DCIT Vs Khushi Advertising Ideas Private Limited (ITAT Ahmedabad)
WhatsApp Reference Without Corroboration Insufficient: ITAT Upholds Deletion of ₹1.50 Crore Addition
The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) upheld deletion of a ₹1.50 crore addition under Section 69C, finding that WhatsApp messages and third-party statements did not adequately establish the assessee’s involvement in an alleged cash arrangement.
In DCIT vs. Khushi Advertising Ideas Private Limited, ITA No. 2200/AHD/2025, concerning Assessment Year 2023-24, the Tribunal held that the Department had neither linked the alleged cash recipient to the company nor established that its recorded expenditure was bogus.
Accountant Member Narendra Prasad Sinha and Judicial Member Sanjay Kumar pronounced the order on 14 October 2026, dismissing the Revenue’s appeal.
Search in Miraj Group Generates Allegation
The assessee filed its return on 27 October 2023, declaring total income of ₹14,56,80,130.
During scrutiny, the Assessing Officer relied on information arising from a search in the Miraj Group on 21 February 2023.
WhatsApp communications recovered from the mobile phone of Amit Sharma, Director of Miraj Entertainment Limited (MEL), concerned arrangements for cash. The Department interpreted a reference to “1.5 ahmedabad khushi” as indicating delivery of ₹1.50 crore to the assessee.
A statement recorded from Sanjay Singh under Section 132(4) referred to delivery of cash to a person named Ajay, using a ₹10 note as a token.
Assessing Officer Treats Expenditure as Unexplained
The Revenue alleged that the assessee received ₹1.50 crore in cash and transferred the corresponding amount to MEL through banking channels.
It relied on a ₹1.47 crore bank transfer, explaining the difference as tax deducted at source.
According to the Assessing Officer, this represented an accommodation entry, making the corresponding expenditure recorded by the assessee bogus.
He added ₹1.50 crore under Section 69C, completing assessment on 31 March 2025 at total income of ₹16,06,80,130.
The CIT(A) deleted the addition. The Revenue challenged that relief before the Tribunal.
Assessee Disputes Connection with Cash Recipient
The assessee argued that it was not a party to the WhatsApp conversation and that no evidence established receipt of cash by the company.
Its representative emphasised that the Department had not identified Ajay or demonstrated any connection between him and the assessee.
No inquiry established that he was an employee, agent or authorised representative receiving cash on the company’s behalf.
The assessee also pointed to regular business dealings with MEL, with transactions during the year amounting to approximately ₹17.90 crore.
It maintained that transaction details had been furnished and that no specific evidence established bogus expenditure.
WhatsApp Narration Could Justify Inquiry, Not Conclusion
The Tribunal acknowledged that the message could provide a basis for further inquiry.
However, it held that the evidentiary significance of the narration had to be assessed alongside other material. A reference resembling the assessee’s name did not conclusively establish actual delivery of cash.
The communications were exchanged between persons associated with MEL, while the assessee was not a participant.
Most importantly, the essential link between the alleged delivery and the assessee remained unsubstantiated. The Assessing Officer produced no corroborative material establishing that Ajay received the cash for the company.
Banking Sequence Does Not Establish Bogus Expense
The Tribunal considered the Revenue’s reliance on the alleged cash payment followed by the bank transfer.
It observed that timing and the nature of transactions could be relevant circumstances, but could not independently prove the accommodation-entry allegation without adequate corroboration.
The parties’ established business relationship also required consideration. Although regular dealings did not automatically prove the disputed transaction genuine, they could not simply be disregarded.
The Assessing Officer had not identified a specific defect in the supporting records demonstrating that the expenditure was fictitious or non-genuine.
Retraction and Gross-Amount Addition Examined
The Tribunal noted that Amit Sharma’s statement had subsequently been retracted.
It clarified that retraction did not automatically eliminate the original statement’s evidentiary value. Both the statement and surrounding circumstances still required examination with the other evidence.
Even considered together, the available statements and messages did not adequately establish receipt of cash or non-genuine expenditure.
The Bench further observed that, even assuming facilitation of an accommodation entry, the nature and quantum of income arising from that activity required separate evidentiary examination. The gross transaction amount could not automatically become the facilitator’s income.
Section 69C Addition Lacked Factual Foundation
The Tribunal emphasised that the addition before it concerned unexplained expenditure under Section 69C.
An allegation about routing funds did not remove the requirement to establish why the recorded expenditure was unexplained. Neither the alleged recipient’s connection nor the bogus nature of the expense had been proved.
The Bench therefore found the addition based on presumption rather than sufficient corroboration.
It upheld the CIT(A)’s deletion of ₹1.50 crore and dismissed the Revenue’s appeal. The ruling rests on the evidentiary gaps in this case, rather than excluding WhatsApp material or third-party statements from consideration in tax proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Revenue against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 17.09.2025 for the Assessment Year (A.Y.) 2023-24 in the proceeding u/s 143(3) of the Income Tax Act [hereinafter referred as “the Act”].
