Income Tax Search Additions: Section 132(4) Statements, WhatsApp Chats, Loose Diaries & Digital Evidence

Summary: Search and seizure proceedings under the Income-tax Act, 1961 frequently raise disputes concerning the evidentiary value of statements recorded on oath under Section 132(4), unverified third-party records and electronic information recovered during investigations. This article by Mukesh Kohli examines whether additions can be sustained merely on oral admissions or digital materials such as WhatsApp messages, Excel sheets, loose diaries and informal accounting records without independent corroboration. It discusses decisions concerning the distinction between a statement that may be used as evidence and incriminating material discovered during search, particularly in completed or unabated assessments. The analysis also reviews the treatment of loose sheets and records found in the possession of third parties, the presumptions under Sections 132(4A) and 292C, and the importance of allowing an assessee to respond to adverse information and cross-examine relevant witnesses. Decisions including Harjeev Aggarwal, Abhisar Buildwell, Common Cause, V.C. Shukla and Andaman Timber are examined alongside Tribunal rulings involving disputed electronic records and retracted admissions. Finally, the article considers certification of electronic records under Section 65B of the Indian Evidence Act, 1872 and Section 63 of the Bharatiya Sakshya Adhiniyam, 2023, including hash information, technical certification and chain of custody. The discussion stresses verification of the applicable procedural regime and the factual relationship between the disputed material and the proposed addition. Admissibility, reliability and weight of evidence are separate questions requiring assessment in the context of the relevant statutory provisions and judicial precedents.

Whether addition can be made solely on the basis of statement recorded under section 132(4) or on the basis of WhatsApp Chat logs, Excel sheets, loose diaries and loose books of accounts discovered from third parties and not from the assessee during search on the third parties and what is the admissibility of digital evidences.

1. Introduction

The power of search and seizure under Section 132 of the Income-tax Act, 1961 (“the Act”) is arguably the most invasive instrument of state authority in direct tax administration. While the physical collection of documents and undisclosed assets forms the tangible objective of a search operation, the provisions of Section 132(4) vest the Authorized Officer with the extraordinary power to examine a person on oath. The statute dictates that any statement recorded under the Act.

However, the revenue authorities frequently fall into the structural trap of substituting hard evidence with confessional oral statements. Assessing officers routinely treat admissions under Section 132(4) as self-contained “incriminating material” to justify high-pitched additions, arguing that a statement given under oath carries automatic sanctity and requires no corroboration.

Furthermore, with the digitization of trade, the Revenue has heavily pivoted towards relying on WhatsApp chat logs, active Excel working sheets, loose diaries, and loose books of accounts discovered not just from the assessee, but often from third parties (such as accountants, brokers, or vendors).

Let us try to get the answer of the following questions: –

1. Whether an oral admission recorded under Section 132(4) qualifies as standalone “incriminating material” in the absence of independent corroborative evidence.

2. Whether third-party WhatsApp chats, Excel sheets, and loose diaries qualify as “incriminating material” to sustain additions solely on their own basis.

3. The modern evidentiary standards required for electronic logs, hard drives, and digital outputs seized during a search, specifically evaluating the transition from the mandatory certificate under Section 65B of the Indian Evidence Act, 1872 (IEA) to Section 63 of the new Bharatiya Sakshya Adhiniyam, 2023 (BSA).

Analysis

1. Whether an oral admission recorded under Section 132(4) qualifies as standalone “incriminating material” in the absence of independent corroborative evidence.

The Legal Anatomy of Section 132(4): Evidentiary Value vs. Incriminating Material

Section 132(4) enables the recording of statements on oath. The legislative mandate behind the Explanation to Section 132(4) clarifies that the examination can be extended to all matters relevant for the purpose of any investigation connected to the proceeding—it is not merely confined to assets found during the search.

However, a sharp distinction exists between a document having “evidentiary value” and a document qualifying as “incriminating material”. While the statute explicitly permits the revenue to use the statement as evidence, it does not elevate a bare statement to the status of independent incriminating material discovered during a search.

That addition can not be made solely on the basis of statement recorded under section 132(4) of the Income Tax Act, 1961 without the support of any corroborative or incriminating evidence found during the search.

