Arbitrary Addition based on mobile images without corroborative evidence unjustified

Harvinder Kaur Vs ACIT (ITAT Chandigarh)

Summary: The case of Harvinder Kaur vs. ACIT (ITAT Chandigarh) centered on additions made by the Assessing Officer (AO) under Section 153C of the Income Tax Act, 1961, following a search and seizure operation at the residence of Sh. Surinder Singh Bindra. The AO alleged undisclosed investments by the assessee, Smt. Harvinder Kaur, in a land purchase, based primarily on extrapolated figures from cloned mobile images. The AO determined that an additional purchase consideration of ₹2,28,57,080/- was paid for a plot in Village Aayali, Ludhiana. This resulted in additions of ₹1,56,25,000/- for AY 2017-18 and ₹50,32,068/- for AY 2018-19, alongside a cash seizure addition of ₹4,10,000/-. The Commissioner of Income Tax (Appeals) [CIT(A)] reduced the additions by 50%, acknowledging that half the plot belonged to the assessee’s father, Sh. Manjeet Singh, but upheld the remaining 50% as the assessee’s undisclosed investment. However, the assessee contested these additions, arguing that no statement was recorded from her at any stage, the land purchase was through a registered sale deed with documented payments, and the AO conducted no independent inquiry. The assessee also raised concerns about the reliability of the digital evidence and the arbitrary extrapolation of figures, and highlighted that the Prohibition of Benami Property Transactions Act (PBPT) proceedings yielded no adverse findings. The Income Tax Appellate Tribunal (ITAT) Chandigarh ruled in favor of the assessee, deleting the entire addition related to the alleged undisclosed investment and the cash seizure. The ITAT agreed with the assessee’s arguments that the additions were based on uncorroborated digital evidence. The tribunal noted the absence of any inquiry with the seller, the lack of adverse findings in the Benami Act proceedings, and the arbitrary extrapolation of figures from the mobile images. The ITAT emphasized that the land purchase was through a registered sale deed, with documented payments, and that the AO’s reliance on mere mobile images without corroborative evidence was unjustified. Furthermore, the ITAT dismissed the cash seizure addition, accepting the assessee’s explanation that the seized cash represented household savings from various family members who were all income tax return filers. The ITAT cited several judicial precedents, including K.P. Varghese v. ITO and Common Cause, to support its decision that uncorroborated digital evidence and extrapolated figures cannot form the sole basis for additions. The tribunal concluded that the CIT(A) erred in upholding part of the additions, and allowed the assessee’s appeals, deleting the entire disputed amounts.

1. Brief facts:

The case arises from a search and seizure operation conducted on 01.11.2017 at the residential premises of Sh. Surinder Singh Bindra in B.R.S. Nagar, Ludhiana. Based on this search, proceedings under Section 153C of the Income Tax Act, 1961 were initiated against the assessee, Smt. Harvinder Kaur, for two assessment years.

The primary issue in the case was the alleged undisclosed investment in the purchase of a plot of land, based on digital evidence (cloned mobile images) retrieved during the search. The AO extrapolated figures from the images and concluded that an additional unaccounted purchase consideration of ₹2,28,57,080/- was paid for the plot in Village Aayali, Ludhiana.

2. Summary of Additions Made by the AO:

Assessment Year

Undisclosed Investment as Per AO

AY 2017-18 (FY 2016-17)

₹1,56,25,000/-

₹78,12,500/-

₹78,12,500/-

AY 2018-19 (FY 2017-18)

₹50,32,068/-

₹25,16,034/-

₹25,16,034/-

Cash Seized During Search

₹4,10,000/-

₹3,00,000/-

₹3,00,000/-

Total Addition Confirmed by CIT(A)

₹1,06,28,534/-

The CIT(A) reduced the total addition by 50%, acknowledging that half of the plot belonged to the assessee’s father, Sh. Manjeet Singh. However, the remaining 50% was still added in the hands of the assessee.

