Facts of the Case

The assessee, Ms. Ritu Tuli, filed her return of income for AY 2017-18 declaring a taxable income of ₹3,00,000. During the relevant year, she jointly purchased a residential property situated at Sushant Lok-I, Gurugram along with her mother for a total sale consideration of ₹61,50,000, where the assessee held a 50% share amounting to ₹30,75,000. The payment was made through banking channels after deducting applicable TDS.

Subsequently, a search and seizure operation under section 132 was conducted on 03.01.2018 in the case of Navneet Dawar and others, which also covered the premises of Sh. Anil Narang. During the search, a photo/image recovered from the mobile phone of Sh. Anil Narang was treated as incriminating material allegedly relating to the assessee.

Based on the said image, the Assessing Officer initiated proceedings under section 153C of the Income Tax Act, 1961 and made an addition of ₹1,05,50,000 under section 69B, alleging that the assessee had made unexplained cash investment in the property. The addition was confirmed by the CIT(A), leading the assessee to file an appeal before the ITAT.

 

Issues Involved

  1. Whether addition under section 69B of the Income Tax Act can be made on the basis of an illegible and unsigned document recovered from a third party’s mobile phone.
  2. Whether a digital document without a certificate under section 65B of the Indian Evidence Act, 1872 can be relied upon as admissible evidence for making additions in assessment proceedings.
  3. Whether such seized material can be treated as incriminating evidence for initiating proceedings under section 153C.

 

Petitioner’s Arguments

  • The alleged seized document was illegible and unclear, and therefore no adverse inference could be drawn from it.
  • The document was recovered from the mobile phone of a third party (Sh. Anil Narang) and not from the possession of the assessee.
  • When confronted during statement proceedings under section 131(1A), the assessee stated that she could not comment on the contents as the document belonged to Sh. Anil Narang.
  • Sh. Anil Narang himself stated that he was unable to understand the document, and denied receiving any cash payment in relation to the property transaction.
  • The alleged receipt contained no date, no signatures, and contradictory figures, and therefore it was a “dumb document.”
  • The alleged digital image was relied upon without complying with section 65B of the Indian Evidence Act, which requires a certificate for admissibility of electronic evidence.
  • Various judicial precedents were relied upon, including decisions where additions were deleted when based solely on illegible or uncorroborated documents.

 

Respondent’s Arguments

The Department relied on the orders of the Assessing Officer and the CIT(A) and argued that the seized image indicated payment of a higher amount than recorded in the registered transaction.

The Revenue contended that the document constituted incriminating evidence recovered during search proceedings and therefore the addition made under section 69B read with section 153C was justified.

 

Court Findings / Order

The Income Tax Appellate Tribunal (Delhi Bench) allowed the appeal of the assessee and deleted the addition. The Tribunal observed the following:

  • The alleged incriminating material was an image retrieved from the mobile phone of another person, and therefore it constituted electronic evidence.
  • For electronic records to be admissible, the mandatory certificate under section 65B of the Indian Evidence Act, 1872 must be furnished.
  • In the present case, the Revenue admittedly did not possess any certificate under section 65B, making the electronic record legally inadmissible.
  • Even otherwise, the document was unsigned, undated, and not clearly readable, and therefore could not be relied upon to establish payment of on-money.
  • The person from whose phone the image was recovered denied knowledge of the document, and there was no corroborative evidence supporting the alleged cash payment.

Important Clarification


The Tribunal clarified that electronic evidence must comply with the procedural requirements of section 65B of the Indian Evidence Act to be admissible in legal proceedings.

If the Revenue fails to produce the required certificate or corroborative evidence, electronic data such as images, spreadsheets, or digital files cannot form the sole basis for making additions under the Income Tax Act.

 

Sections Involved

  • Section 69B – Unexplained investment
  • Section 153C – Assessment of income of any other person
  • Section 132 – Search and seizure
  • Section 131(1A) – Power regarding discovery and production of evidence
  • Section 65B of the Indian Evidence Act, 1872 – Admissibility of electronic records

Link to download the order -  https://itat.gov.in/public/files/upload/1735648087-mnM3Bn-1-TO.pdf

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