The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has deleted multiple additions made solely on the basis of WhatsApp chats, mobile phone images, promissory note photographs, and other electronic records recovered during a search operation. 

The bench of DR. BRR Kumar (Vice President) and T. R. Senthil Kumar (Judicial Member) has observed that suspicion and uncorroborated digital evidence cannot substitute legally admissible proof while sustaining additions under the Income Tax Act. 

BUY NOW: Litigation Guide on Evidentiary Value of Electronic Evidence Including WhatsApp Chats

The case arose from a search conducted on the Riddhi Siddhi Group on February 1, 2019, during which the taxpayer’s mobile phone was examined. The Income Tax Department alleged that the taxpayer handled unaccounted cash transactions of the group and relied upon various digital records recovered from his phone to make substantial additions for Assessment Year 2018-19. These included additions for alleged unexplained loans, investment in land, advances, interest income, WhatsApp-based transactions, and other purported unaccounted dealings. 

The assessment originally resulted in additions exceeding ₹11 crore, including: ₹48 lakh as unexplained unsecured loans; ₹1 crore as unexplained investment in land; ₹3.22 crore as unexplained advances; ₹29.05 lakh as interest income; ₹50 lakh based on a WhatsApp message; and ₹6.01 crore as alleged unaccounted transactions. 

One of the most notable issues before the Tribunal concerned a WhatsApp message stating, “50 lacks given to Manan yesterday.” Based on this message, the Assessing Officer treated ₹50 lakh as an unaccounted cash payment and added the amount to the taxpayer’s income. 

The taxpayer argued that the message referred to a cheque transaction involving one Manan Trivedi and supplied supporting details, including the person’s PAN and address. The Tribunal observed that the message merely stated that ₹50 lakh had been “given” and nowhere specified that the payment was made in cash. It further noted that the Department failed to conduct any independent inquiry, record the recipient’s statement, or produce evidence such as cash withdrawals, receipts, acknowledgements, or corroborative records proving a cash transaction. 

Holding that a WhatsApp message by itself could not conclusively establish undisclosed income, the Tribunal deleted the entire ₹50 lakh addition. It reiterated that electronic communication may raise suspicion and warrant investigation, but cannot alone justify an addition without supporting evidence. 

The department had also challenged the deletion of a ₹48 lakh addition made on the basis of images of promissory notes found in the taxpayer’s mobile phone. According to the Department, these documents indicated receipt of unaccounted cash loans. 

However, the Tribunal found that the alleged promissory notes were incomplete and lacked essential details such as lender particulars, mode of payment, and complete execution information. No evidence of actual money movement, cash trail, confirmations, or lender statements was produced by the Department. 

The Bench held that incomplete documents and draft notings recovered from a mobile phone cannot automatically establish receipt of unexplained loans. Since no corroborative evidence was available, the deletion of the ₹48 lakh addition was upheld. 

Another major dispute related to an alleged land transaction where a mobile phone image suggested payment of a ₹1 crore token amount. The Assessing Officer treated this as unexplained investment by the taxpayer. 

The Tribunal noted that government records verified by the Department itself showed that the property remained in the names of the original owners and was under litigation. The proposed transaction never materialized, and the taxpayer was neither the buyer nor the seller. No payment trail, bank records, cash movement, or confirmation from parties was produced. 

While the first appellate authority had sustained a ₹5 lakh brokerage addition on an estimated basis, the Tribunal went a step further and deleted even that amount, observing that when the land deal itself never materialized, no brokerage income could be presumed to have accrued. 

The Department had also made additions exceeding ₹3.22 crore on the basis of certain images found on the taxpayer’s phone, treating them as evidence of undisclosed advances and transactions. The Tribunal observed that the seized images merely contained figures, repayment dates, and interest calculations without clearly indicating the nature of the transactions. They did not establish whether the entries represented loans advanced, loans received, investments, or something else. 

The Bench further noted that one of the figures represented an opening balance and there was no evidence linking the entries to the relevant assessment year. Accordingly, it upheld the deletion of additions relating to ₹2.72 crore and ₹50 lakh, observing that ambiguous electronic records without corroboration cannot be treated as conclusive proof of undisclosed income.

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