Gaurav Rakhecha Vs JCIT (ITAT Delhi)
Delhi ITAT Tears Into “WhatsApp & Hawala Token” Assessments – Electronic Evidence Without Proper 65B Compliance Held Unreliable; ₹40 Lakh Penalty u/s 271DA Quashed
In a significant ruling on the evidentiary value of digital records in income-tax proceedings, the Delhi ITAT quashed penalty proceedings under section 271DA after holding that the alleged electronic evidence relied upon by the department lacked legal admissibility and proper procedural safeguards.
The case involved allegations that the assessee had received ₹40 lakh in cash through “hawala cash tokens” in violation of section 269ST. The penalty was triggered based on electronic material allegedly extracted during search proceedings conducted in the Balar Marketing group cases.
The Tribunal relied heavily on an earlier coordinate bench decision in the Balar Marketing group itself, where the entire assessment was found to be founded on inadmissible electronic evidence extracted from phones, laptops and digital devices without maintaining proper chain of custody and statutory safeguards.
The ITAT made extensive observations on the importance of the CBDT Digital Evidence Investigation Manual, 2014, emphasizing that while income-tax proceedings are not strictly governed by the Evidence Act, the fundamental principles of evidence law, fairness, authenticity and reliability of electronic records cannot be ignored.
The Bench observed that merely producing screenshots, WhatsApp chats or extracted images from software without proper certification, extraction reports and uninterrupted chain of custody could not justify additions or penalties. The Tribunal noted glaring deficiencies in the department’s handling of digital evidence, including incomplete custody records and absence of proper linkage between seized devices and extracted material relied upon in assessment.
In a strong remark, the Tribunal held that the department had only made a “half-hearted attempt” at compliance with the CBDT Manual and failed to ensure that the electronic material retained its evidentiary sanctity throughout the proceedings.
The ITAT further clarified that even otherwise, the alleged transaction was in the nature of a loan transaction, which, if at all, would fall under section 269SS and not section 269ST. Since the proviso to section 269ST excludes transactions covered under section 269SS, the very foundation of penalty under section 271DA collapsed.
Accordingly, the Tribunal quashed the entire penalty for AYs 2017-18, 2018-19 and 2020-21, holding that inadmissible electronic evidence and unverified “hawala token” entries cannot become the sole basis for penal consequences under the Act.
FULL TEXT OF THE ORDER OF ITAT DELHI
