MHK Buildcon LLP Vs DCIT (ITAT Mumbai)
Accountant’s WhatsApp Chats Showed ₹13.78 Crore in Cash Transfers. Could the Entire Amount Be Taxed in the Firm’s Hands?
A part-time accountant’s phone contained WhatsApp conversations about cash sent through an Angadia. The assessee admitted using that arrangement for some business transactions. The Assessing Officer treated the entire cash corpus found in the chats as the assessee’s unexplained money under section 69A.
The Mumbai Tribunal drew a careful distinction: proof that an assessee used a cash-transfer channel for identified transactions does not establish that every transaction handled by the same intermediary belonged to it. It deleted additions totalling ₹13,78,51,309 across three assessment years. In a separate purchase dispute, it restricted an addition for one supplier to 5% and upheld relief for another.
What the Survey Found
MHK Buildcon LLP undertook government construction contracts and also operated a CNG pump franchise. During a survey on 15 February 2023, the department examined the personal phone of its part-time accountant, Asif Matiya. WhatsApp exchanges with Paras Corporation indicated cash remittances through an Angadia arrangement, including a token-based method of identifying recipients.
Statements recorded during the survey connected the accountant and the assessee to the arrangement. The assessee did not deny every transaction. It identified remittances of ₹31,30,000 for AY 2021–22, ₹81,86,630 for AY 2022–23 and ₹1,81,33,000 for AY 2023–24—₹2,94,49,630 in all—as cash sent from its books to project sites for business needs.
The Assessing Officer went further. He attributed the wider set of transactions appearing in the phone to the LLP and made section 69A additions of ₹1,60,59,605, ₹3,17,39,558 and ₹9,00,52,146 for the three years respectively. The assessee maintained that the remaining transactions related to other persons for whom Matiya handled cash transfers.
Prompt Retraction Did Not Erase the Original Evidence
After the survey, the accountant and a partner filed affidavits disputing the attribution of the entire corpus to the assessee. The Tribunal considered their timing and the alternative explanation they gave, but did not find that the original statements had been obtained through coercion. Nor did it dismiss the WhatsApp records as inherently unreliable.
The records established cash movements. The statements, connected names and token method also supported the finding that MHK Buildcon used the Angadia channel for certain transactions. The issue was how far that evidence could reasonably extend.
Once the person whose phone contained the chats promptly said he also acted for others, the department needed to test that explanation and connect the disputed transactions to the LLP. The Tribunal found no adequate transaction-wise corroboration for attributing the whole corpus to the assessee. An admitted method of transferring cash could not, by itself, supply that missing link.
Section 69A Required Two Different Questions
The Tribunal examined the admitted and disputed transactions separately. For the admitted ₹2.94 crore, ownership was not in issue. The assessee explained that the money came from cash already recorded in its books and was moved to project sites. No cash-book reconciliation was brought on record to show that these amounts exceeded recorded cash balances or came from outside the books. Using an Angadia might have consequences under other provisions, but the mode of transport alone did not make recorded cash unexplained money under section 69A.
For the remaining transactions, ownership itself was disputed. The originating data was on an intermediary’s personal phone, and the material did not adequately establish that the money belonged to MHK Buildcon. The Tribunal held that section 69A’s foundational requirement could not be met by extending the link from some admitted transactions to every transaction in the chats.
It therefore deleted all three section 69A additions. The proposed taxation of those amounts under section 115BBE fell with them.
Purchase Disallowance: Two Suppliers, Different Evidence
AY 2022–23 also involved a ₹94,55,106 disallowance for purchases from Creative Corporation and Distributors Pvt. Ltd. and G.M. Enterprise. The Assessing Officer had disallowed the full amount. The first appellate authority restricted the addition for Creative Corporation to 10% of its ₹60,00,027 purchases and deleted the addition concerning G.M. Enterprise.
The Tribunal found genuine grounds to question whether Creative Corporation was the actual supplier, including adverse investigation material. Yet the construction work and use of materials had not been rejected. In those circumstances, treating the entire purchase price as income was unwarranted; the relevant addition was an estimate of the benefit from obtaining materials through another source. Given the nature of the contractor’s business and the absence of evidence supporting a 10% benefit, the Tribunal reduced the rate to 5%, or ₹3,00,001.
G.M. Enterprise stood on a different evidentiary footing. The assessee had produced a ledger confirmation and relied on e-way bills showing movement of goods. The supplier’s non-filing and inactive GST registration called for scrutiny, but did not, without further evidence, prove that the assessee had received no goods. The relief granted for that supplier was upheld.
Author’s Comments
This order turns on the reach of the evidence. The Tribunal accepted that the department had proved a cash-transfer mechanism and the assessee’s participation in part of it. It required more before treating every gross transfer in an accountant’s personal chats as the LLP’s own unexplained money. Equally, the prompt retraction was relevant because it offered a testable explanation; it was not treated as automatic proof that the original statements were false.
The purchase ruling applies the same discipline to a different question. Adverse material concerning a named supplier can justify an addition where the stated source is doubtful, but the amount must reflect what the evidence supports when the underlying business activity is accepted. The appeals for AYs 2021–22 and 2023–24 were allowed; the AY 2022–23 appeal was partly allowed.
Cases Discussed
- CIT v. S. Khader Khan Son — considered on the evidentiary value of statements recorded during survey; the Tribunal held that the principle does not erase relevant contemporaneous electronic evidence, but a disputed attribution must be tested against underlying and corroborative material.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