3. Key Arguments by the Assessee:

(i) No Statement of Assessee Recorded at Any Stage

• The assessee argued that at no point—during search, post-search investigation, or assessment proceedings—was she ever examined about the alleged transactions.
• The entire addition was based solely on mobile images, which were never confronted to her.

(ii) Land Purchase Was Through a Registered Sale Deed

• The land was purchased through a legally registered title deed, and the full consideration paid was documented before the Sub-Registrar.
• The assessee paid ₹11 lakhs from her bank account, and her father, Sh. Manjeet Singh, also paid ₹11 lakhs through banking channels.
• The transaction was executed at the circle rate, meaning there was no understatement of value.

(iii) No Independent Inquiry Conducted by AO

• The AO never cross-examined the seller or Sh. Manjeet Singh regarding the actual sale price.
• No independent verification or material evidence was gathered to justify the extrapolated purchase price of ₹2.28 crores.

(iv) Digital Evidence and Extrapolation Issues

• The entire case was based on cloned mobile images, which allegedly contained handwritten numerical figures.
• The AO extrapolated these figures without any logical reasoning, leading to an arbitrary determination of the purchase price.
• The assessee relied on judicial precedents, arguing that mere notings on loose sheets or digital records, without supporting evidence, cannot justify an addition.

(v) Proceedings Under the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act)

• The case was referred to the PBPT Unit.
• The seller of the property, Sh. Harkindar Singh, was summoned and examined under the PBPT Act.
• He confirmed under oath that he had not received any money over and above the registered sale price.
• Statements of the assessee, her father, and her representative before the Sub-Registrar, Sh. Neeraj Bassi, were also recorded, and all confirmed the registered consideration was the full price paid.
• No adverse conclusion was drawn by the PBPT authorities, yet the AO still made the addition.

(vi) Precedents Cited by the Assessee

The assessee’s counsel cited several judgments supporting the argument that unsubstantiated digital evidence cannot be the sole basis for addition:

1. .K.P. Varghese v. ITO [131 ITR 597] (SC): The burden of proof lies with the revenue to establish understatement or concealment of income.

2. PCIT v. Umesh Ishrani [2019] 108 taxmann.com 437 (Bombay HC): Loose papers without verification from the seller/developer cannot justify an addition.

3. ACIT v. Layer Exports (P) Ltd. [88 taxmann.com 620] (ITAT Mumbai) : Unverified notings and scribblings on loose sheets are not conclusive proof.

4. ACIT v. Shanker Nebhumal Uttamchandani [161 taxmann.com 536] (ITAT Surat): No addition can be made solely based on images retrieved from a digital device.

5. Common Cause Case [394 ITR 220] (SC): Extrapolated figures in seized documents cannot be used as the basis for additions.

4. Decision of ITAT Chandigarh

(i) Deletion of Addition for Undisclosed Investment

• The ITAT agreed with the assessee’s arguments that the addition was based on uncorroborated digital evidence.

It observed that:

• No inquiry was made with the seller.
• No adverse conclusion was drawn in the Benami Act proceedings.
• The figures in mobile images were arbitrarily extrapolated.
• Accordingly, the entire addition of ₹78,12,500 for AY 2017-18 and ₹25,16,034 for AY 2018-19 was deleted.

(ii) Deletion of Cash Seizure Addition

• The ITAT rejected the AO’s claim that the seized cash of ₹4,10,000 was unexplained.

Reasons for deletion:

• The assessee and her family members were all income tax return filers.
• They had multiple sources of income (rental, salary, business).
• The amount was reasonable as household savings.
• The entire addition of ₹3,00,000 was deleted.

FULL TEXT OF THE ORDER OF ITAT CHANDIGARH

Both the above appeals are filed by the Assessee against the respective orders of the Ld. CIT(A)-5, Ludhiana each dt 18/10/2023 pertaining to Assessment Years 2017-18 & 2018-19 respectively.

