Entire WhatsApp Cash Corpus Cannot Be Taxed Without Ownership Nexus: ITAT Mumbai

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

The aforesaid three appeals have been preferred by the assessee, M/s MHK Buildcon LLP, for Assessment Years 2021­22, 2022-23 and 2023-24. Since the principal controversy in all the three appeals emanates from the same survey action carried out under section 133A of the Income-tax Act, 1961 on 15.02.2023, rests substantially upon the same electronic material and statements recorded in the course of the said proceedings, and involves an identical question as to whether the cash transactions reflected in certain WhatsApp conversations could be attributed in their entirety to the assessee and brought to tax as unexplained money under section 69A, these appeals were heard together and are being disposed of by this consolidated order. The assessee is a limited liability partnership firm engaged, inter alia, in execution of construction contracts for Government entities and also carries on CNG pump franchise business of Sabarmati Gas Ltd. The additions under section 69A which constitute the principal subject matter of these appeals are as under:

Thus, although the electronic data was initially quantified at ₹13,82,09,627, the actual additions made for the three years before us aggregate to ₹13,78,51,309. The assessment orders themselves record that the genesis of these additions was the WhatsApp conversation found in Shri Asif Matiya’s phone concerning Paras Corporation. Apart from this common issue, A.Y. 2022-23 contains a separate dispute relating to purchases from M/s Creative Corporation and Distributors Pvt. Ltd. and M/s G.M. Enterprise, which we shall deal with independently after adjudicating the common issue.

2. The assessee is engaged, inter alia, in execution of construction contracts for Government entities and also carries on business through a CNG pump franchise of Sabarmati Gas Ltd. All AO orders 2649-2651-Mum-2026.pdf A survey under section 133A was conducted on 15.02.2023, during which the survey team examined the books of account, documents and electronic devices available at the premises and recorded statements of various persons, including Shri Asif Matiya and Shri M.H. Khanusiya, partner of the assessee-firm. During examination of the mobile phone belonging to Shri Asif Matiya, certain WhatsApp conversations were noticed which referred to transfer/delivery of cash through Paras Corporation. The Revenue aggregated the transactions appearing in such electronic material at ₹13.82 crore approximately and thereafter allocated them to different financial years. It is of some significance at the outset that the primary electronic record from which these transactions were culled out was not found in the mobile phone of any partner of the assessee but in the personal mobile phone of Shri Asif Matiya. The assessee’s consistent case has been that Asif was only a part-time accountant, that his personal mobile did not belong to the firm or form part of its books or assets, and that apart from attending to certain cash requirements of the assessee he was independently facilitating remittances for various other persons of Himmatnagar. This distinction between the existence of the transactions in Asif’s phone and their ownership or attribution to the assessee lies at the core of the controversy before us.

3. Since the entire foundation of the impugned additions substantially rests upon the electronic material read together with the statements recorded during survey, it is necessary to understand with some precision what the statements actually disclose rather than merely proceeding upon the conclusions subsequently drawn from them. Insofar as Shri Asif Matiya is concerned, the assessment records show that he was confronted with the WhatsApp conversations available in his mobile and was questioned regarding the cash transactions routed through Paras Corporation. The Assessing Officer understood his original statement as an explanation that he attended to cash requirements and facilitated cash transfers through Paras Corporation on behalf of the assessee and, on that basis, treated the transactions quantified from his WhatsApp conversations as transactions of M/s MHK Buildcon LLP. The assessment order repeatedly records this as one of its principal foundations, observing that the transactions were “clearly & expressly explained by Mr. Asif Matiya” and were thereafter confirmed by Shri M.H. Khanusiya, partner of the assessee. All AO orders 2649-2651-Mum-2026.pdf What assumes significance, however, is that the underlying material comprised numerous transactions and persons spread over different dates and three financial years; and the controversy raised by the assessee is whether the statement of Asif constituted an unequivocal transaction-wise admission that every one of those transactions and the entire cash quantified therefrom belonged to the assessee, or whether the statement established merely that Asif was engaged in arranging cash remittances and that some such remittances were admittedly undertaken for the assessee. This distinction assumes further relevance because immediately after the survey Asif retracted the attribution of the entire transactions to the assessee and asserted on affidavit that he had also undertaken similar transactions for several other persons.

4. The statement of the partner, Shri M.H. Khanusiya, on which considerable reliance has been placed by the Assessing Officer, requires equally careful appreciation. Question No.21 arose because the books reflected cash-in-hand of ₹17,27,302.34 as on 14.02.2023 whereas only ₹90,000 was physically found at the premises during survey. Shri Khanusiya explained that cash was generated on a daily basis from the CNG gas pump and deposited in the bank and that the cash-in-hand was also distributed amongst various project sites and was not entirely retained at the Himmatnagar office. The substance of his answer, as reproduced by the Assessing Officer, was that “cash-in-hand is distributed to our sites and not kept” entirely at the surveyed office. All AO orders 2649-2651-Mum-2026.pdf This answer assumes relevance because the assessee’s explanation regarding those Angadia transactions which it admits as its own is that cash available in the regular books was temporarily transmitted from the head office to different project sites for meeting labour and other site requirements. Thus, the explanation regarding movement of cash to different sites was not taken for the first time during assessment proceedings but finds place in the statement recorded contemporaneously during the survey itself.

5. The next two questions in Shri Khanusiya’s statement are even more germane to the controversy. In Question No.22, he was shown WhatsApp chats with one Shri Suresh Joshi, stated to be a subcontractor handling a DFCC Railway project at Valsad. After confirming that the mobile and WhatsApp conversation belonged to him, Shri Khanusiya explained that there was a requirement of cash at the site for expenses such as labour and small purchases and that he had sent approximately ₹5 lakh to Shri Joshi. He further explained that a ten- rupee currency note was used as a token for identification in an Angadia transaction and that cash delivery was taken care of by Shri Asif Matiya, their office accountant. All AO orders 2649-2651-Mum-2026.pdf In continuation thereof, under Question No.23, Shri Khanusiya was shown his WhatsApp conversation with Shri Asif Matiya. After confirming the conversation, he stated that he had already explained that Asif attended to cash requirements and, therefore, he had forwarded details such as the currency-note token to Asif for further action. All AO orders 2649-2651-Mum-2026.pdf These answers undoubtedly establish that the assessee itself had, on occasions, utilised Asif for transmitting cash through the Angadia mechanism for genuine site requirements. Indeed, this part is not disputed by the assessee even before us. The controversy is whether an admission regarding this mechanism and an identified transaction of approximately ₹5 lakh can, without further enquiry, be read as an admission by the partner that the entirety of numerous transactions appearing in Asif’s personal mobile over three financial years, aggregating to ₹13.78 crore ultimately added by the Assessing Officer, represented money belonging to the assessee.

6. It is precisely upon the aforesaid answers that the Assessing Officer proceeded to connect the entire WhatsApp data with the assessee. His reasoning, as recorded in the assessment orders, was that Shri M.H. Khanusiya himself had “declared the process of cash transfer through his accountant Mr. Asif Matiya”; that the currency note used as a token demonstrated a pre-concerted process of cash transfer; and that, once the partner had himself explained the mechanism, the subsequent retraction by the partner and Asif was not acceptable. All AO orders 2649-2651-Mum-2026.pdf Thus, the evidentiary progression adopted by the Assessing Officer was essentially this: the WhatsApp chats established cash transactions through Paras Corporation; Asif’s original statement connected such cash-remittance activity with the assessee; the partner admitted that Asif handled cash requirements and that an Angadia/token mechanism was used for certain project-site remittances; and, therefore, the entire quantum appearing in the WhatsApp data was treated as cash belonging to the assessee. It is this progression from an admitted mechanism and certain admitted transactions to attribution of the entire corpus which has been seriously contested before us.

7. The contemporaneous conduct following the survey also forms an important part of the evidentiary record. The assessee’s case is that the statements of Shri Asif Matiya and Shri M.H. Khanusiya, insofar as they were understood as admitting the entire unaccounted cash transactions, were recorded under undue influence, coercion and threat and were retracted immediately thereafter by sworn affidavits. The written submissions explain the chronology by stating that the statements were recorded during 15th/16th February 2023, stamp papers for the affidavits were obtained on 17.02.2023, 18th and 19th February were Saturday and Sunday, and the affidavits were notarised on 20.02.2023 and furnished to the Investigation Wing during the post-survey proceedings. The Assessing Officer himself records that the survey took place on 15.02.2023 and that Asif’s retraction was furnished to the Revenue on 20.02.2023, though he considered the gap of five days sufficient to reject the retraction as an afterthought. All AO orders 2649-2651-Mum-2026.pdf The assessee, on the other hand, emphasised before the Assessing Officer that the dates borne by the stamp papers and notarisation demonstrated that the process of retracting the statements commenced immediately after conclusion of the survey and that the affidavits were thereafter filed with the DDIT (Investigation) during the post-survey proceedings. All AO orders 2649-2651-Mum-2026.pdf

8. More importantly, the retraction of Shri Asif Matiya was not projected before the authorities merely as a bald denial of his earlier statement. The substantive explanation emerging from the assessee’s replies and Asif’s affidavit was that the WhatsApp data in his personal mobile contained cash transfers undertaken through Paras Corporation for different persons; that some transactions undoubtedly pertained to the assessee, but the entire data could not be attributed to it; and that Asif had also collected cash from and facilitated remittances for various other persons in Himmatnagar. The assessee specifically stated before the Assessing Officer that Asif had carried out various transactions of sending cash through Paras Corporation to different persons and that, in his affidavit, he clarified that all such payments were not cash payments made by the assessee-firm but included cash collected by him from various other persons. It was further explained that Asif had not preserved complete particulars of those persons, dates of collection and ultimate recipients. The assessee also stated that once the partners came to know during survey about Asif undertaking such transactions for outsiders, his services were terminated. Thus, the factual defence was not that no cash-remittance activity existed; rather, it was that the data represented a mixed pool of transactions, of which only identified transactions belonged to the assessee and the balance could not be fastened upon it merely because they appeared in the personal device of a person who happened to work part-time for the firm.

