Income Tax Addition Solely Based on Pendrive Data Seized from Third Party not Sustainable: ITAT Quashes Order [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, recently held that in situations where income tax addition has been made solely based on documents/materials seized from third parties, the orders are to be quashed. The data, in the present case, had been retrieved from a pendrive from a third party.

The facts of the case state that the Assessing Officer (AO) issued a notice under Section 153C of the Income Tax Act, 1961 (the Act) without DIN. CIT(A) confirmed the addition of INR 4,45,273/- under section 69 which deals with unexplained incomes. It was alleged that the Commissioner of Income Tax (Appeals) had failed to share incrementing documents found during the course of search pertaining to the assessee-appellant.

Three appeals challenging the orders dated 01.10.2025 passed under Section 250 of the Act by the National Faceless Appeal Centre, Delhi (NFAC) for assessment years 2017-18, 2018-19, 2019-20 have been filed and consolidated.

The counsel for appellant alleged that the CIT(A) had made a mistake while dealing with the issue about opportunity of cross examination of the person whose statements were used against the appellant. The counsel relied on cases with identical circumstances involving the same issues, these included Pravin K Purohit v. DCIT and Akhraj P Chopra v. DCIT.

The issue of the combined satisfaction note was also submitted, where the CIT(A) had issued one for the three assessment years and the counsel argues that separate satisfaction notes for each assessment year is required.

Additionally, it was submitted that the Department had not provided statements and materials that the AO used against the appellant.

The tribunal recognized the identical circumstances in the various cases mentioned by the assessee, and since these had the same issues, they considered their obligation to doctrine of binding precedents and judicial consistency. Through reliance, the two-member bench added that information found in pendrive etc., cannot be considered ‘credible evidence’ unless corroborated with any other supporting evidence.

The bench, comprising Arun Khodpia (Accountant) and Sandeep Gosain (Judicial), allowed the appeal that had been clubbed earlier from three appeals and deleted the additions made.

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