2. The brief facts of the case are that the assessee had filed its return of income for A.Y 2023-24 on 27.10.2023 declaring total income of Rs.14,56,80,130/-. The case was selected for scrutiny under CASS. A search was conducted in the case of M/s. Miraj Group on 21.02.2023. From the WhatsApp chat recovered in the search from the mobile of one Shri Amit Sharma, Director of M/s. Miraj Entertainment Ltd. (in short MEL), it transpired that Sh. Amit Sharma had asked one Sanjay Singh to arrange cash of Rs. 2 crores. Out of this cash, Rs. 1.5 crores was paid to Khushi Advertising Ideas Private Limited in Ahmedabad and for this purpose photo of a 10 rupees note was forwarded to Shri Sanjay Singh. Subsequently, the said cash of Rs. 1.5 crores was received back in the bank account of M/s. Miraj Entertainment Ltd. and this arrangement was made to take entry in the bank account to meet the fund requirement. In the statement recorded u/s. 132(4) of the Act, Shri Sanjay Singh had stated that cash of Rs. 1.50 crores was paid to M/s Khushi Advertising Ideas Private Limited and delivered to one person named Ajay against exchange of Rs. 10 note as token. On the basis of this information, the AO had concluded that the assessee company had given an entry of Rs.1.5 crores to MEL which was recorded in their books of accounts as advertisement income. According to the AO, since the advertisement income of Rs. 1.5 crores was accommodation entry in exchange of cash, the corresponding expense of Rs. 1.50 crores booked by the assessee company, was bogus. Accordingly, the AO had made addition of Rs. 1.5 crores in the hands of the assessee as unexplained expenditure under Section 69C of the Act. The assessment was completed u/s. 143(3) of the Act on 31.03.2025 at total income of Rs.16,06,80,130/-.
3. Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee allowed.
4. Now, the Revenue is in appeal before us. The following grounds have been taken in this appeal:
1. Whether the Ld. CIT(A) has erred in law and on facts in deleting addition of Rs. 1,50,00,000/- made by the Assessing Officer as unexplained expenditure under section 69C (read with Section 115BBE) of the Income-tax Act by nullifying credible evidence of tax evasion unearthed at the time of search & seizure action in the case of Miraj Group that the assessee was engaged in providing accommodation entries in the form of bogus purchases?
2. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.
3. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored.”
5. Shri Amit Pratap Singh, the Ld. Sr. DR, submitted that the assessee company was having regular transaction with M/s. Miraj Entertainment Ltd. and this fact was not under dispute. The document seized from Shri Amit Sharma, Director of M/s. Miraj Entertainment Ltd. in the course of search, had revealed that cash of Rs. 1.50 crores was paid to the assessee company and immediately thereafter the assessee had transferred the amount of Rs. 1.47 crores to MEL through banking channel. The Ld. Sr. DR explained that the payment of Rs. 1.47 crores was made after deduction of TDS in order to give a colour of genuineness to the transaction. According to the Ld. Sr. DR, from the evidences as brought on record, this transaction was essentially in the nature of an accommodation entry. Therefore, the payment of Rs. 1.50 crores recorded in the books of accounts of the assessee towards expense (after deduction of TDS) was certainly bogus and the AO had rightly disallowed the expense. The Ld. Sr. DR contended that the Ld. CIT(A) was not correct in deleting the addition as made by the AO, without correctly appreciating the facts and evidences on record.
6. Per contra, Shri Biren shah, the Ld. AR of the assessee submitted that no evidence of any accommodation entry was found from the assessee. He explained that in the WhatsApp chat recovered from mobile of Shri Ajay Sharma, the name of the assessee was not appearing. Neither there was any reference of any person of the assessee company to whom the cash was allegedly paid. As per the statement of Shri Sanjay Singh, the sum of Rs. 1.50 crores was paid to one Shri Ajay. However, the connection of the said Shri Ajay with the assessee company was never established. He contended that no inquiry was made from him to establish that he had received the cash amount on behalf of the assessee company. In the absence of any such co-relating evidence, the AO was not correct in assuming that the cash of Rs. 1.50 crores was received by the assessee. According to the Ld. AR, the addition was made merely on the basis of presumption and without any concrete evidence that the assessee company had received cash of Rs. 1.50 crores as mentioned in the WhatsApp chat. The Ld. AR explained that the assessee was having regular transaction with M/s. Miraj Entertainment Ltd. and the total transaction during the year with the said company was to the extent of the Rs. 17,89,95,245.76/-. He further submitted that the details of the purchases and expenses pertaining to MEL were duly produced before the AO and no evidence was brought on record that any of the expense was bogus. The Ld. AR, therefore, strongly supported the order of the Ld. CIT(A) deleting the addition of Rs. 1.50 crores as bogus expense.
