Reassessment jurisdiction fails without statutory linkage, while unauthenticated WhatsApp chats cannot establish year-specific unaccounted sales.
Reassessment beyond three years requires recorded reasons and approval linking escaped income exceeding the threshold to an identified asset, qualifying expenditure, event or book entry under section 149(1)(b); unaccounted receipts or payments alone do not meet that jurisdictional condition. For a pre-search assessment year, an assessment under section 143(3) without recourse to sections 147 and 148 lacks the prescribed statutory basis. Electronic material, including WhatsApp chats and cash books, must be authenticated and corroborated through source extraction, chain of custody, transaction context and year-specific evidence. Retracted statements, unexplained figures and unreconciled cash-book entries cannot, without independent corroboration, establish unaccounted sales or support net-profit estimation.
Issues: (i) Validity of reassessment notices and assessments for AYs 2016-17 to 2018-19 under Sections 148 and 149(1)(b) of the Income-tax Act, 1961; (ii) Validity of assessment for AY 2021-22 made under Section 143(3) without notice under Sections 147 and 148 of the Income-tax Act, 1961; (iii) Sustainability of additions for alleged unaccounted sales and estimated net profit founded on WhatsApp chats, other digital material, cash books and retracted statements.
Issue (i): Validity of reassessment notices and assessments for AYs 2016-17 to 2018-19 under Sections 148 and 149(1)(b) of the Income-tax Act, 1961.
Analysis: For reassessment beyond three years, Section 149(1)(b) required the recorded reason to believe and approval to identify escaped income represented in an asset, expenditure relating to a transaction, event or occasion, or entries in books of account, exceeding the prescribed threshold. The recorded reasons merely referred to unaccounted receipts and expenses from alleged out-of-books sales. They did not identify the applicable statutory limb or establish a live link between the alleged escaped income and an identifiable asset, qualifying expenditure, or book entry. Unaccounted business receipts and payments, without parallel books or other material, could not simply be characterised as an asset.
Conclusion: The reassessment notices and consequential assessments for AYs 2016-17 to 2018-19 are invalid for non-fulfilment of the jurisdictional conditions under Section 149(1)(b) of the Income-tax Act, 1961.
Issue (ii): Validity of assessment for AY 2021-22 made under Section 143(3) without notice under Sections 147 and 148 of the Income-tax Act, 1961.
Analysis: AY 2021-22 was a year preceding the search year. No notice under Sections 147 and 148 was issued, although assessment for that year was required to proceed through that statutory route. Completion of the assessment solely under Section 143(3) therefore lacked the required jurisdictional basis.
Conclusion: The assessment for AY 2021-22 made under Section 143(3) of the Income-tax Act, 1961 is vitiated.
Issue (iii): Sustainability of additions for alleged unaccounted sales and estimated net profit founded on WhatsApp chats, other digital material, cash books and retracted statements.
Analysis: Although strict rules of evidence do not govern assessment proceedings in every respect, electronic evidence used to establish taxable income must possess reliability, authenticity and probative value. The revenue bore the burden to establish real income through material showing the source and extraction of the digital data, chain of custody, integrity of files, context of conversations, and corroboration with identifiable completed transactions.
Analysis: The WhatsApp chats predominantly contained figures without currency, description of goods or services, identifiable customers, projects, invoices, deliveries, cash movement or accounting treatment. The directors' statements were retracted and the retractions were neither rebutted nor further investigated. No excess stock, unrecorded purchases, parallel invoices, delivery records, buyers' confirmations, transporter evidence, unaccounted cash or other independent corroborative evidence was found. Chats relating to later years could not be projected to other assessment years without year-specific evidence. The cash books also required reconciliation of bank entries, receipts, payments, internal movements and wrong-year entries before any profit estimation. In the absence of corroboration, the material remained dumb documents and could not establish completed unaccounted sales or justify a net-profit estimate.
Conclusion: The additions for alleged unaccounted sales and the related net-profit estimations are unsustainable.
Final Conclusion: The statutory jurisdiction for the impugned reassessments was absent where the recorded reasons did not satisfy Section 149(1)(b), and the alleged undisclosed income was not proved by reliable, authenticated and corroborated evidence of assessment-year-specific taxable transactions.