9. Consistent with this stand, the assessee did not repudiate every transaction appearing in the electronic data but undertook a year-wise segregation of those transactions which, according to it, actually related to its business. For A.Y. 2021­22, it identified transactions aggregating to ₹31,30,000; for A.Y. 2022-23, ₹81,86,630; and for A.Y. 2023-24, ₹1,81,33,000. Its explanation in respect of these amounts was that they represented cash sent from Himmatnagar to branches/project sites for business requirements out of cash already available in the regular books and that, upon availability of funds at the sites, the temporary cash movements were appropriately adjusted/returned. In A.Y. 2022-23, for instance, the assessee furnished before the Assessing Officer a list of parties having business connections with it or located at places where its projects were being executed and quantified such transactions at ₹81,86,630. All AO orders 2649-2651-Mum-2026.pdf At the same time, it identified transactions of ₹2,29,82,928 relating to persons who, according to it, were neither employees nor subcontractors nor otherwise known to the firm or its partners. It further pointed out a numerical discrepancy: ₹81,86,630 plus ₹2,29,82,928 aggregated to ₹3,11,69,558, whereas the Assessing Officer had proposed ₹3,17,39,558, and according to the assessee particulars reconciling the difference had not been supplied. All AO orders 2649-2651-Mum-2026.pdf Similar segregation was furnished for the other years. The factual position put forth by the assessee may therefore be encapsulated as follows:

10. The assessee also laid considerable emphasis upon what, according to it, was not discovered during the survey. Its consistent stand before the Assessing Officer was that notwithstanding extensive verification of its books, documents, papers, laptops, computers and other material, no corresponding unaccounted cash, unexplained asset, excess stock, parallel books or independent documentary evidence demonstrating generation of cash of approximately ₹13.78 crore was found. It specifically disputed the suggestion that the alleged cash could have been generated through unaccounted sale of scrap and contended that no material evidencing such unrecorded scrap sales or corresponding cash generation had been discovered. In the reply reproduced by the Assessing Officer, the assessee asserted that the survey had not yielded independent material establishing unaccounted income and that the case against it had essentially been built from the data in Shri Matiya’s mobile and the statements recorded during survey. All AO orders 2649-2651-Mum-2026.pdf The assessee therefore contended that the electronic material could certainly justify enquiry into individual transactions, but in the absence of a transaction-wise nexus or other corroborative material it could not by itself establish that the assessee was the owner of every amount transmitted through Paras Corporation.

11. It was in this backdrop that the assessee repeatedly requested the Assessing Officer to summon Shri Asif Matiya and afford an opportunity of examining/cross-examining him after his retraction, so that he could identify the transactions which actually belonged to the assessee and explain those which, according to him, had been undertaken for other persons. The assessment record expressly contains the request that summons be issued to Shri Matiya so that he could explain how the transactions were undertaken and how the amounts mentioned in the WhatsApp chats did not, in their entirety, belong to the assessee. All AO orders 2649-2651-Mum-2026.pdf The Assessing Officer did not consider such examination necessary. His reasoning was that Shri Khanusiya himself had disclosed the process of cash transfer through Shri Matiya; that the currency-note token showed a pre-concerted method of transferring cash; and that, in these circumstances, the subsequent retractions were unacceptable. He accordingly treated the statements and WhatsApp material as mutually corroborative and proceeded to attribute the entire year-wise amounts to the assessee. All AO orders 2649-2651-Mum-2026.pdf

12. The Assessing Officer, however, proceeded on a materially different understanding of the evidence. According to him, the WhatsApp conversations recovered from the personal mobile phone of Shri Asif Matiya, when read conjointly with his statement recorded during the survey and the answers given by Shri M.H. Khanusiya, partner of the assessee-firm, established that the cash transmitted through Paras Corporation belonged to the assessee. The foundation of the proposed additions was a figure of ₹13,82,09,627, which, as the Assessing Officer himself recorded in the show-cause notices, had been “quantified from the WhatsApp conversation on Phone of Shri Asif Matiya”. The year-wise amounts were thereafter carved out from this aggregate and brought to tax. All AO orders 2649-2651-Mum-2026.pdf At the same time, Shri Matiya’s mobile contained a larger body of transactions and the assessee’s consistent stand was that the transactions appearing therein did not exclusively represent remittances undertaken for MHK Buildcon LLP. This distinction assumes importance because the assessee never disputed that Shri Matiya had attended to certain cash requirements of the firm or that Paras Corporation had been used for transmitting cash on some occasions. What it disputed was the further inference that, because some transactions admittedly pertained to the assessee, the entire corpus appearing in Shri Matiya’s personal WhatsApp data must necessarily represent money belonging to the assessee. In fact, the assessee segregated the transactions year-wise and accepted only ₹31,30,000 for A.Y. 2021-22, ₹81,86,630 for A.Y. 2022-23 and ₹1,81,33,000 for A.Y. 2023-24 as transactions pertaining to its business, while maintaining that even these amounts represented cash available in the regular books which had temporarily been transmitted to different project sites for business requirements. The remaining transactions were specifically disowned on the ground that Shri Matiya was independently facilitating cash transfers for other persons through Paras Corporation.

12.1. In this connection, the explanation furnished for A.Y. 2022-23 illustrates the controversy with considerable clarity. Against the amount of ₹3,17,39,558 adopted by the Assessing Officer for that year, the assessee identified ₹81,86,630 as pertaining to persons connected with its business or project sites and separately identified transactions aggregating to ₹2,29,82,928 as pertaining to persons who, according to it, were neither its employees nor subcontractors nor otherwise known to the firm or its partners. It further pointed out that these two sets aggregated only to ₹3,11,69,558 and specifically complained that the particulars relating to the difference vis-à-vis ₹3,17,39,558 had not been furnished to it. All AO orders 2649-2651-Mum-2026.pdf Thus, the controversy before the Assessing Officer was not whether Shri Matiya had ever facilitated cash transfers for the assessee—that fact was substantially accepted—but whether the entire body of transactions extracted from his personal device could be attributed to the assessee merely because the same intermediary and Angadia mechanism had admittedly been used by the assessee for certain identified transactions.

13. It is in this factual background that the statement of Shri Asif Matiya assumes considerable significance. The Revenue treated his original statement as the principal oral evidence explaining the electronic material and proceeded on the footing that he had identified the transactions with Paras Corporation as cash transactions of the assessee. The assessee, on the other hand, contended that the statement had to be read transaction-wise and in the context in which the questions were put to him, and that it did not furnish an independent evidentiary basis for treating every transaction found in his personal mobile as belonging to the assessee. More importantly, almost immediately after the survey, Shri Matiya filed an affidavit retracting the material attribution made in the original statement and gave a specific alternative explanation of the very same electronic material. The substance of that explanation, which was repeatedly placed before the Assessing Officer, was that he had undertaken various cash-transfer transactions through Paras Corporation for different persons; that all the payments reflected in his WhatsApp data were not payments made by MHK Buildcon LLP; and that the data included cash collected by him from various other persons at Himmatnagar and transmitted through Paras Corporation to different destinations. The assessee’s contemporaneous reply reproduced in the assessment order specifically records this explanation. Thus, the subsequent affidavit was not confined to a bare denial of the earlier statement; it sought to explain the larger body of transactions appearing in his mobile and asserted that the commonality of the intermediary, namely Paras Corporation, did not signify common ownership of the cash.

14. The statement of the partner, Shri M.H. Khanusiya, which the Assessing Officer treated as corroborating Shri Matiya’s original statement, also requires to be noticed in its proper factual setting. In Question No.21, he was confronted with the fact that the trial balance reflected cash-in-hand of ₹17,27,302.34 as on 14.02.2023 whereas only ₹90,000 was physically found at the premises during survey on 15.02.2023. He explained that the business generated cash on a daily basis, that such cash was deposited in the bank from time to time, and, significantly, that cash-in-hand was also distributed amongst different project sites and was therefore not entirely kept at the Himmatnagar office. All AO orders 2649-2651-Mum-2026.pdf Thereafter, in Question No.22, he was confronted with WhatsApp chats with Shri Suresh Joshi. He confirmed that Shri Joshi was a subcontractor handling the DFCC Railway project at Valsad, stated that cash of approximately ₹5 lakh had been sent to him for site requirements such as labour and small purchases, explained that the ten-rupee currency note appearing in the communication was used as a token for identification in an Angadia transaction, and stated that cash delivery was attended to by Shri Asif Matiya, their office accountant. All AO orders 2649-2651-Mum-2026.pdf In Question No.23, when shown his WhatsApp chat with Shri Matiya, the partner reiterated that Shri Matiya attended to cash requirements and that he had forwarded particulars such as the currency-note token to him for further action. The Assessing Officer thereafter recorded that the partner had himself disclosed the process of cash transfer through his accountant and treated the use of a currency-note token as indicative of a pre-concerted mechanism. All AO orders 2649-2651-Mum-2026.pdf

15. The assessee’s contention throughout, however, was that these answers had a definite but limited evidentiary import. They established that cash was required at construction sites, that on certain occasions the assessee transmitted such cash through the Angadia channel, and that Shri Matiya facilitated those particular transactions. According to the assessee, none of these answers amounted to an admission by the partner that every transaction recorded in Shri Matiya’s personal mobile over the relevant period was undertaken on behalf of MHK Buildcon LLP, much less that the entire amount represented unaccounted money generated by the assessee. This distinction also formed the basis of its request that Shri Matiya be summoned and examined after his retraction. The assessee specifically requested the Assessing Officer to issue summons to Shri Matiya and permit his examination/cross-examination so that he could explain how the individual transactions were undertaken and which amounts appearing in his WhatsApp chats pertained to persons other than the assessee. All AO orders 2649-2651-Mum-2026.pdf The Assessing Officer declined the request. His reasoning was that, once the partner himself had admitted the process of cash transfer through Shri Matiya, requiring Shri Matiya to be summoned again would merely prolong the matter and shift the burden. He accordingly treated the partner’s admission concerning the mode and mechanism of certain cash transfers as corroborative of the Revenue’s attribution of the entire quantum of transactions to the assessee.

