Income Tax Addition Based Solely on WhatsApp Chats and Mobile Records Deleted; ITAT Says Uncorroborated Electronic Evidence Cannot Justify Tax Demand:

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that additions made during search assessments cannot rest solely on rough electronic notings (WhatsApp chats and images), assumptions, and uncorroborated digital entries when contemporaneous land records establish that the underlying transaction never materialised.

A search and seizure operation under Section 132 was conducted in the case of real estate developer Dhaval Patel, resulting in assessments under Section 153A for Assessment Years 2018-19 and 2019-20. During the search, the department relied on certain electronic data and backup files containing cryptic notations and proposed transaction details. Based on these entries, the Assessing Officer concluded that the assessee had earned undisclosed “on-money” income and made several additions, including a major addition of Rs 16 crore. On appeal, the CIT(A) examined the surrounding evidence and found that the alleged land transaction had never been completed, leading to deletion of the addition. Aggrieved by various findings, both the Revenue and the assessee approached the Tribunal.

The Tribunal upheld the CIT(A)’s decision and observed that the Revenue had failed to produce any corroborative evidence showing actual receipt of cash, utilisation of unaccounted funds, corresponding investments, or any tangible asset traceable to the alleged undisclosed income. It noted that the electronic notings merely reflected a proposed transaction and could not, by themselves, establish the generation of taxable income.

Importantly, the Tribunal found that official land ownership records continued to show ownership with the original parties, conclusively demonstrating that the contemplated transaction never fructified. In the absence of evidence proving completion of the deal or movement of unaccounted money, the addition was held to be based entirely on surmises and presumptions.

Thus, the ITAT confirmed the deletion of the Rs 3.16 crore addition and reiterated that search assessments must be supported by credible corroborative material rather than isolated rough electronic entries. The Revenue’s challenge on this issue was dismissed, resulting in substantial relief to the assessee.

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