2. Since the issues involved in both the above appeals are identical and, as such, for the sake of brevity, they are taken together.

3. In ITA No. 691/Chd/2023 for the A.Y. 2017-18, the assessee has raised following grounds:

“1. That the Ld. CIT (A) has erred in confirming the part addition of Rs.78,12,500/-on account of alleged undisclosed investment in the plot jointly purchased by her with her father, Sh. Manjeet Singh.

2. That the confirmation of part addition by the Ld.CIT(A) on the basis of ‘What Sapp’ Messages, is against the factual facts and circumstances of the case as laid down in various judgments of different Benches of the ITAT/High Courts that no addition could be made on the basis of ‘What Sapp’ messages only as the same has no evidencery value.

3. Notwithstanding the above said ground of appeal, the Ld.CIT(A) has failed to appreciate that the statement of the sellers of the land had been recorded during the benami proceedings, initiated against the assessee and the sellers have confirmed that the plot was sold by them as per amount mentioned in the title deed executed and, as such, that documentary evidence have wrongly been ignored by the Ld. CIT(A).

4. That the Ld. CIT(A) has failed to appreciate the fact that the What Sapp message is not incriminating material found during the course of search and, as such, on the basis of judgment of Hon’ble ‘Apex Court’ in the case of Abhisar Buildwell Pvt. Ltd., no addition is called in the absence of any incriminating evidence.

5. a). That the Ld. CIT(A) has erred in giving the benefit of Rs. 30 lacs of the income as declared in the return of income as per para 5.2.11 of the order, against the declared income of Rs. 40,10,000/- available with the assesse.

b).That the said benefit of Rs. 10 lacs has been denied on surmises and conjectures.

6. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.”

4. In ITA NO. 692/Chd/2023 for the A.Y. 2018-19, the assessee has raised following grounds:

“1. That the Ld. CIT (A) has erred in confirming the part addition of Rs. 25,16,034/-on account of alleged undisclosed investment in the plot jointly purchased with her father, Sh. Manjeet Singh

2. That the confirmation of part addition by the Ld.CIT(A) on the basis of ‘What Sapp’ Messages, is against the factual facts and circumstances of the case and against the principles as laid down in various judgments of different Benches of the ITAT/High Courts that no addition could be made on the basis of ‘What Sapp’ messages only, as the same has no evidencery value.

3. Notwithstanding, the above said ground of appeal, the Ld.CIT(A) has failed to appreciate that the statement of the sellers of the land had been recorded during the benami proceedings, initiated against the assessee and the sellers have confirmed that the plot was sold by them as per amount mentioned in the tile deed executed and, as such, that documentary evidence have wrongly been ignored by the Ld. CIT(A).

4. That the Ld. CIT(A) has erred in restricting the addition of cash found during the course of search to the tune of Rs.3 lacs against the addition of cash of Rs. 4,10,000/- found during the course of search and has failed to appreciate that the said amount was negligible, by taking into consideration the size of family and the amount found during the course of search.

5. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.”

5. Briefly the facts of the case are that A search and seizure operation under Section 132 was conducted at the residential premises of Sh. Surinder Singh Bindra in B.R.S. Nagar, Ludhiana, on 01.11.2017, and the proceedings under Section 153C were initiated against the assessee for two years based on certain cloned images found in a mobile phone. These images were reproduced on pages 3, 4, and 5 of the assessment order. During the post-search investigation, a statement from Sh. Surinder Singh Bindra was recorded on 11.12.2017, in which, the said images were confronted to Sh. Surinder Singh Bindra to which, he replied that the said Mobile belongs to his wife, Smt. Harvinder Kaur. He further stated that the said Mobile was gifted to her by her parents on the occasion of their marriage anniversary in 2017