16. The chronology of the retraction was also seriously contested before the authorities below. The survey commenced on 15.02.2023 and the statements were recorded during the survey proceedings. The Assessing Officer records that Shri Matiya’s retraction was furnished to the Revenue on 20.02.2023 and, treating this as a gap of five days, held that the subsequent denial did not displace the original statement. According to him, a statement recorded on oath and duly signed possessed substantial evidentiary value; a person seeking to retract such admission was required to demonstrate through cogent evidence that it had been made under coercion or duress; and no such evidence had been produced. He therefore characterised the retraction as a subsequent denial and an afterthought. All AO orders 2649-2651-Mum-2026.pdf The assessee, however, explained the chronology differently. It was submitted that the recording of statements continued on 15th/16th February, the stamp papers for the affidavits were obtained immediately thereafter on 17.02.2023, the intervening 18th and 19th February were Saturday and Sunday, and the affidavits were notarised and submitted on 20.02.2023. It was further pointed out that the affidavits were thereafter placed before the DDIT (Investigation) during post-survey proceedings and, therefore, the retraction was not raised for the first time during assessment but was part of the contemporaneous post-survey record. The assessee accordingly contended that the retraction could not fairly be discarded merely by describing it as belated, particularly when Shri Matiya had therein furnished a positive explanation concerning third-party transactions rather than merely withdrawing his earlier statement.

17. The assessee further emphasised that its explanation was capable of objective verification. It had furnished lists segregating persons connected with its projects from those stated to have no relationship with the firm and maintained that the latter were persons known to Shri Matiya. It was, therefore, submitted that the Revenue could have examined the persons whose names appeared in the chats, called for the records of Paras Corporation, traced the remitters and recipients, or re­examined Shri Matiya after his affidavit so as to determine the ownership of the individual cash remittances. According to the assessee, no such transaction-wise exercise was undertaken. Instead, the Department treated the admitted use of the same Angadia channel for some business transactions as sufficient corroboration for attribution of the entire electronic data. The assessee also pointed out that the personal mobile from which the data was retrieved did not belong to the LLP, was not reflected as its asset and, according to its explanation before the Assessing Officer, even the recurring expenditure pertaining to the said mobile was not borne by the firm. It was further stated that Shri Matiya’s services were terminated after the partners became aware of his alleged dealings for outsiders. These assertions and the contention that the unidentified persons in the WhatsApp data were neither employees nor subcontractors of the assessee were expressly placed before the Assessing Officer. All AO orders 2649-2651-Mum-2026.pdf

18. The assessee also disputed the existence of any independent financial or physical evidence demonstrating generation of unaccounted cash corresponding to the impugned amounts. It was submitted that despite the survey and examination of the books, documents, computers, laptops and electronic devices, no corresponding unaccounted cash, undisclosed asset, excess stock, parallel sale register or other material was discovered which could demonstrate generation of cash of approximately ₹13.78 crore by the assessee. The Revenue had referred to alleged generation of cash from scrap; however, according to the assessee, no material evidencing unrecorded sale of scrap of a magnitude capable of yielding the amounts in question was found. The assessee therefore maintained that the WhatsApp material established, at the highest, the existence of cash-transfer transactions handled through Shri Matiya and Paras Corporation, but did not by itself establish that the cash belonged to the assessee or had been generated outside its books. This was also the basis on which the assessee invoked section 69A and contended that the statutory condition of the assessee being found to be the owner of the money had not been established.

19. The Assessing Officer nevertheless rejected the explanation in all three years substantially on identical reasoning. He held that the original statements could not be displaced by the subsequent retractions; that the partner’s answers established the cash-transfer mechanism operated through Shri Matiya; that the use of currency-note tokens demonstrated an organised process; and that the WhatsApp material found during survey constituted contemporaneous evidence corroborating the statements. Consequently, he treated the entire year-wise sums quantified from the electronic data as unexplained money of the assessee under section 69A and subjected them to tax under section 115BBE, resulting in additions of ₹1,60,59,605, ₹3,17,39,558 and ₹9,00,52,146 for A.Ys. 2021-22, 2022-23 and 2023-24 respectively. The reasoning thus proceeded from the admitted fact that Shri Matiya handled some cash requirements of the assessee, coupled with the electronic data and his original statement, to the conclusion that the whole of the year-wise transactions extracted from his mobile represented the assessee’s unaccounted money.

20. In the first appeal, the learned CIT(A) examined the controversy at considerable length and did not accept the assessee’s contention that the impugned additions were founded merely upon statements recorded during the course of survey which had subsequently been retracted. According to him, the statements constituted only one component of a wider evidentiary matrix which had emerged during the survey and post-survey proceedings. He attached considerable significance to the WhatsApp conversations and other electronic data retrieved from the mobile phone of Shri Asif Matiya and observed that these were contemporaneous electronic records containing particulars of cash transactions routed through Paras Corporation. He also took note of the manner in which the electronic data had been extracted and preserved, including the hash values generated in relation thereto, and was of the view that the integrity of the digital evidence stood adequately established. According to the learned CIT(A), therefore, this was not a case where an addition had been made upon an unverified loose paper or upon an oral admission unsupported by any contemporaneous material; rather, the statement of Shri Matiya had been recorded after he was confronted with the very WhatsApp conversations existing in his mobile and his explanation of the cash transactions was thus intrinsically connected with the electronic evidence discovered during survey. He further found that the evidentiary significance of Shri Matiya’s statement stood reinforced when the partner, Shri M.H. Khanusiya, was separately confronted with corresponding WhatsApp communications and acknowledged that Shri Matiya attended to cash requirements of the assessee, that cash was transmitted to project sites, that currency notes were used as identification tokens in Angadia transactions and that such token particulars were forwarded to Shri Matiya for necessary action. Thus, according to the learned CIT(A), the electronic evidence, Shri Matiya’s contemporaneous explanation thereof and the answers subsequently given by the partner were not disconnected pieces of evidence but constituted mutually corroborative circumstances indicating an organised mechanism for transmission of cash through Paras Corporation.

21. The learned CIT(A) thereafter dealt extensively with the subsequent retractions and the allegation that the statements had been obtained under pressure, threat or coercion. He was not persuaded that the mere filing of affidavits subsequent to the survey was sufficient to neutralise the original statements, particularly when, according to him, no contemporaneous independent material had been brought on record demonstrating that the survey officials had exercised coercion or compelled either Shri Matiya or the partner to make statements contrary to facts. He took into consideration the interval between the recording of the statements and the filing of the retractions and substantially concurred with the Assessing Officer that an admission made contemporaneously, while the person was confronted with the underlying electronic material, could not lightly be displaced by a subsequent denial. He also considered the circumstance that the statements contained factual details concerning the mechanism of cash transmission, the use of currency-note tokens, the role of Paras Corporation and the role assigned to Shri Matiya, and regarded these details as lending assurance to the original version. The learned CIT(A), therefore, did not accept the assessee’s contention that the original statements should be excluded from consideration merely because affidavits retracting them were subsequently filed. In his appreciation, the relevant question was not whether a retraction had formally been made, but whether the subsequent explanation satisfactorily accounted for and displaced the contemporaneous electronic evidence and the factual particulars emerging from the original statements; and on this test he found the retractions insufficient.

22. The learned CIT(A) also examined the assessee’s contention that Shri Matiya was independently undertaking cash-remittance transactions for persons other than the assessee and that only a limited portion of the WhatsApp transactions pertained to MHK Buildcon LLP. He was not inclined to accept the segregation furnished by the assessee as sufficient to displace the Revenue’s case. In arriving at this conclusion, he placed emphasis upon the circumstance that some of the persons and transactions appearing in the WhatsApp material were admittedly connected with the assessee’s business and project sites and that the partner himself had acknowledged the use of Shri Matiya and the Angadia mechanism for meeting cash requirements at such sites. He also considered the other surrounding material referred to in the assessment and appellate proceedings, including the cash books/site-wise cash movements and the material concerning generation and disposal of scrap, and regarded these circumstances as furnishing corroborative support to the inference drawn from the electronic data. In substance, the learned CIT(A)’s reasoning was that once the electronic material had disclosed a systematic pattern of cash transactions through Paras Corporation, some of the persons appearing therein were demonstrably connected with the assessee, Shri Matiya had contemporaneously explained his role in the cash transfers, and the partner had independently confirmed the underlying mechanism, the subsequent assertion that a substantial portion of the same body of transactions actually belonged to unrelated outsiders required cogent and credible substantiation. According to him, the assessee had not furnished material of sufficient probative force to establish such third-party ownership and the subsequent segregation could not, by itself, override the cumulative effect of the evidence discovered during survey.

