ITAT Kolkata Says Revenue Must Disclose Tally Data, Forensic Report Before Making Additions

On 16 June, the Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) held that the Revenue cannot rely on tally data and a forensic analysis report without confronting a taxpayer with those materials, as doing so constitutes a “grave violation of natural justice”.

Accountant Member Rajesh Kumar and Judicial Member Pradip Kumar Choubey partly allowed Kailash Kumar Patwari's appeals for statistical purposes, dismissed the Revenue's appeals, and remanded the matter to the Assessing Officer. The Bench held:

"We are not in agreement with that part of the order, wherein Ld. CIT(A) justified the basis of addition, i.e., amount of accommodation entries based the tally data/forensic analysis report recovered during the search which were admittedly not confronted to the assessee during the assessment proceedings before making the addition. In our opinion, it constitutes a grave violation of natural justice."

The cross-appeals arose between Kailash Kumar Patwari and the Deputy Commissioner of Income Tax, Central Circle-4(4), Kolkata, for assessment years 2013-14 to 2022-23.

The dispute arose after the Department conducted a search and alleged that Patwari had provided accommodation entries. Relying on tally data and a forensic analysis report recovered during the search, the Assessing Officer estimated Patwari's commission income at 1.5% of the alleged turnover.

The Commissioner (Appeals) upheld the additions in principle but reduced the commission rate to 0.15% after relying on precedents relating to accommodation entry operators.

Before the Tribunal, Patwari argued that the Revenue had never furnished the forensic analysis report or the detailed tally ledgers despite repeated requests. He contended that the Assessing Officer had relied on undisclosed material in breach of the principles of natural justice. The Revenue, meanwhile, challenged the Commissioner (Appeals)' decision to reduce the commission rate to 0.15%.

The Bench upheld the reassessment proceedings initiated under Section 147 of the Income Tax Act. However, it held that the Revenue could not sustain additions based on material that it had not supplied to Patwari.

It directed the Assessing Officer to furnish the tally data and forensic analysis report to Patwari, consider his submissions, recompute the turnover wherever necessary, and estimate the commission income at 0.15% of the turnover, in line with the Commissioner (Appeals)' findings.

Accordingly, the ITAT partly allowed the taxpayer's appeals.