5.1 Further, as it is seen from the assessment order that though Sh. Surinder Singh Bindra filed written submissions that these are rough jottings and the hand writing does not appear to his or his family members still then the AO determined the purchase consideration of the land in question on the basis of cloned images, which was in the name of assessee and her father, Sh. Manjeet Singh. By extrapolating the figures noted in the images of Mobile, purchase consideration to the tune of Rs. 2,28,57,080/- was determined by the AO and after excluding the disclosed consideration of Rs. 11 lacs each by the assessee and her father,. Sh. Manjeet Singh, totaling to Rs. 22 lacs the undisclosed consideration to the tune of Rs. 2,06,57,068/- towards the purchase of plot by the assessee and Sh. Manjeet Singh. It was further stated by the AO that since the payments were made partly in financial year 2016-17 and partly in Asstt. Year 2017-18. He made the addition of Rs. 1,56,25,000/- as undisclosed investment in purchase of plot in the hands of assessee while making such addition, the entire ‘on money’ paid for the purchase of land was made in the hands of assessee in two assessment years, though, the ¹/₂ share was of Sh. Manjeet Singh, as per registered title deed. The AO held it to be as undisclosed investment for purchase of land in Village Aayali.

6. The assessee filed appeals before the Ld. CIT(A). In the order of Ld. CIT(A), from pages 2 to 20, the assessment order has been reproduced and submissions of the assessee in detail have been reproduced. The Ld. CIT(A) has given his decision after considering the submissions of the assessee, the Ld. CIT(A) deleted the addition to the extent of Rs. 78,12,500/- in financial year 2016-17 and Rs. 25,16,034/- in financial year 2017-18 and held that, since 50% share of the land was purchased by Sh. Manjeet Singh, therefore, the undisclosed investment in the purchase of land by the assessee to the extent of 50% of Rs. 78,12,500/- and Rs. 25,16,500/- was confirmed.

7. Against the order of the Ld. CIT(A) the assessee is in appeal before us.

8. During the course of hearing, the Ld. Counsel for the Assessee argued that that there was search in the case of assessee and the proceedings were initiated u/s 153C on the basis of Whatsapp chat of her Mobile. It was stated at the very outset that, no statement of the assessee was recorded either during search or during post search investigation or during the course of assessment proceedings, regarding the ‘images’ as is evident from the Assessment order.

8.1 It was further submitted that the land was purchased through registered title deed and the payment was made before the Sub Registrar. Rs. 11 lacs was paid by her through banking channel and Rs. 11 lacs was paid by her father, Sh. Manjeet Singh from his regular bank account. The registration was effected as per cercle rate. The Ld. Counsel relied upon the decision of the Hon’ble Apex Court in the case of K.P. Varghese Vs ITO reported in 131 ITR 597, wherein, it has been held that burden of proving is on the revenue, when there is allegation of understatement or concealment in the consideration sought in the registered title deed.

8.2 It was submitted that no independent enquiries/investigations was made by the AO to cross examine the actual sale price either from the seller or from Sh. Manjeet Singh and no material evidence has been brought on record to determine the unrealistic purchase consideration to the tune of 2, 28,00,000/-.

8.3 It was further submitted before us that the whole case has been made out by the AO and confirmed by the Ld. CIT(A) only on the basis of images in the ‘Mobile data’ without, there being any corroborating evidence in possession of the AO. Further, it was argued that the said images in the Mobile data, which are in two figures have been extrapolated without assigning any reason and without confronting the same to the assessee. It was submitted by the Ld. Counsel for the Assessee that the assessee was staying in the same house, being the wife of Sh. Surinder Singh Bindra and neither during the course of search nor in post search investigation, anything was confronted to the assessee. Further, it was brought to our notice that the case of the assessee was referred to ‘Prohibition of Benami Property Transaction Act 1988’ Unit and these facts have been mentioned before the Ld. CIT(A). The seller of the property namely, Sh. Harkindar Singh S/o late Sh. Gurcharanjit Singh, residing at House No.1, Village Aayali Khurad, Ludhiana was summoned and his statement was recorded. During the course of such proceedings before the officials of ‘PBPT’, in which, he confirmed the sale of property measuring 3 Kanals 18 Marias, as per registered title deed. Further, he confirmed in answer to Question that he had not received any amount over and above the amount mentioned in the registered deed.