23. On the legal and evidentiary aspects also, the learned CIT(A) did not accept the proposition that the WhatsApp material became irrelevant merely because it had been found in the mobile phone of Shri Matiya rather than in the books of account of the assessee. He took into consideration the statutory presumptions applicable to material discovered during survey, including the provisions of section 292C, and held, in substance, that the electronic material had to be appreciated in conjunction with the statements and surrounding circumstances rather than in isolation. He further distinguished the authorities relied upon by the assessee concerning additions founded solely upon survey statements by observing that, in the present case, the Revenue’s case rested upon an independent digital trail which existed anterior to the statements and which, according to him, was subsequently explained and corroborated by the persons concerned. The learned CIT(A), therefore, regarded the electronic data, the statements of Shri Matiya and the partner, the admitted use of the Angadia/token mechanism, the correspondence of certain names and transactions with the assessee’s business activities and the other surrounding material considered by him as constituting a cumulative evidentiary chain. On such appreciation, he concluded that the subsequent retractions and the explanation that Shri Matiya had independently handled substantial transactions for outsiders did not satisfactorily rebut the inference that the impugned cash transactions represented unaccounted money of the assessee. He accordingly upheld the action of the Assessing Officer in invoking section 69A in respect of the year-wise amounts of ₹1,60,59,605, ₹3,17,39,558 and ₹9,00,52,146 for A.Ys. 2021-22, 2022-23 and 2023-24 respectively.

24. Before us, the learned counsel for the assessee assailed the aforesaid findings and submitted that the fundamental error running through the assessment orders as well as the impugned appellate orders is that two materially distinct propositions have been treated as though they were synonymous, namely, the existence of a mechanism for transmission of cash through Shri Asif Matiya and Paras Corporation, and the ownership by the assessee of the entire cash reflected in Shri Matiya’s personal WhatsApp data. He fairly submitted that the assessee has never disputed that Shri Matiya attended to certain cash requirements at its project sites or that on some occasions its cash was transmitted through Paras Corporation using the Angadia mechanism. Indeed, the assessee itself segregated and identified transactions of ₹31,30,000 for A.Y. 2021-22, ₹81,86,630 for A.Y. 2022-23 and ₹1,81,33,000 for A.Y. 2023-24 as pertaining to its business. His submission, however, was that these amounts represented temporary movement of cash already available in the regular books of account to project sites for labour, small purchases and other business requirements and, therefore, even these identified transactions did not represent unexplained money. He drew particular attention to Question Nos.21 to 23 of the partner’s statement and submitted that the answers have to be read in the context of the questions actually put. Question No.21 explained why the entire book cash of ₹17,27,302.34 was not physically available at the Himmatnagar office, namely, because cash was distributed amongst project sites; Question No.22 concerned a specific remittance of approximately ₹5 lakh to Shri Suresh Joshi, a subcontractor at the DFCC Railway project at Valsad, for labour and small purchases and contained an explanation of the currency-note token used in an Angadia transaction; and Question No.23 merely explained that the token particulars were forwarded to Shri Matiya, who attended to the cash requirement. According to the learned counsel, these answers establish a particular mode of transmission used by the assessee for certain identified transactions but contain no admission whatsoever that every transaction appearing in Shri Matiya’s personal mobile belonged to MHK Buildcon LLP. He emphasised that the Assessing Officer himself described ₹13,82,09,627 as having been quantified from WhatsApp conversations found in Shri Matiya’s phone, rather than from the assessee’s books or any document maintained by its partners. All AO orders 2649-2651-Mum-2026.pdf Shri Matiya’s personal device contained a much larger body of cash-remittance transactions and, therefore, the presence therein of some transactions admittedly relating to the assessee could not convert the entire corpus into transactions of the assessee. Learned counsel particularly referred to A.Y. 2022-23, where the assessee had identified ₹81,86,630 as relating to its business and ₹2,29,82,928 as relating to persons who were neither employees nor subcontractors nor persons otherwise known to the assessee or its partners. He further pointed out that even these figures aggregated to ₹3,11,69,558 as against ₹3,17,39,558 adopted by the Assessing Officer and that the assessee had specifically complained that the particulars accounting for this difference had not been supplied. All AO orders 2649-2651-Mum-2026.pdf Thus, according to him, the assessee had not indiscriminately denied the electronic material; it had accepted and explained those transactions which actually pertained to it and disputed the attribution of the remaining transactions.

25. Adverting to the statements and their subsequent retraction, the learned counsel submitted that the assessee’s case did not necessarily require the Tribunal to record an affirmative finding that coercion had in fact been exercised by the survey authorities. According to him, even if the allegation of coercion were left aside, the original statement of Shri Matiya could not become conclusive evidence of ownership of the entire corpus once the very person from whose personal device the electronic data had been recovered furnished, almost immediately thereafter, a sworn and specific explanation that he was also facilitating cash remittances through Paras Corporation for various other persons at Himmatnagar and that all the transactions appearing in his mobile were not transactions of MHK Buildcon LLP. He pointed out that the statements were recorded during 15/16.02.2023, the stamp papers for the affidavits were obtained on 17.02.2023, the intervening 18th and 19th February were Saturday and Sunday, and the affidavits were notarised and furnished on 20.02.2023; therefore, according to him, the retraction could not fairly be characterised as an afterthought conceived during assessment proceedings. More importantly, Shri Matiya’s affidavit was not a bald withdrawal of his earlier statement but contained a positive explanation that he collected cash from different persons and transmitted it through the same Paras Corporation channel, an explanation which had been placed before the Department during the post-survey proceedings. All AO orders 2649-2651-Mum-2026.pdf Learned counsel submitted that once such a specific explanation was furnished, its correctness could readily have been tested by re-examining Shri Matiya, calling for records from Paras Corporation and/or examining the persons whose names appeared in the chats. The assessee had specifically requested that Shri Matiya be summoned and examined/cross-examined, but the Assessing Officer rejected the request substantially because the partner had already admitted that Shri Matiya attended to certain cash requirements. All AO orders 2649-2651-Mum-2026.pdf According to the learned counsel, this reasoning conflated the admitted fact that Shri Matiya acted for the assessee in some transactions with the disputed proposition that he acted exclusively for the assessee in all transactions contained in his personal device. He further submitted that despite the extensive survey no corresponding unaccounted cash, undisclosed asset, excess stock, parallel sales record or other independent material demonstrating generation of approximately ₹13.78 crore of unaccounted cash by the assessee was discovered; nor was the allegation concerning unrecorded scrap sales supported by quantitative material demonstrating generation of cash remotely commensurate with the impugned additions. Turning finally to section 69A, he submitted that the provision presupposes that the assessee is found to be the owner of the money sought to be taxed. Authenticity of the WhatsApp data, existence of the cash transactions and ownership of the cash were three distinct evidentiary propositions. Even accepting the first two, the third could not simply be presumed. Likewise, according to him, section 292C could not convert material found in Shri Matiya’s personal possession into an irrebuttable presumption that the money referred to therein belonged to the assessee. Relying, inter alia, upon CIT v. S. Khader Khan Son and the other decisions cited in the written submissions, the learned counsel submitted that his case was not that the Revenue had no material at all; rather, the material established a cash-remittance mechanism but lacked adequate evidentiary foundation to attribute the entire corpus to this assessee as its unexplained money under section 69A.

26. Per contra, the learned Departmental Representative strongly relied upon the assessment orders and the detailed findings of the learned CIT(A). His first submission was that the allegation of coercion was merely an allegation and had never been established by any credible contemporaneous material. No complaint alleging coercion or misconduct was made to any superior authority contemporaneously with the survey; no independent circumstance had been demonstrated from which it could reasonably be inferred that either Shri Matiya or the partner had been compelled to make a statement against his will; and the subsequent execution of affidavits could not, by itself, prove coercion as a matter of fact. The learned DR emphasised that the statement of Shri Matiya was clear and was not made in a vacuum: the WhatsApp conversations with Paras Corporation had first been found in his own mobile and he was thereafter confronted with the material and called upon to explain the transactions. His statement, therefore, constituted an explanation by the person in possession of the primary electronic evidence. More significantly, according to the learned DR, Shri Matiya’s statement was thereafter effectively tested against the partner himself. The corresponding WhatsApp material was shown to Shri M.H. Khanusiya, who did not disown the mechanism but confirmed that cash was required at project sites, that Shri Matiya attended to cash delivery, that currency notes were used as identification tokens in Angadia transactions and that token particulars were forwarded to Shri Matiya for further action. The Assessing Officer therefore rightly recorded that the partner himself had confirmed the process of cash transfer through Shri Matiya. All AO orders 2649-2651-Mum-2026.pdf According to the learned DR, this constituted a clear evidentiary chain electronic WhatsApp material found from Shri Matiya; explanation of the cash transactions by Shri Matiya himself; and subsequent confirmation by the partner of Shri Matiya’s role and the Angadia/token mechanism which clearly demonstrated cash transactions requiring explanation. He submitted that this was, therefore, wholly different from a case where an addition had been made merely upon an uncorroborated confession recorded during survey. Once such contemporaneous electronic and oral evidence existed, the burden was upon the assessee to substantiate its subsequent assertion that substantial transactions in the same data actually belonged to unrelated outsiders. The learned DR contended that a subsequent affidavit stating that Shri Matiya also acted for other persons, without satisfactory independent evidence identifying the true owners and establishing their connection with the disputed transactions, could not displace the contemporaneous evidence. He also emphasised that the assessee itself admitted sizeable transactions through the very same Shri Matiya, the same Paras Corporation channel and the same token mechanism; hence, the subsequent segregation of transactions into those belonging and not belonging to the assessee required convincing corroboration and could not be accepted merely because it was asserted after the survey. Supporting the reasoning of the learned CIT(A), he submitted that the digital integrity of the material, the statements, the admittedly connected names appearing in the chats, the cash-transfer mechanism and the other surrounding circumstances had to be appreciated cumulatively. The fact that equivalent physical cash was not found on the survey date, according to him, was immaterial because the very nature of an Angadia transaction involved transmission of cash elsewhere. He accordingly submitted that the subsequent retractions, particularly when coercion itself remained unproved, did not destroy the probative force of the original statements and contemporaneous electronic material, and that the additions under section 69A deserved to be sustained.

