ITAT Deletes Additions Due to Unreliable Third-Party Evidence in 153C Proceedings

DCIT Vs Sanjay Jain (ITAT Delhi)

Summary: The ITAT Delhi upheld the order of the CIT(A) deleting additions made under Section 153C, holding that the evidence relied upon by the Assessing Officer lacked credibility and evidentiary value. The case arose from search proceedings alleging receipt of kickbacks and accommodation entries based on electronic chats, third-party statements, and documents obtained from other investigations. The Tribunal noted that key evidence, including statements of a third party and summary sheets, was unreliable, non-contemporaneous, and in some instances created later for investigative purposes. It also emphasized denial of cross-examination and lack of corroborative material directly linking the assessee to alleged transactions. Findings of other authorities and the High Court further weakened the evidentiary basis. The Tribunal concluded that additions cannot be sustained on unverified digital data and doubtful statements, thereby affirming deletion of additions and dismissing revenue’s appeals.

Core Issue: Whether additions made under Section 69A of the Income-tax Act in proceedings initiated under Section 153C—based primarily on alleged incriminating digital evidence, third-party statements (notably of Rajiv Saxena), and materials from Enforcement Directorate and Alankit Group—were legally sustainable, particularly when the assessee denied involvement and challenged the evidentiary credibility and lack of cross-examination.

Facts of the Case