Santosh Jaynarayan Sharma Vs ITO (ITAT Pune)
Pune ITAT Deletes ₹1.14 Crore Addition Based Solely on Hawala Operator’s Statement; Cross-Examination Denial Proves Fatal
The Pune ITAT upheld the deletion of an addition of ₹1.14 crore made under section 69C, holding that the Assessing Officer could not sustain an addition merely on the basis of statements of alleged hawala operators and WhatsApp chats without bringing any independent corroborative evidence on record.
The assessee, engaged in the footwear business, had imported goods from foreign suppliers. During assessment, the AO relied upon statements recorded from certain persons allegedly involved in accommodation-entry and foreign remittance operations, who claimed that the assessee had obtained accommodation entries against cash payments amounting to ₹1.14 crore. Based primarily on these statements and certain WhatsApp chats, the AO treated the amount as unexplained expenditure under section 69C.
The Tribunal noted that the assessee had furnished extensive documentary evidence including import invoices, letters of credit, bills of entry, customs clearance documents, transportation records, warehousing charges, insurance records, customs duty payment details, bank statements and sales invoices, demonstrating that the imports were genuine and payments were made through normal banking channels. The Revenue failed to point out any defect in these documents or establish any actual cash movement.
The Tribunal further observed that the entire addition rested on a third-party statement and alleged WhatsApp chats. Importantly, despite the assessee’s request, effective cross-examination of the person whose statement formed the basis of the addition was not provided, amounting to a violation of the principles of natural justice. Relying on the Supreme Court decision in Andaman Timber Industries, the Tribunal held that such evidence could not be used against the assessee without affording cross-examination.
Holding that the AO had failed to prove either the existence of unexplained expenditure or any cash payment by the assessee, the Tribunal affirmed the CIT(A)’s order deleting the addition of ₹1.14 crore. The Revenue’s appeal was dismissed. The Tribunal also condoned a 149-day delay in filing the assessee’s cross-objection but dismissed it as infructuous since the Revenue’s appeal itself had failed.
FULL TEXT OF THE ORDER OF ITAT PUNE
The captioned appeal at the instance of assessee pertaining to the Assessment Year 2016-17 is directed against the order dated 07.08.2025 of National Faceless Appeal Centre, Delhi passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of the Assessment Order dated 09.03.2023 passed u/s.147 r.w.s.144 r.w.s. 144B of the Act.