27. We have heard the rival submissions at considerable length and have carefully perused the assessment orders, the impugned appellate orders, the statements recorded during the course of survey, the subsequent affidavits and retractions, the WhatsApp/electronic material and the other material placed before us. The learned CIT(A), as noted above, has undertaken an elaborate appreciation of the material and has not sustained the additions merely upon the original statement of Shri Asif Matiya; rather, he has proceeded on the cumulative effect of the electronic data, the statements of Shri Matiya and Shri M.H. Khanusiya, the admitted use of the Angadia mechanism, the currency-note/token methodology, the correspondence of certain persons appearing in the chats with the assessee’s business activities and the other surrounding circumstances noticed by him. We are, therefore, required to examine not only the statements and their subsequent retractions but also each of the corroborative circumstances relied upon by the learned CIT(A), both independently and cumulatively. At the same time, the controversy cannot appropriately be resolved either by treating the original statements as conclusive merely because they were recorded contemporaneously or, conversely, by effacing them altogether from consideration merely because they were subsequently retracted. Equally, the WhatsApp material cannot be discarded merely because it was recovered from the personal mobile phone of Shri Matiya; nor can the authenticity or integrity of that electronic material, assuming the same to be established, answer by itself the distinct question as to whom the money represented by the individual transactions actually belonged. Since the additions aggregating to ₹13,78,51,309 over the three assessment years have a common evidentiary origin, the entire material has to be appreciated in its proper factual setting while maintaining a clear distinction between (i) the existence and authenticity of the cash-remittance transactions; (ii) the role of Shri Matiya and Paras Corporation in facilitating such transactions; (iii) the attribution and ownership of the money so transmitted; and (iv) whether, upon such attribution being established, the conditions contemplated under section 69A for treating the amounts as unexplained money stand satisfied. It is these distinct, though interconnected, aspects which lie at the core of the controversy before us and which we shall now examine on the basis of the evidence and material available on record.

28. At the outset, certain facts which emerge from the record and are not in dispute need to be separated from those which require adjudication. There is no real controversy that the WhatsApp conversations in question were retrieved from the personal mobile phone of Shri Asif Matiya; that those conversations contained particulars of cash remittances through Paras Corporation, an Angadia concern; that Shri Matiya was associated with the assessee and attended to certain cash requirements on its behalf; that the assessee itself had, on occasions, utilised the Angadia channel for transmitting cash required at its project sites; and that the currency-note/token methodology referred to in the chats was used for identification in such transactions. The answers of the partner, particularly to Question Nos.22 and 23, substantially establish these facts. Therefore, neither the existence of cash-remittance transactions nor Shri Matiya’s participation in facilitating some transactions for the assessee requires us to proceed on the footing that nothing whatsoever was found during survey. The real and considerably more important question is whether these established facts are sufficient to support the further conclusion drawn by the Revenue that the entire body of cash transactions appearing in Shri Matiya’s personal mobile belonged to the assessee and represented its unaccounted money. In our view, the distinction is fundamental because proof of a transaction, proof of the mechanism through which it was carried out and proof of ownership of the money involved therein, though capable of corroborating one another, are not interchangeable propositions.

29. The manner in which the impugned quantum itself has been arrived at assumes significance in this regard. The Assessing Officer has nowhere referred to any parallel ledger, cash book or other account maintained by the assessee recording unaccounted cash payments aggregating to ₹13,82,09,627. The show-cause notice itself states that the said amount was “quantified from the WhatsApp conversation on Phone of Shri Asif Matiya”. All AO orders 2649-2651-Mum-2026.pdf The figure, therefore, represents an aggregation made by the Department from the transactions appearing in Shri Matiya’s electronic data. Such data undoubtedly furnished a legitimate starting point for investigation and could constitute relevant evidence, but quantification of cash movements from an electronic record cannot, without anything further, determine the person to whom the cash belonged. This becomes particularly important because the assessee did not deny the entire data. It accepted specified transactions as pertaining to its business, explained their source and disputed the attribution of the remaining transactions. Once such a specific distinction was raised, the enquiry necessarily had to proceed beyond the authenticity of the chats and address the anterior factual requirement: whether the disputed transactions could be connected with the assessee by independent or sufficiently cogent surrounding evidence.

30. We may first examine the statement of the partner, Shri M.H. Khanusiya, because the Assessing Officer as well as the learned CIT(A) have treated it as material corroboration of the statement of Shri Matiya. Question No.21 was concerned with the difference between cash-in-hand of ₹17,27,302.34 reflected in the trial balance as on 14.02.2023 and physical cash of ₹90,000 found at the premises on the following day. The partner explained that cash generated in the business was deposited in the bank and that cash-in-hand was also distributed amongst different project sites and was, therefore, not entirely lying at the Himmatnagar office. All AO orders 2649-2651-Mum-2026.pdf In Question No.22, he was shown his WhatsApp chat with Shri Suresh Joshi, whom he identified as a subcontractor at the DFCC Railway project at Valsad. He explained that approximately ₹5 lakh had been sent for site requirements such as labour and small purchases, that the ten-rupee currency note was used as a token for identification in the Angadia transaction and that Shri Matiya attended to cash delivery. In Question No.23, when shown another WhatsApp communication with Shri Matiya, he stated that Shri Matiya attended to cash requirements and that currency-note/token particulars were forwarded to him for further action. All AO orders 2649-2651-Mum-2026.pdf These answers are undoubtedly relevant and cannot be brushed aside. They establish that the assessee had cash requirements at its sites, that it utilised an Angadia channel for certain transfers and that Shri Matiya facilitated such transfers. What they do not, however, state is that every transaction appearing in Shri Matiya’s mobile belonged to the assessee. The distinction is not semantic. The Assessing Officer has taken an admission relating to a particular modus of remittance and treated it as corroboration of ownership of the entire corpus. In our view, the evidentiary reach of the statement cannot legitimately be extended beyond what was actually admitted unless the remaining transactions are independently connected with the assessee.

31. The same scrutiny is required in relation to the original statement of Shri Asif Matiya. His statement assumes importance because the primary electronic material was found from his mobile and he was the person who could explain its contents. The Revenue is therefore justified in contending that his contemporaneous explanation cannot simply be ignored because he subsequently retracted it. At the same time, the statement has to be appreciated for what it actually establishes. Shri Matiya explained the cash-remittance mechanism and his role in dealing with Paras Corporation, and the Department construed his answers as attribution of the transactions to the assessee. But the ultimate addition has not been made in the hands of Shri Matiya; it has been made in the hands of MHK Buildcon LLP. Therefore, even accepting his original statement as relevant evidence, the question remains whether it furnishes a reliable transaction-wise nexus for treating the whole amount quantified from his personal chats as money owned by the assessee. This question assumes particular significance because the subsequent affidavit did not merely deny that cash transfers had occurred. Shri Matiya accepted that such transfers had taken place but asserted that his personal mobile contained transactions undertaken for several persons and that all such transactions did not belong to MHK Buildcon LLP. The assessee’s explanation incorporating precisely this assertion was before the Assessing Officer. All AO orders 2649-2651-Mum-2026.pdf Thus, the subsequent version did not seek to erase the existence of the electronic data; it disputed its universal attribution to the assessee.

32. Much argument was addressed before us on the allegation that the statements had been obtained under coercion. The learned DR is justified in submitting that coercion is a serious allegation and cannot be presumed merely because a statement is subsequently retracted. There is no material before us on the basis of which we consider it necessary or appropriate to record a positive finding that the survey authorities had, in fact, coerced Shri Matiya or the partner into making their statements. However, that does not conclude the evidentiary enquiry. The chronology of the retraction remains relevant for a different purpose. The statements were recorded during the survey on 15/16.02.2023; the assessee states that stamp papers were procured on 17.02.2023; 18th and 19th February intervened; and the affidavits were notarised/furnished on 20.02.2023. Even the Assessing Officer records receipt of Shri Matiya’s retraction on 20.02.2023. All AO orders 2649-2651-Mum-2026.pdf Therefore, irrespective of whether coercion itself stands proved, this was not a retraction conceived months later during assessment proceedings after the assessee had had the benefit of studying the Department’s case. It was substantially contemporaneous with the survey and was thereafter consistently maintained. Its probative value consequently had to be examined with the original statement and the underlying material; it could neither automatically obliterate the original statement nor be discarded merely by describing it as an afterthought.

33. There is another aspect of the retraction which, in our view, is of greater significance than the allegation of coercion. Shri Matiya furnished a positive alternative explanation of the transactions in his mobile. According to the explanation placed before the Assessing Officer, he had facilitated cash remittances through Paras Corporation for various persons at Himmatnagar; all the cash payments in his personal data were not payments of the assessee; and cash collected by him from other persons was also transmitted to different destinations through the same Angadia concern. All AO orders 2649-2651-Mum-2026.pdf Once this explanation was furnished by the very person whose mobile constituted the source of the information, the dispute became capable of objective verification. Shri Matiya could have been re­examined transaction-wise; Paras Corporation could have been called upon to furnish its records or explain the counterparties; persons whose names appeared in the chats and whom the assessee specifically disowned could have been examined; or some other material connecting those persons or transactions with MHK Buildcon LLP could have been brought on record. The assessee specifically requested that Shri Matiya be summoned and examined/cross-examined. All AO orders 2649-2651-Mum-2026.pdf The Assessing Officer declined essentially because the partner had already acknowledged the process of cash transfer through Shri Matiya. That reasoning, with respect, answers a different question. The partner’s statement established that Shri Matiya acted for the assessee in some transactions; the proposed examination was sought to ascertain whether he also acted for others and whether the remaining transactions belonged to those others. One proposition does not logically exclude the other.