7. We have considered the rival submissions and perused the material available on record. The issue for our consideration is whether, on the basis of the material relied upon by the AO, the expenditure of Rs. 1.50 crores recorded in the books of the assessee could validly be treated as unexplained expenditure u/s 69C of the Act. On examination of the materials placed before us, we find that the assessee had regular business transactions with MEL. As noted by the learned CIT(A), such transactions had been undertaken over several years pursuant to the business arrangement between the parties. The existence of these transactions, by itself, does not establish the genuineness of the particular transaction in dispute. However, at the same time, the regular transactions of the assessee with MEL cannot be disregarded while examining the nature and evidentiary value of the material relied upon by the AO.
8. The addition in question has been made on the basis of WhatsApp communication recovered from the mobile phone of Shri Amit Sharma, Director of MEL, and the statement of Shri Sanjay Singh recorded u/s 132(4) of the Act. The relevant communication, reproduced in the assessment order, contains the narration “1.5 ahmedabad khushi”. This narration may provide a basis for further inquiry into the transaction; however, its evidentiary significance has to be assessed in conjunction with the other material on record. The WhatsApp communication was exchanged between persons associated with MEL, and the assessee was not a party to the said communication. More importantly, the mere mention of the assessee’s 1st name in the narration does not, without further corroboration, conclusively establish that the alleged cash was actually delivered to the assessee or to a person acting on its behalf. As per the statement of Shri Sanjay Singh, the cash of Rs. 1.50 crores was delivered to a person named Ajay in Ahmedabad. However, the identity of the said person has not been established on the material placed before us. There is no evidence to demonstrate that the said Ajay was an employee, agent or authorised representative of the assessee. The AO has also not brought on record any inquiry or other corroborative material establishing that the cash was received by the assessee through the said person. In these circumstances, the essential link between the alleged delivery of cash and the assessee remains unsubstantiated.
9. We further note that the AO’s inference is founded on the alleged sequence of cash payment followed by a transfer through banking channel. The Revenue contends that the transfer of Rs. 1.47 crores by the assessee to MEL, after the alleged payment of cash, establishes the accommodation-entry arrangement. While the proximity and nature of the transactions may be relevant circumstances, they cannot, in the absence of adequate corroborative material, by themselves establish that the assessee received cash of Rs. 1.50 crores and routed the corresponding amount through banking channels as alleged. The fact that MEL had recorded advertisement income from the assessee and that the parties had corresponding transactions in their books is also required to be considered in the overall factual context. The AO has not demonstrated, through an examination of the underlying records or otherwise, that the particular expenditure or business transaction recorded by the assessee was fictitious. The details of the transactions between the assessee and MEL were furnished before the AO, and no specific defect in the supporting material has been identified in the assessment order to establish that the expenditure claimed by the assessee was bogus.
10. It is also relevant that the statement of Shri Amit Sharma was subsequently retracted. Although a retraction does not, by itself, render the original statement devoid of evidentiary value, the statement and the circumstances in which it was made have to be examined along with the other material available on record. In the present case, even when the original statement and the WhatsApp communications are considered together, the material brought on record does not adequately establish that the assessee received the alleged cash or that the expenditure recorded in its books was non-genuine. We find that the AO’s own premise is that the transaction represented an accommodation entry facilitated by the assessee for MEL. Even if such a premise were to be accepted, the nature and quantum of any income arising to the assessee from facilitating the transaction would require separate examination on the basis of relevant evidence. The gross amount involved in an alleged accommodation-entry transaction cannot automatically be treated as the assessee’s income merely because the assessee is alleged to have facilitated the routing of funds. In any event, the addition before us has been made u/s 69C of the Act by treating the expenditure recorded by the assessee as unexplained. Such an addition requires a factual basis for establishing the unexplained nature of the expenditure in question. The Revenue’s allegation regarding the routing of funds does not, by itself, dispense with that requirement.
11. In the facts of the present case, the AO has not established the identity of the person who allegedly received the cash, his connection with the assessee, or the actual delivery of the cash to the assessee or its representative. Nor has the AO brought on record any independent material to demonstrate that the expenditure recorded in the assessee’s books was bogus or unexplained. The inference drawn by the AO, therefore, rests merely on the interpretation of the WhatsApp communication and the alleged sequence of transactions, without the necessary corroboration to connect the assessee with the alleged cash arrangement. The message in the WhatsApp chat was within two employees of MEL and the assessee company was not a party to the said communication. There is no conclusive material to implicate the assessee in the alleged cash transaction. Neither there is any evidence on record to establish that the corresponding expense claimed by the assessee was bogus. The addition made by the AO is found to be based on mere presumption
12. In view of the foregoing discussion, we find no infirmity in the conclusion of the Ld. CIT(A) that the addition of Rs. 1.50 crores u/s 69C of the Act was not sustainable on the material available on record. The Ld. CIT(A) has considered the evidences in the correct perspective and has rightly deleted the addition, and we do not find any reason to interfere with his order. Accordingly, the decision of the Ld. CIT(A) is upheld and the grounds taken by the Revenue are dismissed.
13. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 14/10/2026 at Ahmedabad.
