2025 (3) TMI 1543 - AT - Income Tax

Additions based only on third-party WhatsApp chats inadmissible without Section 65B certificate or independent corroboration; s.153C required

ITAT MUMBAI - AT held that additions based solely on WhatsApp chats recovered from a third party are inadmissible unless authenticated under Section 65B ... Addition u/s 69A - corroborative evidence has been recovered from the Whatsapp conversation which states substantial payments have been received by the assessee -procedure/requirements of Section 65B of the Evidence Act - HELD THAT:- A conversation received from Whatsapp chat has to be corroborated with other materials and even it has not been brought on record as to what is the authenticity of Whatsapp chat and whether the procedure prescribed u/s. 65A & 65B of the Indian Evidence Act. Mobile Phone is an electronic record and condition provided for admissibility of any such digital data or record has been provided in section 65B of the Indian Evidence Act. Hon’ble Supreme Court in Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal [2020 (7) TMI 740 - SUPREME COURT (LB)] has clarified that a certificate under Section 65B (4) is mandatory, and a condition precedent to the admissibility of evidence by way of electronic record. The non-obstante language of Section 65B(1) makes it clear that when it comes to information contained in an electronic record, admissibility and proof thereof must follow the drill of Section 65B, which is a special provision in this behalf. Sections 62 and 65 are irrelevant for this purpose. Oral evidence cannot suffice in place of a certificate under Section 65B(4) and evidence aliunde cannot be given by a person in charge of a computer device, in place of the requisite certificate under Section 65B(4).Given that the certificate under Section 65B(4) may be given long after the electronic record has actually been produced by the computer, it is sufficient that the certificate is either to the best of the issuer’s knowledge or belief. The conditions under Sections 65B(2) and 65B(4) must be satisfied cumulatively. In addition to the aforesaid, the Supreme Court issued general directions to cellular companies and internet service providers to maintain call detail records and other relevant records, for the concerned period, in a segregated and secure manner, if such record is seized during the investigation in the relevant period. Concerned parties can then summon such records at the stage of defense evidence or in the event such data is required to cross-examine a witness. The Supreme Court clarified that these directions must be followed by the courts that deal with electronic evidence, to ensure the preservation of such evidence and the production of a certificate at the appropriate stage. The Court found this necessary given that telephone and internet service providers are generally required to preserve and maintain electronic call and internet log records for a limited duration of one year. If the police or other individuals fail to secure those records, or secure the records but fail to secure the certificate, within that period, the production of a certificate issued after commencement of trial would in all probability render the data unverifiable. An accused seeking to challenge the genuineness of a certificate under Section 65B (4) would be prejudiced as the electronic record may be missing. Ergo, if the Income Tax Department is using the data from a mobile phone to draw adverse inference and making addition, then the authenticity of the data has to be proved and procedure prescribed under section 65 B of the Indian Evidence Act has to be followed as laid down by the Hon’ble Supreme Court. Otherwise it has no evidentiary value per se. Revenue has to authenticate the data retrieved or else such data needs to be corroborated with other material. Here in this case nothing has been brought on record that the procedure has been followed by the revenue and hence Whatsapp chat found from the third party cannot be evidence to rope in the assessee for making any addition unless it is corroborated with other evidence or material. In this case AO is relying upon seized documents in the form of Whatsapp chat and the statement of third person which was found during the course of search in the case of third person then, ld. AO should have resorted to proceed against the assessee u/s.153C. In any case we have already held above that the conversation found in the Whatsapp chat of a mobile phone of a third party which is with another third party, no addition can be made unless some corroborative evidence or material is found from the possession of the assessee or during the course of some enquiry any other material or information is found which can corroborate or link with the Whatsapp chat. Accordingly, we do not find any infirmity in the finding of the ld. CIT (A) in deleting the addition. Decided against revenue. ISSUES PRESENTED AND CONSIDERED 1. Whether an addition in the hands of the assessee can be sustained on the basis of an image/WhatsApp conversation recovered from the mobile phone of a third party without independent corroborative evidence linking the seized material to the assessee. 2. Whether the statement of a third party (recorded under search provisions) can be the basis for additions against the assessee without allowing cross-examination of that third party. 3. Whether electronic records retrieved from a mobile phone (WhatsApp chats/images) are admissible and can be relied upon for making additions without compliance with the procedure/requirements of Section 65B of the Evidence Act (and related directions regarding certificates and preservation of electronic records). 4. Whether proceedings under Section 147 (reassessment) are competent where incriminating documents/information are seized from a third party and the proper course would have been to proceed under Section 153C after acquisition of the seized documents by the AO of the assessee. ISSUE-WISE DETAILED ANALYSIS Issue 1: Reliance on third-party seized WhatsApp material without independent corroboration Legal framework: Income Tax law principle requires that material found from the premises of a third party or statements of third parties be corroborated by independent evidence linking such material to the assessee before making additions in the assessee's hands. Precedent Treatment: The Tribunal relied upon a line of judicial authority (including Supreme Court dicta reiterated in the order) establishing that suspicion or presumption cannot substitute for evidence and that third-party material requires independent corroboration before it can be used to fasten liability on another person. Interpretation and reasoning: The Court examined the seized image recovered from a third party's mobile which purportedly recorded date-wise payments to the assessee. The assessee consistently denied receipt of such payments and no material linking the seized image to the assessee was recovered