Section 132(4) of the Income-tax Act, 1961, explicitly states that a statement recorded on oath during a search operation ‘may thereafter be used in evidence,’ judicial pronouncements have significantly refined its application. The statutory analysis indicates that the sufficiency of such a statement as sole evidence, especially if retracted or uncorroborated, is subject to judicial scrutiny. The courts, including the Supreme Court and various High Courts and Tribunals, have consistently held that an addition to income cannot be sustained merely on the basis of a statement recorded under Section 132(4) without the support of corroborative or incriminating material found during the search. The general principle established is that while such statements are admissible, their evidentiary value is not absolute, and they must be backed by independent evidence.

If no incriminating material is found during the search, or if the statement is not linked to such material, additions based solely on the statement are generally not sustainable. The CBDT has also issued circulars emphasizing the need to focus on gathering evidence rather than coercing admissions. Therefore, a nuanced approach is required, considering the specific facts, the presence or absence of corroborative evidence, the timing and validity of any retraction, and adherence to principles of natural justice, such as the right to cross-examination.

Section 132(4) of the Income-tax Act, 1961, empowers an authorized officer to examine any person on oath during a search and seizure operation, and such a statement ‘may thereafter be used in evidence’ in any proceeding under the Act. However, the crucial question that arises is whether such a statement, particularly when it is the sole basis for an addition to income, can stand on its own without corroborative evidence. The judiciary has provided significant clarity on this aspect, emphasizing that while these statements are admissible, their sufficiency as conclusive proof is not automatic.

An admission, even if made on oath, requires external support to form the basis of an addition to income. There are many court judgments on this subject, few of them are as under: –

ITO Vs Ramachandra Setty & Sons [2024] 163 taxmann.com 666 (ITAT-Bangalore)

The Hon’ble Bangalore Tribunal explicitly held that ‘a sworn statement cannot be relied upon for making any addition and must be corroborated by independent evidence for purposes of making assessments.’This ruling underscores the fundamental principle that an admission, even if made on oath, requires external support to form the basis of an addition to income. The Tribunal further noted that additions made solely on the basis of a Section 132(4) statement, supported by unsubstantiated loose slips, are liable to be deleted. This aligns with the broader legal understanding that while admissions are important, they are not always conclusive, especially if later disputed.

Pradeep Kumar Sharma Vs DCIT (2021) 132 taxmann.com 41 (ITAT- Delhi)

Similarly, in this case, additions were made based on loose slips and a diary found during a search on a third party, and statements recorded under Section 131 (which has similar evidentiary implications as 132(4) in this context) from a subordinate. However, no incriminating material was found from the assessee himself. The Tribunal held that ‘his statement alone is not sufficient to fasten any liability upon the assessee so as to compute undisclosed income.’ This case highlights that even if a statement is recorded, if it is not corroborated by other evidence, particularly incriminating material found from the assessee, it cannot be the sole basis for an addition.

Aurum Platz P Ltd Vs CIT (2023) 152 taxmann.com 85 (Mumbai- Trib)

In this case an addition was made under Section 69C based on a word document and a Section 132(4) statement, which was later retracted. The Hon’ble Tribunal deleted the addition, observing that the revenue could not identify the purpose, date, authorization, or recipient of the payment, and ‘there is no evidence placed on record to corroborate such loose document and to prove that payment of Rs. 20 lakhs was actually made.’ This decision emphasizes that even computer documents or loose papers, when uncorroborated, cannot form the basis of an addition, especially if the statement linked to them is retracted. The Tribunal referred to Supreme Court judgments in Central Bureau of Investigation v. V.C. Shukla and Common Cause (A Registered Society) v. Union of India, which held that entries in books of account, without independent evidence, cannot fix liability.

The CBDT Circular F.No. 286/98/2013-IT(Inv.II) dated 18.12.2014 emphasizes that instances of undue influence/coercion in recording statements during search/survey operations are viewed adversely by the Board. It directs officers to focus on gathering evidence rather than obtaining admissions under coercion. This circular provides a strong administrative backing for assessees who claim their statements were not voluntary.

Whether statement recoded under section 132(4) of the Act by themselves constitute incriminating material?

