ITAT: WhatsApp Chats Alone Insufficient to Prove Unaccounted Cash, Rs. 3.16 Crore Addition Deleted

The ITAT ruled that the WhatsApp chat was insufficient evidence to prove the claim of unaccounted cash, especially without supporting documents or a proper investigation.

The present appeal has been filed by the Deputy Commissioner of Income Tax, Central Circle – 8(2) (Appellant), against a taxpayer named Niru Dhiren Shah (Respondent), in the Income-Tax Appellate Tribunal (ITAT) “B” Bench, Mumbai, before Shri Narender Kumar Choudhry (Judicial Member) and Shri Prabhash Shankar (Accountant Member). The case is related to the assessment year 2022-23, and the final decision was announced on October 27, 2025.

The appellant challenged an order dated April 11, 2025, passed by the Learnt Commissioner of Income-tax, Appeal, CIT(A)-50, Mumbai, belonging to an assessment order dated February 23, 2024, issued under Section 143(3) of the Income-tax Act, 1961.

Background of Case:

The assessee filed her income tax return (ITR) for the assessment year 2022-23, declaring a total income of Rs. 3,050,500. On October 27, 2021, the Income Tax Department conducted a search operation on her premises under Section 132 of the Income Tax Act. During this search, the department found some documents related to the sale of a property (shop). The sale price mentioned in the sale deed was Rs. 3.38 crore, but the Assessing Officer (AO) suspected that the actual market value was much higher, i.e., Rs. 6.55 crore. The difference, Rs. 3.16 crore, was believed to be unaccounted cash received by the assessee.

Assessing Officer’s Action:

To make its decision, the assessing officer (AO) relied on a WhatsApp chat between the buyer’s son and his accountant, which mentioned the market rates and property prices. This chat was presented as evidence that the sale was undervalued and the difference was received in cash. As a result of this, the assessing officer (AO) made an addition of Rs. 3.16 crore to the assessee’s taxable income under Section 69A, which deals with unexplained money or property.

Appeal to CIT(A)

The aggrieved assessee then filed an appeal before the Commissioner of Income Tax – Appeals [CIT(A)]. CIT(A) ruled that the WhatsApp chat did not directly involve the assessee, who is the seller of the property. The chats were between the buyer’s son and his accountant. Additionally, it did not mention the seller or the specific property. No actual physical cash or documents were found during the search to prove that the remaining cash amount was paid to the seller. The WhatsApp chat was just a rough estimate or calculation and not a concrete piece of evidence. Since the AO is unable to produce any independent corroborative evidence to prove the cash transaction.

As a result, the CIT(A) disagreed with the decision made by the Assessing Officer (AO) and deleted the addition of Rs. 3.16 crore.

Appeal to ITAT

The Revenue was dissatisfied with the ruling of CIT(A) and then approached the ITAT Mumbai.

The Department (Revenue) argued that the WhatsApp chat was digital evidence, recovered during the search, and linked to the property transaction. They argued that it was corroborated by market rates and showed that the property was undervalued, inferring that the seller received unaccounted cash.

The assessee argued that the WhatsApp chats did not include her name or any details about the property. No incriminating evidence was found during the search, and the chat was merely a rough calculation and not valid as evidence.

ITAT’s Decision:

The ITAT endorsed the decision of CIT(A) to delete the addition of Rs. 3.16 crore made by the assessing officer (AO) because of the following:

• The chat did not directly link the assessee to any unaccounted cash, and it was not a formal or valid piece of evidence without further corroboration.
• The AO completely relied on circumstantial evidence (Whatsapp chats) and assumptions, but no physical evidence (such as cash or invoices) was found to support the claim of unaccounted cash.
• The ITAT noted that digital evidence, such as WhatsApp chats, must comply with Section 65B of the Indian Evidence Act to be admissible. This wasn’t done in this case.
• The ITAT also pointed out that the AO had relied on a market rate estimate, but no actual investigation was done with the Registration authorities to confirm the market value. The difference between the sale price and the alleged market value was not enough to prove the cash transaction.