Mohanlal Kanayalal Pahuja Vs DCIT (ITAT Mumbai)
Third-Party Tally Cannot Tell the Whole Tax Story: Bad Debts Allowed in Cash Trading Profit & Interest Additions u/s 69C Deleted
Summary: A search was conducted in the case of the assessee’s group & related entities. During the search, the Department examined digital records, statements of promoters, employees & third parties and other material concerning alleged unaccounted business activities of the group.
The AO relied principally upon a parallel Tally database identified as “KA”, which was found in the possession of third parties. According to the AO, the database belonged to the assessee’s group and contained coded entries relating to unaccounted cash trading, cash payments, accommodation entries & cash loans.
Statements recorded during the search allegedly revealed that amounts in the Tally data were suppressed by two digits and that the relevant financial year had to be determined by adding eleven years to the year appearing in the database. The AO also referred to WhatsApp conversations, loose papers & statements of promoters and employees to support his interpretation of the coded entries.
Based upon the database, the AO concluded that the group had undertaken unaccounted cash sales of ₹1,630.62 crore during FYs 2013-14 to 2023-24. Cash payments of ₹980.15 crore were initially alleged to represent purchases from Polycab India Ltd., while another ₹569.21 crore was treated as payments connected with accommodation sales recorded in the regular books.