from the assessee's premises. The third party had retracted aspects of the statement and had not explained source/purpose of funds. The WhatsApp chats between third parties did not specifically reference the assessee in a manner that provided an independent live link. In absence of corroborative material (books, bank records, eyewitnesses or admissions linking the seized document to the assessee), the seized chat was treated as a starting point for investigation but insufficient to sustain an addition. Ratio vs. Obiter: Ratio - additions cannot be made solely on third-party documents/statements without independent corroboration linking the material to the assessee. Obiter - observations on the investigative utility of such material as a trigger for further inquiry. Conclusion: The addition made on the basis of the third-party WhatsApp image/statement was not sustainable and was correctly deleted by the Appellate authority. Issue 2: Necessity of cross-examination of third party whose statement is relied upon Legal framework: Principles of natural justice and right to test evidence by cross-examination where a statement of a witness (including a third party) is used to draw adverse inference against an accused/assessee. Precedent Treatment: The Court noted authorities requiring that reliance on statements recorded during search must be tempered by the opportunity to test such statements where those statements form the basis for adverse findings. Interpretation and reasoning: The assessee requested cross-examination of the third-party witness whose statement was heavily relied upon. The AO did not permit such cross-examination. Given that the third party had retracted portions of the statement and had not explained key aspects (authorship of the electronic record, source of funds, purpose), the absence of cross-examination meant the assessee was deprived of the opportunity to challenge the veracity and linkage of the statement to the alleged transactions. Ratio vs. Obiter: Ratio - where a third-party statement is relied upon to make additions, opportunity for cross-examination is material to the fairness and reliability of the process; absence of such opportunity weakens the evidentiary basis. Obiter - procedural observations concerning timing and manner of cross-examination in search cases. Conclusion: The AO's failure to allow meaningful testing of the third-party statement weighed against sustaining the addition; reliance on that statement without cross-examination was not appropriate. Issue 3: Admissibility and evidentiary value of electronic records (WhatsApp/chat images) - requirement of Section 65B compliance Legal framework: Admissibility of electronic records is governed by Section 65B of the Evidence Act; a certificate under Section 65B(4) or production of original device in court (with proof of ownership/operation) is required unless statutory exceptions operate. Precedent Treatment: The Court followed recent authoritative pronouncements confirming that compliance with Section 65B is a condition precedent to admissibility of electronic records, and that oral evidence alone cannot substitute for the required certificate unless the original device is brought and its contents proved by the owner/operator. Interpretation and reasoning: The impugned WhatsApp material was an electronic record recovered from a third party's phone; the Revenue did not produce evidence of compliance with Section 65B (no certificate or proof of original device ownership/operation was placed on record). The Court emphasized that electronic data must be authenticated and preserved per the Supreme Court's directions (including preservation by service providers where relevant), failing which the material lacks independent evidentiary value. Consequently, the WhatsApp chats/images could not be treated as admissible evidence in themselves. Ratio vs. Obiter: Ratio - electronic evidence must satisfy Section 65B conditions to be admissible; absent compliance, such records have no standalone evidentiary value. Obiter - procedural guidance regarding production of certificates and preservation by service providers. Conclusion: The WhatsApp material lacked admissible evidentiary foundation because the procedure under Section 65B had not been complied with; therefore it could not sustain additions without corroboration. Issue 4: Proper procedural course - Section 153C acquisition versus reassessment proceedings under Section 147 Legal framework: When incriminating documents are seized from the premises of a third party, the Assessing Officer of the person searched may hand over documents to the AO of another person; acquisition of jurisdiction to assess that other person's income in relation to seized documents is governed by Section 153C. Precedent Treatment: The Tribunal applied statutory scheme and practice that seized documents from a third party that relate to another person must be transmitted and formal acquisition under Section 153C followed before the AO can proceed to make assessments based on those documents. Interpretation and reasoning: In the instant facts, the AO relied upon documents/statements seized from a third party while framing reassessment under Section 147 in the hands of the assessee. No showing was made that documents were formally acquired under Section 153C or that the AO had satisfied the statutory preconditions to treat third-party seized material as the basis for reassessment. Additionally, since no corroborative material was found during the assessee's own search, the statutory route under Section 153C should have been invoked if seized documents fell within the purview of the assessee's income determination. Ratio vs. Obiter: Ratio - where incriminating documents are seized from a third party, the AO must follow the statutory procedure (Section 153C) to acquire jurisdiction and use such documents for assessment of another person; failure to do so undermines the competency of reassessment relying on those materials. Obiter - procedural sequencing and interplay between search, seizure and reassessment regimes. Conclusion: The AO's reliance on third-party seized material without invoking/recording acquisition under Section 153C was procedurally incorrect; hence reassessment additions based on such material were unsustainable. Overall Conclusion The Court upheld the appellate authority's deletion of the additions because: (i) the impugned electronic material was recovered from a third party and lacked independent corroboration linking it to the assessee; (ii) the third-party statement relied upon was not adequately tested by cross-examination; (iii) the electronic evidence was not authenticated in accordance with Section 65B of the Evidence Act and related directions; and (iv) the statutory route for dealing with documents seized from a third party (Section 153C) was not followed. These combined deficiencies rendered the additions unsustainable. All appeals by the Revenue were therefore dismissed.