8.4 It was further submitted that even the statement of the assessee was recorded by the ‘PBPT’, in which, she confirmed the purchase of property measuring 3 Kanals 18 Marias for Rs. 11 lacs of her share. Even, the statement of her father namely, Sh.Manjeet Singh i.e. other co-owner was recorded, in which, he also confirmed that the property measuring 3 kanals 11 Marias was purchased through registered tittle deed and he confirmed having paid Rs. 11 lacs on account of his share. It was also submitted that even the statement of Sh. Neeraj Bakshi, was also recorded, who had appeared on behalf of the assessee before the Sub Registrar for executing the sale deed in favour of assessee and he confirmed the same fact. True copies of statements as recorded during the course of hearing before the officials of ‘PBPT were placed on record.

8.5 The Ld. Counsel for the assessee relied on the judgment of Bombay High Court in the case of PCIT Vs Umesh Ishrani, reported in [2019] 108 taxmann.com 437, wherein, it was held that no addition could be made on the basis of loose paper, without any enquiry or verification made from the seller of the shop/developers and the same view has been taken in the case of ACIT Vs Layer Exports (P) Ltd., by the ITAT, Mumbai Bench, reported in 88 taxmann.com 620, in which, it was held that no addition could be made simply on the basis of uncorroborated notings and scribbling on loose sheets of papers. Reliance was also placed on the judgment of ITAT, Surat Bench in the case of ACIT Vs Shanker Nebhumal Uttamchandani, reported in 161 taxmann.com 536 for the preposition that no addition of the unexplained money can be made on the basis of ‘images’ related from the digital device and without bringing any corroborating evidence on record.

8.6 Further it was submitted that the said images are from the digital evidence and relying upon the Income tax Investigation manual on digital evidence (copy placed on record) it submitted before us that no such norms have been followed. The Ld. Counsel relied upon the judgment of Hon’ble Apex Court in the case of Common Cause, 394 ITR 220 that, where the figures in the seized documents have been extrapolated, no addition could be made on such extrapolated figures. Alternatively, by way of ground No.5 (a), it was argued before us that the assessee had accumulated funds as per para 5.2.10 of the order of Ld. CIT(A) to the tune of Rs. 40,10,000/- and the Ld. CIT(A) has given a benefit on adhoc basis of Rs. 30 lacs and, thus, additional benefit of Rs. 10 lacs ought to be given if for the sake of addition, the addition was to be sustained.

9. Per contra, the Ld. DR relied upon the order of the Ld. AO as well as of the Ld. CIT(A) and argued before us that the said images from the Mobile data are clear proof of the fact that the undisclosed consideration has been paid for the purchase of plot and, thus, sought confirmation of addition as made by the Ld. CIT(A).

9.1 Regarding the statements before the ‘PBPT, it was argued before us that the said proceeding were independent and have no relevance to the facts of the case.

10. In Rejoinder, the Ld. Counsel of the assessee, submitted that the facts before the ‘PBPT’ are very much relevant, because in the statement of the seller, Sh. Harkindar Singh, Neeraj Bassi, the assessee and Sh. Manjit Singh, they have all confirmed that no ‘on money’ was paid and only registered consideration as per registered purchase deed was paid and sought deletion of part addition as confirmed by the Ld. CIT(A) and such statements as such, are very much relevant.

11. In ITA No.692/Chd/2023, though, there is independent ground of appeal by way of ground No.4 other than the above ground that cash of Rs. 5,03,000/- was found during search and out of which, cash of Rs. 4,10,000/- was seized during the course of search.