34. This brings us to the assessee’s transaction-wise segregation, which, in our opinion, assumes considerable evidentiary importance. The assessee did not seek to distance itself from every name and every entry appearing in the chats. It identified ₹31,30,000 for A.Y. 2021-22, ₹81,86,630 for A.Y. 2022-23 and ₹1,81,33,000 for A.Y. 2023-24 as transactions pertaining to its business. For A.Y. 2022-23, it went further and identified transactions of ₹2,29,82,928 as pertaining to persons who, according to it, were neither employees nor subcontractors nor otherwise known to the firm or its partners. It also pointed out that ₹81,86,630 plus ₹2,29,82,928 aggregated to ₹3,11,69,558, whereas the Assessing Officer proposed ₹3,17,39,558, and complained that details accounting for the difference had not been furnished. All AO orders 2649-2651-Mum-2026.pdf This is not by itself proof that every transaction disowned by the assessee necessarily belonged to a third party; equally, however, the fact that some names admittedly related to the assessee cannot constitute proof that all other names and transactions did so. The correct evidentiary exercise was to test the segregation against independent material. The orders before us do not reveal a recipient-wise or transaction-wise enquiry demonstrating that the persons specifically disowned by the assessee were nevertheless its employees, subcontractors, agents, suppliers or conduits. In the absence of such enquiry, partial correspondence between the WhatsApp data and the assessee’s admitted business transactions cannot legitimately operate as corroboration for every other transaction contained in the same device.

35. We are conscious of the learned CIT(A)’s reasoning that the presence of admittedly connected persons in the chats corroborates the Revenue’s case. To that extent, the reasoning is unexceptionable: the connected entries corroborate the fact that Shri Matiya handled transactions for the assessee. But corroboration must remain confined to the proposition which the corroborative circumstance rationally supports. If a personal device contains transactions for A, B and C, proof that certain entries relate to A does not, without further material, establish that all remaining entries also relate to A. Indeed, the assessee’s admission of selected transactions makes the necessity of segregation more, rather than less, important because the record itself then indicates that attribution has to be determined transaction-wise. The inference adopted by the authorities below effectively converts proof of some transactions into a presumption of all transactions. We are unable to find adequate evidentiary material in the orders before us which supports such an extension.

36. The source explained by the assessee for those transactions which it admits also requires separate consideration. The assessee’s case is that the admitted transactions did not represent undisclosed cash generated outside the books but represented movement of cash already available in its regular accounts to project sites. The answer to Question No.21 is relevant in this context because the partner explained during the survey itself, before the present controversy had crystallised in assessment, that book cash was distributed amongst different sites and therefore the entire cash-in-hand was not physically lying at the head office. All AO orders 2649-2651-Mum-2026.pdf The existence of an Angadia transfer may raise questions regarding the manner of transmission or compliance with other applicable provisions, but for section 69A the material question is whether the money sought to be taxed was unexplained money owned by the assessee. If cash already recorded in the books is physically transmitted from one place to another, the mode of transmission cannot, by itself, alter its character from recorded cash into unexplained money. For the admitted transactions, therefore, the Revenue was required to dislodge the explanation that the source was the recorded cash balance. No finding has been brought to our notice demonstrating, by reconciliation of the cash book or otherwise, that the admitted year-wise amounts could not have emanated from recorded cash or that they represented cash over and above the books.

37. We next advert to the allegation concerning generation of unaccounted cash through sale of scrap, upon which reliance has also been placed as a surrounding circumstance. A construction contractor executing substantial projects may undoubtedly generate scrap in the ordinary course of its activities, and any evidence of unrecorded disposal of such scrap would constitute relevant material. However, there is a considerable evidentiary distance between the possibility or even existence of scrap generation and a finding that unrecorded scrap sales generated cash of approximately ₹13.78 crore over the relevant years. For such an inference to assume the character of corroboration for the impugned additions, one would ordinarily expect some material concerning quantity of scrap generated, unrecorded purchasers, sale proceeds, transportation, parallel sale records, stock discrepancies or some other objective indicator from which the generation of the impugned quantum could reasonably be inferred. The assessee’s consistent contention before the Assessing Officer was that despite examination of its papers, computers, laptops and other records during survey, no corresponding material demonstrating unaccounted income of this magnitude was discovered. All AO orders 2649-2651-Mum-2026.pdf On the material referred to in the orders before us, the scrap-related circumstance does not establish a quantitative or transactional nexus with the year-wise amounts extracted from Shri Matiya’s WhatsApp data. It therefore cannot fill the evidentiary gap concerning ownership of those amounts.

38. Similar care is required while appreciating the cash books or site-wise cash records referred to by the learned CIT(A). To the extent such records establish that the assessee required and moved cash amongst its sites, they corroborate what the assessee itself admits. They may also corroborate the partner’s explanation in Question No.21. But unless those records disclose cash outside the regular books or demonstrate a deficit/source mismatch corresponding to the disputed WhatsApp transactions, they cannot by themselves establish that the entire corpus in Shri Matiya’s mobile represented unaccounted money of the assessee. A circumstance may corroborate the mechanism without corroborating the quantum or ownership. This distinction, in our view, has not received adequate consideration in the impugned order.

39. The learned CIT(A) has also placed considerable emphasis upon the integrity of the electronic evidence, including the preservation of digital data and hash values. We see no necessity to enter into any wider controversy concerning admissibility or forensic integrity of the WhatsApp material. For purposes of deciding these appeals, we may proceed on the footing most favourable to the Revenue and assume that the electronic data was properly extracted, preserved and represents authentic conversations found in Shri Matiya’s mobile. Even on that premise, the issue survives. Authenticity answers whether the electronic record is genuine; it does not necessarily answer whose money the transactions recorded therein represent. The latter is a question of attribution which has to emerge from the contents themselves or from other corroborative evidence. Thus, the assessee’s case does not succeed merely because the data came from Shri Matiya’s personal phone; conversely, the Revenue’s case does not become complete merely because the data is authentic. The probative reach of an authentic document remains dependent upon what it proves.

40. The same distinction answers, to a substantial extent, the reliance placed upon section 292C. The statutory presumption is an evidentiary aid and has to operate in relation to the material and the person from whose possession or control it is found in accordance with the conditions contemplated by the provision. In the present case, the primary electronic material was admittedly recovered from the personal mobile phone of Shri Matiya. More fundamentally, even assuming the statutory presumption is available in relation to the contents of the electronic material, the presumption cannot be stretched beyond those contents so as to dispense altogether with the requirement of establishing the ownership of the money sought to be assessed in the hands of a different taxable person. Where the very contents show multiple persons and the assessee specifically accepts some transactions and disputes others, section 292C cannot substitute a transaction-wise nexus which the material itself does not conclusively furnish. We therefore do not consider the controversy to turn upon whether the WhatsApp chats are admissible or presumptively authentic; the decisive question remains their evidentiary capacity to establish ownership of the entire corpus by this assessee.

41. We also do not consider it necessary to lay down any broad proposition that WhatsApp conversations or electronic communications are inherently unreliable or incapable of constituting evidence in income-tax proceedings. Electronic communications may, depending upon their contents, context and corroboration, constitute highly probative contemporaneous evidence. In the present case, the WhatsApp material unquestionably warranted investigation and, when read with the statements recorded during survey, establishes that cash transactions through Paras Corporation did take place and that Shri Asif Matiya facilitated at least some such transactions for the assessee. The difficulty arises at the next stage of the evidentiary enquiry. The existence and authenticity of the transactions cannot, by themselves, determine ownership of the money involved therein. Thus, the assessee’s case cannot succeed merely because the data was recovered from Shri Matiya’s personal mobile; conversely, the Revenue’s case does not become complete merely upon establishing that the data is authentic and that some transactions appearing therein admittedly pertain to the assessee. The probative reach of an authentic electronic record must ultimately depend upon what its contents, read with the surrounding evidence, reasonably establish. It is on this narrower and fact-specific basis that the impugned material has to be appreciated.

42. Likewise, the assessee’s reliance upon the jurisprudence concerning statements recorded during survey has to be understood in its proper perspective. The principle emerging from the authorities relied upon, including CIT v. S. Khader Khan Son, cannot be employed to erase relevant contemporaneous evidence merely because a statement was recorded during a survey. In the present case, we have neither excluded the statement of Shri Asif Matiya nor that of Shri M.H. Khanusiya from consideration. On the contrary, we have examined both statements together with the WhatsApp material, the subsequent affidavits/retractions, the admitted transactions and the surrounding circumstances. What assumes significance is that a statement, particularly when its material attribution is promptly disputed, has to be tested against the underlying and corroborative material before it can sustain an addition of the magnitude involved herein. Shri Matiya’s original statement undoubtedly constitutes relevant evidence and the partner’s answers furnish corroboration to the extent that Shri Matiya handled certain cash requirements of the assessee through the Angadia mechanism. Neither circumstance, however, obviates the necessity of establishing that the remaining transactions contained in Shri Matiya’s personal mobile also represented money belonging to the assessee. Thus, the survey-statement jurisprudence does not, by itself, decide these appeals in favour of the assessee; it reinforces the necessity of examining whether the disputed attribution finds adequate support in independent material. It is upon such cumulative appreciation, rather than upon any abstract proposition concerning the evidentiary value of a survey statement, that the controversy has to be decided.

