2025 (1) TMI 1590 - AT - Income Tax

Reopening of assessment - unexplained investment by way of alleged cash payments made in purchase of flat u/s 69 in all the three year - reliance on information found in iPhone of third party/project consultant - reliability of information recovered from electronic devices HELD THAT - It can be noticed the assessing officer of M/s Kalyanji Velji HUF (the developer of the project and the alleged recipient of cash component) had made additions in the hands of above said developer. The said additions made in AYs. 2010-11 to 2013-14 2021 (1) TMI 322 - ITAT MUMBAI have been deleted by the Co-ordinate Bench on merits as held (a) None of the parties involved in the transactions of sale and purchase of flat has admitted to have received/paid money outside the books of accounts. (b) The information about alleged cash transactions was found in the iphone of Shri Pankaj D Ghoshar. He was only a project consultant for M/s Kalyanji Velji HUF. He was not authorized to undertake financial transactions on behalf of the above said assessee. (c) Shri Pankaj D Ghoshar has also denied having undertaken financial transactions with Manania family. (d) The information found in the iphone was not corroborated with any other material. Hence it was a dumb document found at the premises of a third party. AO in placing reliance on the information found in the iphone which was an electronic device - We notice that the AO has not followed the procedure prescribed in sec. 65B of the Indian Evidence Act before placing reliance on a data supposed to have been collected from an electronic device. In that case the AO could not have placed reliance on it. See case of Anvar P V vs. P.K. Basheer and Others 2014 (9) TMI 1007 - SUPREME COURT wherein it was held that the certificate prescribed u/s 65B(4) of the Indian Evidence Act is compulsory and this two member decision of Hon ble Supreme Court was later approved by Three Judges Benchin the case of Arjun Pandit Rao Khotkar vs. Kailash Khushan Rao 2020 (7) TMI 740 - SUPREME COURT (LB) In the present case the AO has not mentioned that the said certificate has been obtained. Hence on this count also the additions made by the AO are liable to be deleted. Assessee appeal allowed.

Summary

ISSUES:

Whether the reopening of assessments under section 147 read with section 148 of the Act was valid or whether proceedings ought to have been initiated under section 153C of the Act.Whether additions made under section 69 of the Act on account of alleged unexplained cash payments towards purchase of flats are justified on the basis of information recovered from electronic devices and related documents.Whether the information found in electronic devices (iPhone) without compliance with section 65B of the Indian Evidence Act can be relied upon as evidence for making additions.Whether corroborative evidence is necessary to sustain additions based on electronic data or documents found at the premises of a third party.

RULINGS / HOLDINGS:

On the validity of reopening, the Court observed that since the additions were deleted on merits, the question of validity of reopening under section 147/148 versus section 153C was left open as academic.The additions under section 69 of the Act based on alleged cash payments were deleted because the information was found to be a "mere dumb document found at the premises of a third party" and was uncorroborated; none of the parties admitted to paying or receiving any cash outside the books.The Court held that the Assessing Officer failed to comply with the mandatory procedure prescribed under section 65B of the Indian Evidence Act for electronic evidence, and therefore, reliance on data from the iPhone was improper.The reasoning of the co-ordinate bench in deleting additions in the hands of the developer on the same material applied equally, emphasizing that the project consultant was not authorized for financial transactions and the electronic evidence was not corroborated.

RATIONALE:

The Court applied the legal framework under the Income Tax Act, particularly sections 69 (unexplained investments), 147/148 (reopening assessments), 153C (assessment after search in third party cases), and procedural safeguards under section 65B of the Indian Evidence Act regarding admissibility of electronic records.The Court relied on precedent decisions including the Supreme Court rulings in Anvar P V vs. P.K. Basheer and Others and Arjun Pandit Rao Khotkar vs. Kailash Khushan Rao, which mandate strict compliance with section 65B for electronic evidence.The Court followed the findings of a co-ordinate bench which had earlier adjudicated on the same facts and materials, emphasizing the necessity of corroboration and authorization for financial transactions when relying on electronic data and documents found during search and survey.No dissent or doctrinal shift was noted; the Court adhered to established principles requiring corroboration and procedural compliance before making additions based on electronic evidence.