The Jodhpur Bench of the Income Tax Appellate Tribunal (ITAT) has deleted an addition of ₹6.69 crore made under Sections 69 and 69B of the Income-tax Act against a real estate developer and held that mere reliance on loose digital Excel sheets, third-party electronic records, and presumptions, without independent corroborative evidence, cannot justify additions for alleged unexplained investments.
The bench of Sudhir Pareek (Judicial Member) and Dr. Mitha Lal Meena (Accountant Member) has observed that the alleged Excel sheets and digital files were recovered from third parties, were not found from the possession of the assessee, did not conclusively establish any cash transaction, lacked independent corroboration.
The assessee, engaged in the business of real estate development, was subjected to search proceedings under Section 132 of the Income-tax Act on 16 February 2023. During the search, the Income Tax Department alleged that digital records recovered from third parties indicated payment of substantial cash (“on-money”) for purchase of land parcels in Jaipur.
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Based on these digital records and statements of certain individuals, the Assessing Officer concluded that the assessee had made unaccounted cash investments over and above the amounts reflected in registered sale deeds. Consequently, an addition of ₹6,69,55,790 was made under Section 69 of the Income-tax Act while completing the assessment.
The Commissioner of Income Tax (Appeals) upheld the addition, prompting the assessee to approach the ITAT.
The assessee challenged the addition on multiple grounds, contending that all land purchases were executed through registered sale deeds. The entire consideration stood recorded in the books of account. Payments were made through banking channels. No evidence existed showing payment of any cash over and above the documented consideration.
The Department relied merely upon digital files allegedly recovered from third parties. The electronic evidence lacked mandatory authentication under the Bharatiya Sakshya Adhiniyam/Section 65B principles governing admissibility of electronic records. No opportunity for cross-examination of persons whose statements were relied upon was provided. No independent enquiry was conducted with sellers of land or other counterparties.
After examining the material on record, the Tribunal found several serious deficiencies in the Revenue’s case.
The Tribunal observed that the Department failed to establish that the assessee had actually made any investment outside its books of account.
It noted that the assessee had produced registered sale deeds and banking records demonstrating that consideration stood fully documented.
The Tribunal held that the primary burden to prove existence of unexplained investment rests upon the Revenue, which had not been discharged in the present case.
The Tribunal observed that the Department had failed to establish any nexus between the electronic records and the assessee through independent evidence.
Accordingly, such material could not by itself justify additions under Sections 69 or 69B.
The Tribunal further noted that the electronic records relied upon by the Revenue were not supported by the requisite authentication certificate.
It held that digital evidence lacking statutory certification and documentary authentication cannot be treated as reliable evidence for sustaining additions, particularly when such records are disputed by the assessee.
The Revenue had also invoked the statutory presumption contained in Section 292C.
Rejecting this approach, the Tribunal observed that the presumption applies only against the person from whose possession the documents are found.
Since the disputed digital files were admittedly recovered from third parties and not from the assessee, the presumption could not automatically be invoked against the appellant.
The Tribunal found that despite alleging cash payments to landowners, the Department had not conducted meaningful enquiries with sellers of the land, counterparties, persons allegedly receiving cash.
No corroborative evidence such as confirmation of cash receipt, documentary trail, or independent investigation was produced.
The Tribunal held that such absence of enquiry significantly weakened the Revenue’s case.
The Tribunal also held that the Department relied upon statements of third parties without allowing the assessee an opportunity to cross-examine them.
Since those statements formed an important part of the Department’s case, denial of cross-examination constituted a violation of principles of natural justice.
The ITAT relied upon several judicial precedents dealing with additions based on loose papers, evidentiary value of electronic records, presumption under Section 292C, burden of proof under Sections 69 and 69B, necessity of corroborative evidence, and importance of cross-examination before relying upon third-party statements.
The Tribunal also referred to recent decisions where additions based solely upon WhatsApp chats, Excel sheets, loose papers or third-party records were deleted in the absence of corroborative material.
After considering the entire material, the Tribunal concluded that the alleged digital Excel files lacked evidentiary value; no independent corroborative evidence supported the allegation of cash payments; statutory presumptions had been wrongly invoked; electronic records were not properly authenticated; the Department failed to discharge the burden required under Sections 69 and 69B; and additions were based largely on assumptions, conjectures and presumptions.
The ITAT deleted the addition of ₹6,69,55,790 made in the lead appeal.
The Tribunal extended the same relief to those appeals as well and allowed all four appeals.
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