43. We have accordingly considered the evidence not merely item by item but also in its cumulative setting, as was strongly urged by the learned DR and substantially done by the learned CIT(A). Taken together, the WhatsApp data, Shri Matiya’s original statement, the partner’s answers, the admitted use of Paras Corporation, the currency-note/token mechanism, the occurrence of certain persons connected with the assessee in the chats and the site-wise cash requirements undoubtedly constitute a coherent body of evidence establishing that the assessee did utilise Shri Matiya and the Angadia channel for certain cash transactions. We have no hesitation in accepting that proposition. However, even the cumulative force of these circumstances does not answer the materially different question whether every transaction appearing in Shri Matiya’s personal mobile was undertaken for and represented money belonging to the assessee. On this latter aspect, the evidentiary chain encounters a material break. Shri Matiya promptly asserted that he also handled transactions for other persons; the assessee furnished a year-wise segregation and identified the transactions accepted by it; certain remaining persons were specifically stated to have no employment, subcontract or other business relationship with the assessee; Shri Matiya was not thereafter examined transaction-wise despite a specific request; no enquiry capable of connecting the disputed persons with the assessee has been demonstrated; and no corresponding unaccounted cash, asset or independently quantified source of cash commensurate with the disputed corpus has been identified. The cumulative evidence therefore carries the Revenue’s case considerably far in establishing the mechanism and existence of cash remittances, but it does not travel the remaining distance necessary to establish ownership by the assessee of the entire corpus.

44. The evidentiary position can, for clarity, be encapsulated as follows:

This analysis also demonstrates why neither extreme position would be appropriate. It would be incorrect to hold that the Revenue possessed no evidence merely because the statements were retracted; equally, it would be incorrect to hold that once some transactions and the modus operandi stood corroborated, the entire body of transactions automatically stood attributed to the assessee. The evidence has to be allowed precisely the weight which its contents and corroboration justify—neither less nor more.

45. It is at this stage that the statutory framework of section 69A assumes decisive significance. The provision is not attracted merely because a cash transaction is discovered or remains inadequately explained in the abstract. Its application proceeds upon the assessee being found to be the owner of money, bullion, jewellery or other valuable article which is not recorded in the books of account, if any, maintained by him, and the assessee thereafter either offering no explanation about its nature and source or offering an explanation which is found unsatisfactory. Thus, before the enquiry shifts to the satisfactory nature of the explanation regarding source, there must exist an adequate factual foundation for treating the assessee as the owner of the money sought to be brought within the ambit of the provision. In the present case, therefore, the critical enquiry is not merely whether the cash transactions appearing in the WhatsApp material occurred; it is whether the material establishes that the cash involved in the disputed transactions was money owned by MHK Buildcon LLP.

46. Tested on this statutory touchstone, the difficulty in sustaining the additions becomes apparent. Insofar as the transactions admitted by the assessee are concerned, their ownership is not disputed, but their source is explained as cash already available in the regular books and transmitted to project sites for business requirements. The partner’s contemporaneous answer to Question No.21 that book cash was distributed amongst project sites lends support to the factual possibility of such movement. All AO orders 2649-2651-Mum-2026.pdf No finding has been brought to our notice based upon a reconciliation of the cash books demonstrating that the identified amounts of ₹31,30,000, ₹81,86,630 and ₹1,81,33,000 represented cash over and above the recorded balances or could not have emanated from the recorded cash available with the assessee. The mere fact that such recorded cash was transmitted through an Angadia may be relevant for such other consequences as law may provide, but the mode of physical transmission cannot, without anything further, convert cash already recorded in the books into unexplained money under section 69A. Thus, even for the transactions which the assessee accepts as its own, the material relied upon does not establish the foundational fact that these amounts constituted money outside the books.

47. The position in relation to the remaining transactions is different in form but leads to the same result for another reason. In respect of those transactions, the assessee disputes ownership itself. Shri Matiya’s personal mobile constitutes the originating material; his subsequent sworn explanation was that he handled cash for persons other than the assessee as well; the assessee identified transactions which it accepted and those which it disowned; and in A.Y. 2022-23 it specifically identified ₹2,29,82,928 as pertaining to persons said to be unrelated to it and even pointed out an unreconciled difference between the transactions segregated by it and the amount adopted by the Assessing Officer. All AO orders 2649-2651-Mum-2026.pdf Once ownership was disputed on these specific facts, the burden upon the Revenue was not an impossible one of proving the negative; what was required was some positive material rationally connecting the disputed transactions with the assessee. Such material could have emerged from Shri Matiya’s re-examination, Paras Corporation’s records, enquiry from the named recipients/remitters, the assessee’s own parallel accounts, unexplained cash generation or some other independent circumstance. What cannot substitute for that missing nexus is the fact that the assessee admittedly used the same intermediary for other transactions. A common conduit does not necessarily establish a common owner.

48. We have also considered whether the original statements, despite the deficiencies noticed above, can themselves supply the missing link. In our view, they cannot be accorded such an extended effect. The partner’s statement, properly read, confirms specific cash requirements and the mechanism through which they were met; it does not contain an unequivocal admission that the whole of the ₹13.82 crore quantified from Shri Matiya’s phone belonged to the assessee. Shri Matiya’s original statement is undoubtedly more directly connected with the electronic data, but its attribution of the transactions has to be appreciated alongside his substantially contemporaneous affidavit giving a specific contrary explanation concerning third-party transactions. We repeat that we are not accepting as proved the allegation that the original statement was obtained through coercion. Our conclusion does not depend upon such a finding. What is material is that, once the person in possession of the primary electronic evidence promptly furnished a specific alternative explanation which was capable of verification, and the assessee specifically sought his further examination, the original statement could not reasonably be treated as conclusive proof of universal attribution without testing that explanation against independent material. The absence of such an exercise materially diminishes the evidentiary basis for attributing the disputed corpus to the assessee.

49. Viewed thus, we are unable to concur with the learned CIT(A) that the various circumstances relied upon by him, even when considered cumulatively, complete the evidentiary chain required for sustaining the additions under section 69A. We reiterate that the learned CIT(A) has undertaken an elaborate analysis and that several of the circumstances relied upon by him are relevant and possess probative value. Our difference lies not in their admissibility but in the inference ultimately drawn from them. The electronic evidence establishes cash movements; the statements and the partner’s answers establish Shri Matiya’s role and the assessee’s use of the Angadia mechanism for certain transactions; connected names corroborate those identified transactions; the token methodology explains how such transfers were effected; and the site records explain the existence of cash requirements. What remains unsupported by adequate positive evidence is the further proposition that the entire cash corpus appearing in Shri Matiya’s personal mobile belonged to MHK Buildcon LLP and represented money generated outside its books. In our considered view, the evidentiary material stops short of that conclusion.

50. There is one further aspect which reinforces this conclusion. The impugned additions are not additions of an estimated profit arising from identified unrecorded business transactions; the entire gross cash movements have been treated as unexplained money under section 69A and subjected to the consequences flowing from section 115BBE. Such an addition necessarily requires a clear factual foundation that the money itself belonged to the assessee and remained unexplained. Where the originating electronic record belongs to an intermediary who admittedly dealt with cash transfers, the assessee accepts only specified transactions as its own and explains them from recorded cash, the intermediary promptly asserts that he also dealt for other persons, and no transaction-wise investigation sufficiently connects the disputed balance with the assessee, the foundational requirement of ownership cannot be supplied merely through an inference drawn from the common mode of transmission. The magnitude of an addition neither enhances nor diminishes the standard of evidence; nevertheless, where the entire gross corpus is sought to be brought to tax as the assessee’s unexplained money, the nexus between that corpus and the assessee must emanate from positive evidence and cannot rest upon extrapolation from admittedly connected transactions.

51. Accordingly, on a cumulative appreciation of the entire material before us, we hold that the Revenue has established the existence of cash-remittance transactions through Paras Corporation and the involvement of Shri Asif Matiya therein; it has also established that the assessee itself utilised this mechanism for certain identified business transactions. However, insofar as those identified transactions are concerned, the explanation that they represented movement of cash available in the regular books has not been shown to be factually untenable by any cash-book reconciliation or other material brought to our notice. Insofar as the remaining transactions are concerned, the material lacks adequate evidentiary foundation to establish that the money belonged to the assessee. The WhatsApp data, the original statements, the admitted modus operandi, the connected names, the token mechanism and the other surrounding circumstances, even when read together, do not cure this fundamental deficiency. Consequently, the essential factual condition for invoking section 69A in respect of the impugned year-wise amounts is not satisfied.

52. In view of our foregoing discussion and upon a cumulative appreciation of the entire evidentiary material, we are unable to sustain the additions of ₹1,60,59,605 for A.Y. 2021-22, ₹3,17,39,558 for A.Y. 2022-23 and ₹9,00,52,146 for A.Y. 2023-24 made under section 69A and confirmed by the learned CIT(A). To the extent the transactions have been identified and admitted by the assessee as pertaining to its business, the explanation that these represented movement of cash available in its regular books to different project sites has not been shown to be factually incorrect or disproved by any reconciliation demonstrating cash outside the books. In respect of the remaining transactions, the material on record, for the reasons discussed hereinabove, does not adequately establish that the money represented therein was owned by the assessee. Thus, in neither category do the foundational requirements for bringing the impugned amounts to tax as unexplained money under section 69A stand established. We accordingly direct the Assessing Officer to delete the additions of ₹1,60,59,605, ₹3,17,39,558 and ₹9,00,52,146 for the respective assessment years. The corresponding grounds raised by the assessee are allowed. We reiterate that our conclusion does not rests upon any general proposition that WhatsApp or other electronic evidence lacks evidentiary value, nor upon any affirmative finding that the allegation of coercion during survey stood established, as vehemently harped upon by the Ld. Counsel for the assessee.

