Income Tax Addition Based Solely on Third Party Digital Evidence without any Corroborating Evidence Unsustainable: ITAT [Read Order]

The Income Tax AppellateTribunal (ITAT) Chandigarh Bench has deleted a substantial addition to the Income of the assessee, amounting to ₹1.7 Cr and held that the legal proposition that the digital evidence seized from a third party cannot be used to impose a penalty on the assessee without any corroborative evidence.

The Bench stated that under Section 132(4) of the Income Tax Act, 1961, there is a legal presumption that the documents are the property of the person whose possession they are found in.

The assessee M/s Home Construction Co,underwent a search and seizure. During the same period a search and seizure were carried out on the premises of a third party Mr. Ravi Kapoor.

As a result of the search some digital evidence such as Excel sheets and WhatsApp chats on the devices of the third party were found which contained information on entries on cash transactions carried out by the assessee.

The Assessing Officer (AO) made an addition of ₹1,17,00,000 on the grounds of unexplained money under Section 69A of the Income Tax Act for the Assessment Year 2022-23.

However,the assessee submitted that no incriminating material, cash or jewelry was recovered from the premises of the assessee to support the digital entries that were found in the data of Mr. Kapoor.

Further,it was submitted that the Revenue authorities failed to conduct any inquiry to establish the connection between the digital entries and cash flow. On the other hand the Revenue authorities submitted that the digital entries were clear and mentioned the assessee firm by name.

The Tribunal comprising Shri Laliet Kumar (Judicial Member) and Shri Krinwant Sahay (Accountant Member) observed that on perusing the records it was clear that the department relied on unreliable digital documents without any corroborating evidence.

Accordingly the tribunal observed that the AO failed to prove the authenticity of the transactions by any secondary evidence or by the statement of the assessee hence,the ITAT held that additions based on third party evidence alone are not legally sustainable since the department failed to close the gap between seized data and actual income of the assessee therefore the addition must be deleted.

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