2025 (1) TMI 170 - AT - Income Tax

Unexplained investment - Relying on the seized material the assessment u/s 153C was completed - assessment order passed by the AO for want of Certificate u/s 65B of IE Act by relying electronic evidence for completing assessment u/s 153A - HELD THAT - In the instant case, admittedly there is no certificate under section 65B of the Indian Evidence Act, 1872. Thus, the evidence in the form of a print out taken from the phone owned by another person, if was to be relied for completion of assessment of assessee, the certificate in terms of section 65B of the Indian Evidence Act, 1872 was necessary. That not being there the alleged incriminating document when taken out of case of the ld. AO, nothing is left to draw any inference of payment of any on money amount. In a case like this, where the alleged seized material extract as reproduced in the assessment order seems to be not quite legible and Department had to prepare a special coloured copy of the same, so that this bench can be appraised of the content, that all the more required the certificate u/s 65B of the Indian Evidence Act. If this piece of document is considered, the same has no signatures of the assessee or even Shri Anil Narang. There is no separate piece of evidence establishing the handwriting to be of Shri Anil Narang or the assessee. As we go through the contents there are no corroborating facts to establish that any on money was paid separately. The ld. AO himself mentions that when Shri Anil Narang was confronted with this document and his statement u/s 131(1A) of the Act was recorded, Shri Anil Narang had deposed that he is unable to understand the document. As with regard to the transaction also he had shown his ignorance. There is no independent inquiry also by the AO of the fact that the value of the property was otherwise thrice at Rs. 1,67,00,000/- than the amount paid by the assessee of Rs. 67,50,000/- by way of banking transactions. Thus being a case of no evidence, the addition is not sustainable under law. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment are:

• Whether the addition of Rs. 1,05,50,000/- under section 69B of the Income Tax Act, 1961, based on alleged unexplained investment by the appellant, is sustainable in law.
• Whether the seized digital evidence, specifically a photo/image from a mobile phone, can be admitted as evidence without a certificate under section 65B of the Indian Evidence Act, 1872.
• Whether the assessment under section 153C of the Income Tax Act was validly completed based on the alleged incriminating document.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legitimacy of the Addition under Section 69B

• Relevant Legal Framework and Precedents: Section 69B of the Income Tax Act pertains to unexplained investments. The precedents cited include decisions where illegible documents were deemed insufficient for making additions.
• Court's Interpretation and Reasoning: The court noted that the alleged document was illegible and lacked corroborative evidence to substantiate the addition made by the Assessing Officer (AO).
• Key Evidence and Findings: The document in question was a photo/image seized from a third party's mobile phone, which was not clear and lacked necessary corroboration.
• Application of Law to Facts: The court applied the principle that no adverse action can be taken based on illegible documents, referencing several precedents where similar evidence was dismissed.
• Treatment of Competing Arguments: The appellant argued against the legibility and authenticity of the document, while the revenue relied on the document as incriminating evidence.
• Conclusions: The court concluded that the addition was not sustainable due to the lack of clear and corroborative evidence.

Issue 2: Admissibility of Digital Evidence without Section 65B Certificate

• Relevant Legal Framework and Precedents: Section 65B of the Indian Evidence Act requires a certificate for electronic records to be admissible as evidence. The court referenced Supreme Court decisions that emphasized this requirement.
• Court's Interpretation and Reasoning: The court highlighted the mandatory nature of the certificate under section 65B for electronic evidence to be admissible.
• Key Evidence and Findings: The AO did not have the required certificate under section 65B, making the digital evidence inadmissible.
• Application of Law to Facts: Without the certificate, the digital evidence could not be used to support the addition under section 69B.
• Treatment of Competing Arguments: The revenue's argument that the evidence was sufficient was dismissed due to the lack of compliance with section 65B.
• Conclusions: The court held that the absence of a section 65B certificate rendered the digital evidence inadmissible.

Issue 3: Validity of Assessment under Section 153C

• Relevant Legal Framework and Precedents: Section 153C deals with assessments related to search and seizure operations. The court examined whether the assessment was based on valid evidence.
• Court's Interpretation and Reasoning: The court found that the assessment was not validly completed due to reliance on inadmissible evidence.
• Key Evidence and Findings: The lack of a section 65B certificate and the illegibility of the document were critical factors.
• Application of Law to Facts: The court applied the law by emphasizing the need for admissible evidence to support an assessment under section 153C.
• Treatment of Competing Arguments: The appellant's challenge to the validity of the assessment was upheld due to procedural deficiencies.
• Conclusions: The assessment under section 153C was deemed invalid.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The Revenue Authorities should mandatorily and scrupulously follow the conditions laid down under section 65B(2) and (4) of the Indian Evidence Act to render any documents to be valid in the eyes of law."
• Core Principles Established: The necessity of a section 65B certificate for digital evidence and the inadmissibility of illegible documents without corroborative evidence.
• Final Determinations on Each Issue: The addition under section 69B was not sustainable; the digital evidence was inadmissible without a section 65B certificate; the assessment under section 153C was invalid.