Saurabh Jain Vs ACIT (ITAT Delhi)
Delhi ITAT: Loose Third-Party Papers and WhatsApp Chats Cannot Sustain Addition of Alleged Commission Income
The Delhi ITAT deleted additions made towards alleged commission income for AYs 2022-23 and 2023-24, holding that loose papers recovered from a third party and WhatsApp chats not relating to the relevant assessment years do not constitute incriminating evidence sufficient to sustain an addition.
The assessee, a director of Vintage Distilleries Ltd., was subjected to reassessment following a search on the Vintage Group. The Assessing Officer relied upon the statement of a third party (Shri Dilip Singla), an ‘orange register’ allegedly recording commission at 6 paise per bottle, and certain WhatsApp chats, to add ₹13.90 lakh (AY 2022-23) and ₹16.83 lakh (AY 2023-24) under section 69A as unexplained money. The CIT(A) held that section 69A was inapplicable but sustained the additions by treating them as business income.
Before the Tribunal, the assessee contended that the additions were based merely on assumptions and third-party material, with no incriminating evidence found during the search linking him to the alleged commission income.
The Tribunal observed that, except for the statement of the third party regarding certain loose handwritten scribblings, the WhatsApp chats relied upon by the Revenue related to the year 2024, which was irrelevant for the assessment years under appeal. It also noted that the assessee had already offered the income relating to AY 2024-25 to tax.
The ITAT further found that the Assessing Officer had estimated commission at 6% on figures supplied by third parties, without establishing any verifiable or enforceable transaction involving the assessee. The loose papers contained neither dates nor the assessee’s name, and consisted merely of figures without any narration or supporting evidence. Such documents, even when read with the statement recorded under section 132(4), did not constitute conclusive evidence of undisclosed income.
Referring to the Supreme Court’s decision in PCIT v. Abhisar Buildwell (P.) Ltd., the Tribunal reiterated that additions cannot rest on non-incriminating material or mere presumptions. It held that the Revenue had failed to establish any reliable nexus between the seized material and the alleged commission income for the years under consideration.
Accordingly, the ITAT deleted the additions for both assessment years and allowed the assessee’s appeals.
Cases Discussed
- PCIT Vs. Abhishar Buildwell (P.) Ltd. (SC), (2023) 454 ITR 212
- N. Singh v. CIT (SC), TS-252-SC-2023
FULL TEXT OF THE ORDER OF ITAT DELHI
These appeals are preferred by the assessee against the common order dated 11.12.2025 of the Ld. Commissioner of Income Tax (A)-23, Delhi (hereinafter referred to as the First Appellate Authority or ‘the ld. FAA’ for short) in DIN & Order No: ITBA/APL/S/250/2025-26/1083582529(1)/ITBA/APL/S/250/2025-26/1083582974 arising out of the assessment order dated 08.04.2025 u/s 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by DCIT, Central Circle-2, Delhi, for AY: 2022-23 & 2023-24.
2. Assessee’s return of income were filed on 19.07.2022 for AY: 2022-23 and 28.02.2023 for AY; 2023-24. Search was carried out on Vintage Group on 11.05.2024. The assesse is director to Vintage Distilleries Ltd. These appeals were heard together as they involved common question of fact and law and wherever relevant facts for AY; 2022-23 shall be considered and reproduced.
3. It comes up from the impugned order dated 20.12.2024 for AY: 2022-23 that AO examined the issue of purchase being over price and on the basis of statement of Mr. Dilip Singla, that steel mart was making payment of commission of 06 paise per bottle to Saurabh Jain separately and its working was maintained in the form of a sheet and based on this evidence and whatsapp chat of Saurabh Jain and his statement dated 11.05.2024, the additions were made u/s 69A of Rs.13,89,628/- alleging that assesse has failed to record commission and declared of source of income in the return and the same has been sustained by ld. CIT(A) by modifying the head of addition being business income, as follows:
“7. Ground No. 3 to 3.5: The central issue for adjudication is whether the addition of Rs.13,89,628/-for AY 2022-23 and Rs. 16,83,191- for AY 2023-24 made by the Assessing Officer as alleged commission income under section 69A of the Act can be sustained on facts and in law.
7.1 At the outset, it is apparent that the impugned addition rests substantially on material seized from the premises of third parties,-namely an ‘orange register’ recovered from the residence of Shri, Dalip Singla and certain WhatsApp screenshots and digital extracts, Admittedly, no cash, money, bullion, jewellery or other valuable article was found from the possession of the appellant during the course of search. The register relied upon neither bears the appellant’s signature nor establishes authorship, ownership or contemporaneous acknowledgment by the appellant. It is also a fact that the register was seized from a third-party premises and not from the appellant.
7.2 The law on reliance upon third-party material is well settled. Loose papers, diaries or registers found from a third party cannot, by themselves, be the basis of an addition in the hands of another assessee unless a clear and cogent nexus is established linking such material to the assessee. In the present case, such nexus is conspicuously absent. The Assessing Officer has proceeded on assumptions and inferences without demonstrating, through independent corroboration, that the seized notings represented income owned or received by the appellant.
