2025 (7) TMI 1683 - AT - Income Tax

Addition u/s 69A - money received on sale of flats - sufficient incriminating material in the form of loose papers excel sheet entries and statements recorded during the search and post search proceeding to establish that the assessee has received cash over and above the value as per the sale deed - CIT(A) deleted addition - addition in question is solely based on an unverified WhatsApp message extracted from a mobile phone number that is not directly associated with the operational team of the assessee HELD THAT - Upon a careful appraisal of the facts and the evidentiary material on record we observe that the WhatsApp message relied upon by the AO was retrieved from the mobile device of Shri Tarun Vohra who was subjected to a search. However the revenue has failed to bring on record any corroborative material to substantiate the contents of the said message. The impugned document has neither been affirmed by any independent inquiry nor confirmed by any of the parties named therein. In the absence of any supporting material or confirmation such a WhatsApp message cannot be regarded as a reliable or admissible piece of evidence to warrant an addition under section 69A of the Act. We find merit in the petition filed by the assessee under Rule 27 of the Income Tax Appellate Tribunal Rules 1963. It is a settled position that an uncorroborated WhatsApp message in the absence of any independent supporting evidence cannot constitute a valid basis for initiating proceedings under section 153C of the Act. Accordingly the addition made u/s 9A of the Act pursuant to the assessment framed u/s 153C is hereby quashed. Since the assessee has succeeded on the legal ground the issue on merits is left open for academic consideration. In the result the appeal filed by the revenue stands dismissed. Assessment u/s 153C - Addition u/s 69A and 69C - Addition based on loose papers - HELD THAT - It is a settled position in law that a loose paper without any independent corroboration or inquiry cannot form the valid basis for initiating proceedings under section 153C of the Act. Accordingly the addition made under section 69A 69C of the Act pursuant to the assessment framed under section 153C is hereby quashed on legal grounds

Summary

ISSUES:

Whether addition under section 69A of the Income Tax Act, 1961 on alleged receipt of unexplained cash ("on money") over and above agreement value on sale of flats is justified based on uncorroborated electronic evidence such as WhatsApp messages and loose papers recovered during search and seizure.Whether addition under section 69C of the Income Tax Act, 1961 on alleged cash payment of brokerage/commission to brokers on sale of flats is sustainable on the basis of seized loose papers and related material.Whether assessment proceedings initiated under section 153C of the Income Tax Act, 1961 based solely on unverified and inadmissible loose papers and electronic data recovered during search are valid and sustainable in law.Whether the evidentiary value of loose papers, WhatsApp chats, and Excel sheets found on mobile devices not directly linked to the assessee's operational team can be relied upon to make additions under sections 69A and 69C of the Act.Whether documentary evidence such as sale agreements, cancellation deeds, bank statements, and ledger accounts submitted by the assessee rebut the additions made by the Assessing Officer.Whether the principle of "balance of convenience" favors the assessee when there are doubts about the reliability and authenticity of incriminating material relied upon by the revenue.

RULINGS / HOLDINGS:

The addition of Rs. 3,58,00,000/- under section 69A on account of alleged receipt of "on money" over and above agreement value on sale of flats based solely on an unverified WhatsApp message in the form of an Excel sheet found on a mobile phone belonging to a third party was deleted. The Court held that such electronic data "cannot be regarded as a reliable or admissible piece of evidence" without corroboration.The addition of Rs. 1,49,92,100/- under section 69A and Rs. 1,42,09,910/- under section 69C on account of alleged "on money" and cash brokerage payments respectively, based solely on loose papers found during search and seizure, was deleted. The Court held that "a loose paper, without any independent corroboration or inquiry, cannot form the valid basis for initiating proceedings under section 153C."Assessment proceedings initiated under section 153C relying exclusively on loose papers, uncorroborated WhatsApp chats, and Excel sheets not maintained in the regular course of business were held to lack evidentiary value and were quashed as "void, illegal, and unsustainable in law."The Court accepted the assessee's documentary evidence including sale agreements, cancellation deeds, ledger accounts, and bank statements as credible and sufficient to rebut the additions made by the Assessing Officer.The Court applied the principle of "balance of convenience" and found that the doubts raised by the assessee regarding the authenticity and reliability of the incriminating material tilted the balance in favor of the assessee, justifying deletion of additions.The Court relied on binding judicial precedents and Supreme Court rulings emphasizing that "loose sheets of papers are wholly irrelevant as evidence being not admissible under Section 34" and that investigations or assessments cannot be based on such inadmissible material without cogent and legally cognizable evidence.

RATIONALE:

The Court applied the statutory provisions of sections 69A, 69C, 132, 153A, and 153C of the Income Tax Act, 1961, and the evidentiary standards prescribed under the Indian Evidence Act, including section 34 and section 65B, relating to admissibility of electronic records.The Court followed established precedents holding that uncorroborated electronic data such as WhatsApp messages and loose papers not maintained in the regular course of business lack reliability and cannot be the sole basis for additions or assessments.The Court emphasized the need for corroborative and admissible evidence before initiating assessments or making additions under sections 69A and 69C, especially when the incriminating material is found on devices or documents not directly linked to the assessee's business operations.The Court noted the assessee's submission and evidence including cancellation of sale agreements, sales at or above stamp duty valuation, and denial by third parties of brokerage receipt, which undermined the revenue's case.The Court cited the Supreme Court's ruling in Common Cause v. Union of India emphasizing the risk of abuse of investigation powers based on irrelevant or inadmissible entries and the necessity of "some cogent legally cognizable material" before initiating proceedings.The Court also referred to coordinate bench decisions of the ITAT which held that additions based on uncorroborated WhatsApp chats or loose papers are liable to be deleted, reinforcing the principle that such "dumb documents" without proper authentication and corroboration do not constitute valid evidence.There was no dissenting opinion; the Court uniformly applied the principles of admissibility, corroboration, and fairness in assessment proceedings under the Income Tax Act.