That statement recorded under section 132(4) of the Act do not by themselves constitute incriminating material

Statements recorded under section 132(4) of the Act do not by themselves constitute incriminating material. Such statements can be used as ‘information’ and may be used in evidence if relatable to other material found during the search, they cannot, on a standalone basis, empower the Assessing Officer to make an assessment. There must be a nexus between the statement and the incriminating evidence/material unearthed during the search. In our case the assessment has been made solely on the basis of statement recorded u/s 132(4) of the Income Tax Act, 1961 whereas such statements can be used as ‘information’ and may be used in evidence if relatable to other material found during the search, they cannot, on a standalone basis, empower the Assessing Officer to make an assessment. There must be a nexus between the statement and the incriminating evidence/material unearthed during the search. No incriminating material was found during search. Hence addition made by the AO is wrong and illegal. There are many court judgements on this subject, few of them are as under: –

CIT Vs Harjeev Aggarwal

(2016) 70 taxmann.com 95 (Delhi)

The Hon’ble Delhi high Court held that a statement recorded under section 132(4) can form basis for a block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search. The Hon’ble High Court held that ‘statements recorded under section 132(4) of the Act do not by themselves constitute incriminating material. The Hon’ble High Court clarified that while such statements can be used as ‘information’ and may be used in evidence if relatable to other material found during the search, they cannot, on a standalone basis, empower the Assessing Officer to make an assessment. There must be a nexus between the statement and the incriminating evidence/material unearthed during the search.

PCIT Vs Abhisar Buildwell (P) Ltd

(2023) 149 taxmann.com 399 (SC)

The Honble Apex Court clarifies that in respect of completed/unabated assessments, no addition can be made by the AO in the absence of any incriminating material found during the course of search. This implies that if a statement is the only thing found, and no other incriminating material supports it, it may not be sufficient for additions in concluded assessments.

No addition can be made solely on the basis of Statement recorded u/s 132(4) which is later retracted by the assessee

The human element in a search environment cannot be ignored. A statement recorded in the midnight hours, under high pressure and psychological fatigue, is inherently prone to errors or involuntary admissions. Recognizing this, the Central Board of Direct Taxes (CBDT) issued historic Instructions (Instruction No. 286/2/2003-IT (Inv.) dated 11.03.2003), categorically directing search parties to refrain from obtaining confessions under pressure and to focus instead on gathering direct evidence of undisclosed income.

The circumstances under which the statement was recorded (e.g., age, literacy, duration of search, mental state) are crucial in evaluating the validity of a retraction.

Suppose if the assessee’s mental state was not good due to his ill health and statement was recorded under that condition then the retraction cannot be dismissed as self-serving especially when no disproportionate asset is found, and the addition was based on the statement of an ill health person without collateral or supportive evidence. There are many court judgments on this subject, few of them are as under: –

Nagindas Dahyabhai Patel Vs ACIT

(1999) 104 Taxman 80 (ITAT-AHD)

A more nuanced application, is seen in this Hon’ble Tribunal decision, where an aged and illiterate agriculturist retracted his Section 132(4) statement. The Hon’ble Tribunal held that the retraction could not be dismissed as self-serving, especially when no disproportionate asset was found, and the addition was based on the statement of an aged and illiterate person without collateral or supportive evidence. This case highlights that the circumstances under which the statement was recorded (e.g., age, literacy, duration of search, mental state) are crucial in evaluating the validity of a retraction.

Harish Jain Vs ACIT

(2025) 174 taxmann.com 348 (Jaipur – Trib.)

The Hon’ble ITAT deleted an addition made solely on the basis of a Section 132(4) statement, which was later retracted, because no corroborative evidence was found during the search. The Tribunal noted that the seized agreement was unsigned and did not bear the assessee’s name, and no independent inquiry was conducted. This reinforces that retraction, when plausible and supported by detailed submissions, especially in the absence of corroborative material, can be effective.

PCIT Vs Rohit Karan Jain

(2025) 173 taxmann.com 184 (Gauhati)

The Hon’ble High Court held that where assessee during search admitted fact of routing unaccounted income of family by way of pre-arranged LTCG in regular books of account of assessee, however, later on retracted from said statement, such retracted statement could not be termed as incriminating material and, thus, no addition could be made in respect of completed assessments on basis of such retracted statement.

2. Whether third-party WhatsApp chats, Excel sheets, and loose diaries qualify as “incriminating material” to sustain additions solely on their own basis.

A critical area of dispute arises when the Revenue unearths WhatsApp chats, informal Excel working sheets, or loose diaries belonging to a searched third party (such as an independent broker, accountant, or business associate) and attempts to make a sole addition in the hands of the assessee based on those findings.