11.1 It was submitted before us that the AO has made the addition of Rs. 4,10,000/- of the cash so seized during search and before the Ld. CIT(A), it was argued that the said cash pertained to family savings of mother in law, brother in law, husband, self and Smt. Gurivnder Kaur, mother of Smt. Jatinder Kaur W/o Sh. Harvinder Singh and all are living in same house and have common kitchen and, as such, the said amount was very much negligible, which could be considered as family savings and the Ld. CIT(A) has restricted the addition to Rs. 3 lacs, against the addition of Rs. 4,10,000/- made by AO.

11.2 It was further submitted before us that all the family members are filing their returns of income having rental income, salary income and the assessee is a qualified Civil Engineer and is having her own business income and, as such, argued that no addition could be made and argued that no case of 115BBE can be made out.

12. The Ld. DR relied upon the order of the Ld. AO as well as of the Ld. CIT(A).

13. We have considered the rival submissions and perused the material available on the record, as well as the case laws relied upon by the Ld. Counsel and arguments of the Ld. DR. The facts are not disputed in, as much as, certain digital data was extrapolated from the ‘Mobile data’ of the assessee, wherein the purchase consideration of plot, purchased by the assessee and her father, having ¹/₂ share each and the total consideration as per ‘Mobile Images’ were worked out by the AO to the tune of Rs. 2,28,57,080/-. As per Mobile data, the figure was calculated in two different years and the addition in financial year 2016-17 was made at Rs. 1,56,25,000/- and in financial year 2017-18, at Rs. 50,32,068/-, after giving benefit of Rs. 22 lacs, which was registered amount as per the title deed by the AO. The Ld. CIT (A) reduced the addition to ¹/₂ , since it was held by him that ¹/₂ share belongs to Sh. Manjeet Singh and he confirmed the addition to the extent of Rs. 78,12,500/- as per finding given by the Ld. CIT(A), for financial year 2016-17 Rs. 25,16,034/-. It is a fact that no statement of the assessee had been recorded, either during search or during post search or during the course of assessment proceedings and no independent enquiries or any corroborative evidence is there on record for making the addition of payment of ‘on money’ by the assessee. It is also a fact that the figures in the ‘Mobile images’ have been extrapolated, without any reason. No addition could be made on account of such ‘Mobile data’ or loose paper in the absence of corroborative evidence, for which, the reliance has been placed by the Ld. Counsel of the assessee on Bombay High Court, different Benches of the ITAT and further reliance on the judgment of Hon’ble Apex Court in the case of Common Cause reported in 394 ITR 220 are quite apt. Copy of the statement as recorded of the seller, the assessee and other co-owner, Sh. Manjeet Singh and Sh.Neeraj Bassi have been recorded and they have undisputedly stated before the ‘PBPT that no payment of ‘on money’ have been made and no adverse view have been taken by the department in the hands of seller or in the hand of Sh. Manjeet Singh at all. The said fact has already been stated by the assessee in his argument before the Ld. CIT(A) and, thus, when no adverse conclusion have been drawn in the hands of seller and also that the figures in the ‘Mobile data’ have been extrapolated and no adverse view has been taken in benami proceedings in the case of the assessee, the addition of Rs. 78,12,500/- as confirmed by the Ld. CIT(A) for Asstt. Year 2017-18 and Rs. 25,16,034/- cannot be sustained on the basis of facts and circumstances of the case as mentioned above.

14. The next ground of appeal is on account of confirmed addition of Rs. 3 lacs in Asstt. Year 2018-19. this addition was confirmed by the Ld. CIT(A) on account of cash of Rs. 4,10,000/-, which was seized during the course of search. After considering the facts on records as per para 5.3 of the order of Ld. CIT(A). Arguments of the Ld. Counsel of assessee, has been considered. Since there are six members of the family, who are all filing their returns of income and the assessee himself is an engineer and she is having her own business, there is no justification of sustaining the addition of Rs. 3 lacs as confirmed by the Ld. CIT (A).

15. In the result, assessee’s appeal on different issues raised in ITA Nos. 691 and 692/Chd/2023, are allowed.

Order pronounced in the open Court on 01/04/2025.