2025 (4) TMI 672 - AT - Income Tax

Admissible digital evidence found in search - validity of the addition being the alleged payment of interest on the loan by relying on the vouchers seized by the search team - HELD THAT - Tribunal in Polisetty Somasundaram 2023 (8) TMI 1019 - ITAT VISAKHAPATNAM held that Pendrive seized in the search operation as inadmissible evidence as per the provisions of section 65B of the Indian Evidence Act and hence any detail extracted from such unsustainable digital evidence cannot be considered for the purpose of making additions in the case of assessee. AO that he has relied upon the unaccounted cash book of M/s. Polisetty Somasundaram seized for making the addition of interest payment by cash which was held as inadmissible evidence by the Tribunal in the case of M/s. Polisetty Somasundaram 2023 (8) TMI 1019 - ITAT VISAKHAPATNAM . We therefore have no hesitation to delete the addition in the absence of any corroborating material brought on record thereby allowing the grounds raised by the assessee. Assesseein favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• The admissibility of digital evidence, specifically a pen drive seized during a search operation, under Section 65B of the Indian Evidence Act.
• The validity of the addition of Rs. 11,17,507/- to the assessee's income based on alleged cash transactions evidenced by the digital data.
• Whether the assessment order was valid given the reliance on potentially inadmissible evidence.

2. ISSUE-WISE DETAILED ANALYSIS

Admissibility of Digital Evidence:

• Relevant Legal Framework and Precedents: The admissibility of electronic records is governed by Sections 65A and 65B of the Indian Evidence Act. The Tribunal referred to precedents such as Anvar P.V. vs. P.K. Basheer and Arjun Pandit Rao Khotkar vs. Kailash Kushan Rao Gorantyal, which emphasize the necessity of a valid certificate under Section 65B for electronic evidence to be admissible.
• Court's Interpretation and Reasoning: The Tribunal noted that the pen drive, which was central to the evidence against the assessee, did not comply with the procedural requirements of Section 65B(2) and (4) of the Indian Evidence Act. The absence of a proper certificate rendered the digital evidence inadmissible.
• Key Evidence and Findings: The Tribunal found that the pen drive was not seized in accordance with the prescribed legal procedures, and the certificate provided was incomplete and did not meet the statutory requirements.
• Application of Law to Facts: Given the lack of admissible evidence, the Tribunal concluded that the addition of Rs. 11,17,507/- based on the pen drive data was unsustainable.
• Treatment of Competing Arguments: The assessee argued the inadmissibility of the pen drive evidence, while the department contended its validity. The Tribunal sided with the assessee, citing non-compliance with Section 65B.
• Conclusions: The Tribunal concluded that the digital evidence was inadmissible, and any addition to income based on such evidence was invalid.

Validity of the Assessment Order:

• Relevant Legal Framework and Precedents: The assessment order's validity hinged on the admissibility of the evidence used to substantiate the income addition.
• Court's Interpretation and Reasoning: The Tribunal held that since the primary evidence was inadmissible, the assessment order based on such evidence could not stand.
• Key Evidence and Findings: The Tribunal found no corroborative evidence to support the addition made by the Assessing Officer.
• Application of Law to Facts: The Tribunal applied the legal standards for evidence admissibility and found the assessment order lacking in legal foundation.
• Treatment of Competing Arguments: The department's reliance on the pen drive was countered by the assessee's successful challenge to its admissibility.
• Conclusions: The Tribunal determined that the assessment order was not valid and deserved to be set aside.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The information contained in the seized pendrive could not be considered as admissible evidence as per the provisions of section 65B of Indian Evidence Act. Therefore, we are of the considered view that such inadmissible seized material is not sustainable in the eyes of law."
• Core Principles Established: The judgment reinforced the principle that digital evidence must comply with Section 65B of the Indian Evidence Act to be admissible. Without adherence to these provisions, such evidence cannot form the basis of an assessment order.
• Final Determinations on Each Issue: The Tribunal allowed the appeals, setting aside the additions made to the assessee's income due to the inadmissibility of the digital evidence.

The Tribunal's decision applied mutatis mutandis to the appeals for the assessment years 2019-20 and 2020-21, resulting in those appeals being allowed as well.