, such cash transactions were on behalf of the assessee. Therefore, the AO was in possession of relevant information and rightly acted upon specific and tangible material unearthed during a valid survey conducted under the provisions of the Act.

30. We are also of the view that the survey proceedings and the statements recorded by the Income-tax authorities during the discharge of their official duties carry a presumption of correctness at this stage. Moreover, the requirement of Section 147 is only that there should exist prima facie reasons to believe that income has escaped assessment. It has consistently been held by various judicial authorities that, at the stage of reopening, the AO is not required to conclusively establish escapement of income and the existence of reasons is sufficient

31. The submission of the assessee that the AO issued the notice merely on borrowed satisfaction and without conducting any independent enquiry has been duly considered. However, in our view, the AO acted on tangible material unearthed during a valid survey. Therefore, the initiation of reassessment proceedings cannot be faulted.

32. In this regard, reliance is placed upon the judgments of the Hon’ble Supreme Court in:

(i) Kalyanji Mavji & Co. vs. CIT (102 ITR 287);

(ii) ITO vs. Lakhmani Mewal Das (103 ITR 437);

(iii) Phool Chand Bajrang Lal & Anr. vs. ITO & Anr. (203 ITR 456);

(iv) Sri Krishna (P) Ltd. vs. CIT (221 ITR 538); and

(v) Central Provinces Manganese Ore Co. Ltd. vs. ITO (191 ITR 662).

33. Even otherwise, the Ld. CIT(A) has considered the entire facts of the case as well as the consistent view of the higher judicial authorities. We are also of the view that, at the stage of issuance of notice under Section 148, the AO is only required to form a prima facie opinion regarding escapement of income and is not required to exactly quantify the amount of escaped income. Thus, the sufficiency of reasons cannot be examined at the stage of reopening, as held by the Hon’ble Supreme Court in Raymond Woollen Mills Ltd. (236 ITR 34) and ACIT vs. Rajesh Jhaveri Stock Brokers (P.) Ltd. (161 Taxman 316).

34. Therefore, we find no infirmity in the reopening carried out by the AO, who formed a prima facie belief as mandated by law after applying his independent mind to the material available before him. Thus, we dismiss this ground raised by the assessee.

35. In the net result the appeal filed by the Revenue and assessee stands dismissed.

ITA No. 7625/Mum/2025 (AY 2020-21)

36. Since, in the case of Kamal Shrigopal Khetan, we have upheld the order of the Ld. CIT(A) and the substantive addition has been sustained in his hands for the relevant assessment year, no separate protective addition survives. Moreover, the Ld. DR has failed to point out any provision under the Act authorising the Department to enforce such protective addition independently or the mode of recovery thereof.

37. Accordingly, considering the aforesaid facts, we dismiss the ground raised by the Department. Consequently, the appeal stands dismissed.

Order pronounced in the open court on 14.07.2026.