53. We now take up the remaining substantive issue arising in A.Y. 2022-23 relating to purchases aggregating to ₹94,55,106 from two concerns, namely, M/s Creative Corporation and Distributors Pvt. Ltd. and Shri Ketanbhai Chunara, proprietor of M/s G.M. Enterprise. During the assessment proceedings, the Assessing Officer proposed to treat the entire purchases from these two concerns as non-genuine. Insofar as Creative Corporation was concerned, the Assessing Officer referred to information that the concern was a non-filer, that its GST registrations had become inactive in different States and, more importantly, that investigation by DGGI, Bengaluru had revealed its involvement in fraudulent availment/utilisation of input-tax credit through invoices issued by non-existent entities without actual receipt of goods or services. He also noticed that summons issued to the concern had remained uncomplied with and its stated business address was found to be non-existent. In the case of G.M. Enterprise, the Assessing Officer referred to its status as a non-filer, inactive GST registration, mismatch in the transaction amount and certain deficiencies in the supporting material. On these premises, he concluded that the purchases from both concerns represented non-genuine expenditure booked to inflate expenses and reduce taxable profit and consequently disallowed the entire amount of ₹94,55,106.

54. The assessee, both before the Assessing Officer and the learned CIT(A), disputed the aforesaid conclusion and contended that the purchases had actually been made and consumed in the course of execution of its business contracts. It furnished purchase invoices, ledger accounts/contra confirmations and other supporting material and pointed out that the purchases had also been reported in its GST returns. In relation to Creative Corporation, the assessee submitted that the account stood squared up and payments against the purchases had been made through banking channels. Insofar as G.M. Enterprise was concerned, it specifically relied upon the contra-ledger confirmation and e-way bills evidencing movement of goods and contended that there was no adverse information from the Investigation Wing concerning this supplier comparable to the information relied upon in the case of Creative Corporation. It was further contended that a purchaser cannot ordinarily be visited with disallowance of its entire expenditure merely because the supplier subsequently defaults in filing its income-tax return or its GST registration becomes inactive, particularly where the purchaser has furnished primary evidence concerning the transaction. These submissions, including the reliance upon banking-channel payments and e-way bills, are recorded in the assessment proceedings. All AO orders 2649-2651-Mum-2026.pdf

55. The learned CIT(A), after examining the material, did not approve the Assessing Officer’s action of disallowing the entire purchases in the same manner in which the Assessing Officer had done. Insofar as the purchases from Creative Corporation were concerned, while he found that the adverse material concerning the supplier and the deficiencies noticed by the Assessing Officer could not altogether be ignored, he substantially accepted the proposition that once the corresponding business activity and utilisation of material were not rejected, the entire purchase amount could not appropriately be treated as income of the assessee merely because the supplier was found to be tainted or the purchases were not fully verifiable from that supplier. He accordingly restricted the addition in respect of purchases of ₹60,00,027 from Creative Corporation to 10% thereof, amounting to approximately ₹6,00,002, thereby bringing to tax the estimated profit element embedded in such purchases rather than the entire purchase value. In relation to G.M. Enterprise, the learned CIT(A) separately appreciated the evidence produced by the assessee, including the documentary support concerning movement/purchase of goods. Thus, the blanket disallowance of ₹94,55,106 made by the Assessing Officer did not survive in the form in which it had originally been made.

56. Before us, the learned counsel submitted that even the estimation of profit at 10% in relation to Creative Corporation was excessive in the facts of the assessee’s business. He submitted that the assessee is a contractor executing substantial infrastructure/construction projects and the material purchased was required for execution of such contracts; the corresponding contract receipts and business operations have not been rejected; nor has the Assessing Officer demonstrated that the assessee could have executed the relevant works without actually procuring the material. According to him, once the possibility of purchases having been procured from an alternative source is accepted and only the identity of the actual supplier or complete verifiability of the purchases remains doubtful, what can legitimately be brought to tax is only the profit element or saving, if any, embedded in such purchases, and not an arbitrary percentage divorced from the margin ordinarily earned in the assessee’s line of business. He therefore pleaded that the 10% rate adopted by the learned CIT(A) be suitably reduced. The learned DR, on the other hand, relied upon the adverse information concerning Creative Corporation, its non-compliance, inactive GST registrations and the DGGI investigation and submitted that the learned CIT(A) had already granted substantial relief by restricting the entire disallowance to the profit element; according to him, no further interference was warranted.

57. We have considered the rival submissions and examined the material in relation to this issue. At the outset, the nature of the defect here is materially different from a case where the Revenue establishes that no goods whatsoever were purchased or consumed in the assessee’s business. The assessee is engaged in execution of construction contracts and the business operations and corresponding contract receipts have not been rejected. The Assessing Officer himself proceeded essentially against the genuineness of the identified suppliers and the supporting trail rather than demonstrating that the underlying material was never procured or utilised. Indeed, the assessee had furnished invoices and ledger confirmations, stated that payments were made through banking channels and, in relation to G.M. Enterprise, relied upon e-way bills as evidence of movement of goods. All AO orders 2649-2651-Mum-2026.pdf At the same time, insofar as Creative Corporation is concerned, the adverse material cannot simply be disregarded. The DGGI information regarding accommodation/fraudulent invoicing, the non-compliance with summons and the difficulty concerning the stated business address provide a legitimate basis for doubting whether the purchases were actually made from the very party appearing in the assessee’s books. All AO orders 2649-2651-Mum-2026.pdf The appropriate inference in such circumstances, however, is materially different from treating the entire purchase price as income. Where consumption/business execution is not rejected but the stated source of procurement remains doubtful, the possibility ordinarily arising is that the material was procured from another source while bills were obtained from the identified concern, in which event the taxable component is the advantage or profit embedded in such procurement rather than its entire gross value.

58. It is in this context that the estimation made by the learned CIT(A) at 10% requires examination. Estimation necessarily involves an element of approximation, but it cannot become wholly detached from the commercial realities of the assessee’s business. The assessee is not shown to be a trader dealing in the impugned goods for resale at substantial margins; the purchases form inputs in execution of construction contracts. Further, there is no material brought on record demonstrating that the assessee actually obtained a saving or additional margin as high as 10% by allegedly procuring the material from an alternative source. The adverse information against Creative Corporation justifies an estimation because the purchases are not fully verifiable from the stated supplier; it does not, by itself, determine the quantum of the benefit that accrued to the assessee. Having regard to the nature of the assessee’s activity, the fact that the underlying business execution has been accepted, the documentary trail furnished by the assessee, and at the same time keeping in view the deficiencies and adverse material concerning the stated supplier, we are of the view that the ends of justice would be met by restricting the addition to 5% of the purchases from Creative Corporation, in place of 10% sustained by the learned CIT(A). On purchases of ₹60,00,027, the addition would accordingly stand restricted to ₹3,00,001 (rounded off). The balance addition sustained by the learned CIT(A) on this account is directed to be deleted.

59. Insofar as the purchases from G.M. Enterprise are concerned, the material stands on a somewhat different footing. The assessee had specifically pointed out before the Assessing Officer that there was no adverse investigation information concerning this concern comparable to the DGGI material relied upon against Creative Corporation; it had furnished the contra-ledger confirmation and relied upon e-way bills evidencing actual movement of goods. The Assessing Officer’s principal objections were that the concern was a non-filer, its GST registration was inactive, there was a mismatch in the transaction amount and certain particulars, including the company/brand of cement and bank statement, had not been furnished to his satisfaction. A supplier’s subsequent or independent statutory default may certainly trigger verification, but it cannot, without further material impeaching the actual transaction, establish that the purchaser never received the goods. The evidentiary position regarding G.M. Enterprise therefore cannot mechanically be equated with Creative Corporation. To the extent the learned CIT(A) has granted relief upon appreciation of the documentary material concerning this concern, we find no reason to disturb such relief merely because the Assessing Officer had originally disallowed the entire amount.

60. Accordingly, the ground relating to purchases for A.Y. 2022­23 is partly allowed in the terms indicated above. The addition attributable to purchases from Creative Corporation and Distributors Pvt. Ltd. is restricted to 5% of ₹60,00,027, i.e. ₹3,00,001, as against 10% sustained by the learned CIT(A), while the relief granted by the learned CIT(A) in relation to G.M. Enterprise calls for no interference. The Assessing Officer shall give effect accordingly.

61. The other grounds, to the extent they are merely consequential in nature, including levy of interest, shall follow the final determination of income in accordance with law. Any ground which is general or does not require separate adjudication in view of our findings hereinabove is disposed of accordingly.

62. To sum up, the additions made under section 69A on account of the alleged cash transactions through Paras Corporation, amounting to ₹1,60,59,605 for A.Y. 2021-22, ₹3,17,39,558 for A.Y. 2022-23 and ₹9,00,52,146 for A.Y. 2023­24, are directed to be deleted for the reasons recorded in the preceding part of this order. In A.Y. 2022-23, on the separate purchase issue, the addition in respect of purchases from Creative Corporation and Distributors Pvt. Ltd. is restricted to 5% of ₹60,00,027, while the relief granted by the learned CIT(A) in respect of G.M. Enterprise is sustained. The appeals are accordingly allowed/partly allowed in terms indicated hereinabove.

63. In the result, the appeals for A.Ys. 2021-22 and 2023-24 are allowed, whereas the appeal for A.Y. 2022-23 is partly allowed.

Order pronounced on 24th September, 2026.