The law dictates that additions cannot be made solely on the basis of such third-party data due to the following structural legal principles:

A. The Doctrine of “Dumb Documents”

Cryptic entries on digital Excel sheets, names scribbled in a third party’s diary, or casual WhatsApp texts without matching signatures, contextual details, or execution evidence are recognized in law as “Dumb Documents.”

CBI Vs V.C.Shukla (1998) taxmann.com 384

The Hon’ble Supreme Court held that entries in loose diaries or notebooks are mere third-party hearsay and cannot be treated as substantive evidence to fasten liability onto a person unless there is independent corroboration showing the actual movement of funds or goods.

Common Cause Vs Union of India (2017) 77 taxmann.com 245 (SC)

The Hon’ble Supreme Court reinforced that loose sheets, standalone Excel printouts, or random digital notations found at third-party premises do not constitute reliable “books of accounts” under Section 34 of the Indian Evidence Act. They cannot be deemed standalone “incriminating material” unless backed by physical corroboration (e.g., actual recovery of undisclosed cash or corresponding assets from the assessee).

B. The Right to Cross-Examination

If an assessment is completed using third party information without allowing assessee to cross-examine that party violates the core principles of natural justice and makes the addition void.

The Hon’ble Supreme Court in the case of Andaman Timber Industries Vs CCE (2015) 62 taxmann.com 3 (SC) held that a failure to allow cross-examination of a third party whose statement or documentation forms the basis of an adverse order constitutes a fatal violation of the principles of natural justice, rendering the assessment order a nullity.

C. The Statutory Presumption under Section 132(4A) and Section 292C

The addition cannot be sustained by the Assessing Officer (AO) or the Commissioner of Income Tax (Appeals) solely on the basis of entries in a diary found from a third party. This rule is especially clear if there is a name discrepancy and the Revenue lacks independent corroborative evidence.

Under Section 132(4A) and Section 292C of the Act, a legal presumption exists that the contents of a seized diary are true—but only against the person from whose possession or control the document was found. The Revenue cannot automatically stretch this presumption to a third party.

A document that does not contain clear, unambiguous details showing the execution of a financial transaction, its exact date, its definitive quantum, and the unambiguous identity of the parties involved is a “dumb document”. It holds no evidential value on its own.

The onus lies entirely on the Revenue to bring on record independent, corroborative materials (such as bank transactions, seized assets, or cross-examination statements). Suspicion, no matter how strong, cannot take the place of absolute legal proof.

Under Section 292C of the Income Tax Act, the statutory presumption that the contents of a seized document are true applies only to the person from whose possession the document was found. The law does not permit a presumption that the entries are true or belong to Assessee, because the diary was found at a third party’s premises. The burden of proof rests entirely on the Revenue to independently establish a connection.

Additions based on mere suspicion, shorthand notations, or aliases without specific, verified linkage (such as handwriting matching, statement confirmations, or bank trails) are illegal. There are many judgments on this topic, few are as under: –

• CBI v. V.C. Shukla (1998) 3 SCC 410 / 1998 taxmann.com 2155 (SC)
• Common Cause v. Union of India (2017) 77 taxmann.com 245 (SC)
• Kishanchand Chellaram v. CIT (1980) 125 ITR 713 (SC)
• DCIT Vs Sunetra Ajit Pawar (2026) 185 taxmann.com 911 (Mumbai-Trib.)

3. The modern evidentiary standards required for electronic logs, hard drives, and digital outputs seized during a search, specifically evaluating the transition from the mandatory certificate under Section 65B of the Indian Evidence Act, 1872 (IEA) to Section 63 of the new Bharatiya Sakshya Adhiniyam, 2023 (BSA).

The Conundrum of Electronic Evidence: Admissibility and Certification

In modern search operations, physical ledger books have been largely replaced by hard drives, cloud servers, pen drives, and WhatsApp data mirrors. The Revenue heavily relies on printouts or digital extracts retrieved from these communication devices to form the foundation of their assessment orders.

However, since digital records are easily altered, manipulated, or corrupted, their admissibility is strictly controlled by statutory frameworks. This brings us to the operational shift between the Indian Evidence Act, 1872 (IEA) and the new Bharatiya Sakshya Adhiniyam, 2023 (BSA).

A. The Era of Section 65B of the Indian Evidence Act, 1872

For searches executed and assessed under the older regime (prior to July 1, 2024), any secondary electronic evidence (such as Excel sheets printed from a seized computer, WhatsApp chat backups extracted onto a pen drive, or screenshots of text messages) requires mandatory certification under Section 65B(4) of the Indian Evidence Act,1872.

