Admissibility of Third Party Electronic Evidence: addition based on uncorroborated pen drive entries deleted for lack of confrontation.

Whether additions based on third party digital records and statements are sustainable turned on admissibility, corroboration and opportunity for confrontation. ITAT examined recovery of a pen drive and Excel sheets from a third party and relied co ordinate authority to hold that uncorroborated third party material not directly linking the assessee cannot form sole basis for additions; electronic and witness material must be confronted and tested. Because the AO produced no independent corroboration and denied effective confrontation/cross examination, the Tribunal deleted the additions and allowed the appeal in favour of the assessee.

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Issues: Whether the addition made by the Assessing Officer on account of alleged cash component/undisclosed payment for purchase of shop, based on pen drive and third party statements recovered during a search and on the statement of third parties, without independent corroborative material and without affording opportunity for confrontation/cross examination, is sustainable.

Analysis: The Tribunal examined the factual matrix involving search and seizure, recovery of a pen drive and Excel sheets from a third party, and statements of third party employees and promoters that were relied upon by the revenue. Relevant co ordinate decisions were considered which held that where no incriminating material directly connected to the assessee (such as cash vouchers, receipts, ledgers or signed documents) is found, the revenue must substantiate and corroborate third party search material before making additions. The Tribunal noted that the assessing officer did not produce independent corroborative evidence linking the seized digital material to the assessee and did not provide effective opportunity for confrontation or cross examination of the witnesses whose statements were relied upon. The Tribunal also applied principles on admissibility and reliability of electronic and third party material and the requirement that such material be confronted with the assessee and tested before being treated as conclusive evidence for making additions.

Conclusion: The addition made on the basis of third party pen drive entries and third party statements, without independent corroboration and without affording the assessee opportunity for confrontation/cross examination, is unsustainable; the addition is deleted and the appeal is allowed in favour of the assessee.

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