7.3 The Ld. AO has brought to tax an amount of Rs. 13,89,628/- for AY 2022-23 and Rs.16,83,191/- for AY 2023-24 by invoking the provisions of section 69A of the Act, treating the same as unexplained money and consequently applying the rigours of section 115BBE. However, a perusal of the assessment order itself reveals that the said addition has not arisen from the discovery of any cash, bullion, jewellery or other valuable article in the possession of the appellant. The AO has also-not demonstrated that the appellant was found to be the owner of any unexplained asset during the course of search or post-search proceedings. The addition has been computed solely on the basis of alleged commission transactions inferred from third-party records and digital material.
7.4 It is settled law that section 69A is a deeming provision and its application is subject to strict fulfilment of statutory preconditions. The Hon’ble Supreme Court in D. N. Singh v. CIT [TS-252-SC-2023] has clearly held that ownership of money or valuable article is a sine qua non for invoking section 69A, and the provision cannot be applied in a mechanical manner merely because certain receipts are alleged or inferred. In the present case, no physical money or valuable article was found with the appellant, nor is there any categorical finding that the appellant was the owner of such money in the relevant previous year. Therefore, the jurisdictional foundation for invoking section 69A is found to be lacking.
7.5 At the same time, it is also evident from the material discussed in the assessment order and the submissions on record that the AO proceeded on the premise that the appellant was involved in activities connected with facilitation or coordination of supplies, on which a commission element was inferred. The amount added has thus been computed as an outcome of an alleged business or commercial activity and not as an unexplained accretion to wealth. Where the existence of an activity giving rise to receipts is alleged, the resulting income, if any, partakes the character of business income and cannot be forcibly brought within the scope of unexplained money merely to invoke a harsher rate of taxation. Courts have consistently held that where source of income is identifiable and linked to an activity, eve.) if not fully explained or properly recorded, the appropriate course is to assess such income under the correct head rather than resorting to deeming provisions.
7.6 In the present case, the AO himself attributes the alleged receipts to commission arising from transactions connected with supply chains. Once that is so, the income cannot simultaneously be treated as unexplained money under section 69A. The two concepts operate in distinct spheres. Treating the same amount as unexplained money would amount to misapplication of the statutory scheme and would artificially attract section 115BBE, which is not the legislative intent in cases where income arises from an alleged business activity.
7.7 Once the character of the receipt is established as commission income, the same cannot be treated as unexplained money under section 69A merely because it was received in cash or not recorded in the books. It is a settled proposition of law that business receipts, even if unrecorded, do not fall within the scope of sections 68, 69 or 69A, unless the source itself is unexplained. In the present case, the appellant filed ITR-2 and disclosed the source.
7.8 Once section 69A itself is found to be inapplicable, the consequential application of section 115BBE necessarily fails. A deeming fiction cannot be extended beyond its legitimate field, and the harsh provisions of section 115BBE cannot be invoked unless the foundational conditions of section 69A are strictly satisfied.
7.9 In view of the above discussion, I hold that while the AO was not justified in invoking section 69A of the Act, the amount of Rs. 13,89,628/- for AY 2022-23 and Rs. 16,83,191/- for AY 2023-24 represents, at best, income arising from an alleged business or commercial activity attributed to the appellant. Accordingly, the addition of Rs. 13,89,628/- and Rs. 16,83,191/-shall be assessed as business income and not as unexplained money under section 69A of the Act. The provisions of section 115BBE shall not apply to the said addition.”
4. The primary contentions of ld. Counsel for assesse was that additions are based on mere assumptions and not on incriminating material found during the search and the same has been countered by ld. DR that there is no specific ground in this regard and that in the assessment order all details of incriminating evidence have been described at length.
5. We have considered the contentions and perused the material on record and we are of the considered view that the ground No. 1 & 2 wherein there is a reference of decision of Hon’ble Supreme Court in PCIT Vs. Abhishar Buildwell (P) Ltd. [(2023) 454 ITR 212, the issue of reliance non incriminating evidence is sufficiently covered.
6. Further, we find that except for the statement of Shri Dilip Singla with regard to loose handwriting scribbling being found, the whatsapp chat relied do not pertain to the relevant years in consideration and are of the year 2024. Admittedly, for that relevant AY 204-25, assessee has offered the income for tax.
7. Now the assessing officer has applied 6% commission rate on estimated figures, provided by third parties to arrive at the alleged commission income and ld. CIT(A) has deleted addition u/s 69A and made addition as business receipts. Though for which assesse was entitled to deduction of expenses too.
8. Where department has not come in appeal challenging the addition made by ld. CIT(A) as business income, instead of section 69A, invoked by the assessing officer, then it all the more was needed to show that the so called loose paper transaction, has incriminating evidences of some verifiable and enforceable transaction. The loose handwritings scribbling as reproduced in the assessment orders, as examined, we find same do not carry any dates or name of the assesse. There is no narration of event or facts but mere figures. The loose paper, independently of the statement u/s 132(4) of the Act, does not make out any conclusive evidence of transaction. Thus addition as business income on such document, for years under consideration was not justified.
9. The corresponding ground no. 1 and 2 are sustained.
The appeals are allowed. The impugned additions are deleted.