The production of a Section 65B(4) certificate is a mandatory condition precedent for the admissibility of secondary electronic records. Oral evidence cannot substitute this statutory command.

If electronic data is gathered from a third party or generated as a computer output copy, it is deemed completely inadmissible if it is not accompanied by a valid Section 65B certificate.

There are many court judgements few are as under: –

Arti Garg Vs DCIT (2026) 189 taxmann.com 767(Delhi-Trib)

The Hon’ble ITAT held that where additions for unexplained investment and expenditure were based on digital evidence retrieved from a third-party mobile phone, but compliance with requirements for electronic evidence, including proper section 65B certification and chain of custody, was not established, such additions could not be sustained.

DCIT Vs Balar Marketing P Ltd (2026) 184 taxmann.com 480 (Delhi-Trib)

The Hon’ble ITAT held that where additions were based on WhatsApp chats and images of software recovered from devices seized during search, these constituted only secondary evidence without proper extraction reports, chain of custody, or 65B certificate establishing authenticity, thus, in absence of reliable and admissible evidence, additions were held to be unsustainable

B. The Modern Regime: Section 63 of the Bharatiya Sakshya Adhiniyam, 2023

For search actions, forensic examinations, or ongoing proceedings initiated under the new criminal-evidentiary layout, Section 65B of the IEA stands repealed and is replaced by Section 63 of the BSA. The new law introduces much stricter protocols designed to handle modern cyber-forensics.

Key Differences & New Challenges under Section 63 of BSA:

1. Mandatory Hash Value Disclosure: Under Section 63(4) of the BSA, a simple certificate stating that the computer was operating normally is no longer sufficient. The statute now explicitly mandates the disclosure of the Alphanumeric Hash Value of the digital files using standardized cryptographic hash functions (like SHA-256). This ensures the digital file has not been altered since the moment of seizure.

2. Expert Certification (The Schedule): The BSA introduces a standardized certificate in its Schedule (Part A and Part B). Crucially, Part B introduces the requirement of a secondary declaration signed by an Expert, which can place an onerous technical and procedural burden on the department during search operations.

When Section 132(4) Confronts Digital Evidence

A common tactic used by the Revenue is to confront an assessee during a search with a digital spreadsheet or a WhatsApp chat log found on a phone or laptop. Under stress, the assessee signs a statement under Section 132(4) admitting to the undisclosed figures visible on the screen. Later, if the Revenue fails to properly certify that digital data under Section 65B (IEA) or Section 63 (BSA), the entire electronic framework collapses.

What happens to the Section 132(4) statement in such a case?

The Chain Principle: If the primary digital source code, WhatsApp log, or Excel sheet is legally inadmissible due to a lack of statutory certification under Section 63 of the BSA / Section 65B of the IEA, the oral statement recorded in consequence of that invalid material cannot standalone as incriminating material.

An admission based on a legally inadmissible document cannot cure the underlying structural defect. As the classic legal maxim dictates: Sublato Fundamento Cadit Opus (Remove the foundation, and the superstructure falls).

Conclusion

The jurisprudence governing search and seizure assessments has clearly evolved away from a reliance on pure oral admissions towards verifiable, corroborated physical and digital evidence

1. A Section 132(4) statement is not a standalone silver bullet for the Revenue. Without independent corroborative physical evidence discovered during the search, the addition fails the absolute jurisdictional threshold of “incriminating material” established by Abhisar Buildwell.

2. Third-party records (WhatsApp, Excel, Diaries) are inherently weak evidence. Sole additions based on third-party notations are illegal under the V.C. Shukla and Common Cause frameworks unless the Revenue unearths an active nexus, provides the right to cross-examination, and proves the actual flow of real wealth.

3. Whenever the Revenue builds a case on email trails, pen drive backups, or WhatsApp logs, practitioners must immediately challenge its admissibility based on certification defects. For older actions, check for complete compliance with Section 65B of the IEA. For newer actions governed by the BSA, verify if the Section 63 Hash Value Certificate and the mandatory expert signatures are missing. If they are absent, the entire electronic record becomes legally unusable.

Ultimately, an admission under oath or a note in a third-party diary is merely one piece of the puzzle. True tax justice requires the Revenue to match the words spoken or written with verifiable, legally admissible material facts.