Section 153C Invalid Without Nexus: ITAT Rejects ₹32.14 Cr Additions Based on Third-Party Diaries; Human Probabilities Cannot Replace Proof: ITAT Sets Aside Section 153C Proceedings; No Presumption Against Third Parties: ITAT Clarifies Limits of Sections 132(4A) and 292C; Coded Entries Like ‘DD’ Insufficient: ITAT Rejects Identity Attribution Without Proof
The Income Tax Appellate Tribunal, Mumbai Bench, in DCIT, Central Circle-8(1), Mumbai vs. Mrs. Sunetra Ajit Pawar (Legal Heir of Late Shri Ajit Anantrao Pawar) examined the validity of proceedings under section 153C where additions of ₹32.14 crores were made based on third-party diaries and digital evidence. The Tribunal upheld the CIT(A)’s decision quashing the assessment, holding that jurisdiction under section 153C requires a clear and demonstrable nexus between seized material and the assessee, which was absent. The alleged identification of the assessee through coded entries like “DD,” mobile contacts, WhatsApp chats, and Truecaller data was found unreliable and insufficient as legal evidence. The Tribunal emphasized that loose sheets and third-party documents lack evidentiary value without independent corroboration. It further held that presumptions under sections 132(4A) and 292C cannot be extended to third parties. Rejecting reliance on suspicion and human probabilities without foundational proof, the Tribunal concluded that the entire proceedings were invalid and the additions unsustainable.
Core Issue: The primary issue before the Tribunal was whether proceedings under section 153C and consequent additions of ₹32.14 crores could be sustained when the entire case of the Revenue was based on third-party diaries, coded entries (“DD”), and digital evidence, without any direct or legally admissible material establishing a clear nexus between the assessee and the alleged transactions.
Facts of the Case: A search under section 132 was conducted in the Triton Group, during which handwritten diaries and notebooks were seized from the residence of Shri Jiten Pujari. These documents contained entries of cash transactions aggregating to ₹32.14 crores against a person identified only as “DD.” The Assessing Officer inferred that “DD” referred to the assessee based on mobile phone data, WhatsApp chats, SMS exchanges, and Truecaller identification. On this basis, proceedings under section 153C were initiated and additions were made treating the amount as unexplained income of the assessee.
Findings of the Assessing Officer: The Assessing Officer held that the repeated appearance of “DD” across diaries and digital evidence established a consistent identity pointing to the assessee. He relied on circumstantial evidence such as mobile contacts saved as “DD Personal,” Truecaller database identification, and references like “Dada” in WhatsApp chats. Applying the doctrine of human probabilities, the AO concluded that the assessee was involved in unaccounted cash transactions and made additions under sections 69/69A/69C.
CIT(A): The CIT(A) quashed the proceedings under section 153C on the ground that the jurisdictional conditions were not satisfied. It was held that the seized documents neither belonged to nor demonstrably related to the assessee. The identity of “DD” was not established through any reliable evidence. The CIT(A) also held that digital material such as mobile contacts and Truecaller data was insufficient to establish a legally sustainable nexus. Statements of concerned persons did not implicate the assessee, and presumptions under section 292C could not be extended to third parties. Accordingly, the entire assessment was annulled.
Major Findings / Ratio of the ITAT: The Tribunal, while upholding the CIT(A)’s order, laid down crucial principles governing section 153C proceedings and evidentiary standards. It held that the very foundation of jurisdiction under section 153C requires a clear, cogent, and demonstrable nexus between the seized material and the assessee, which was completely absent in the present case. The Tribunal emphasized that third-party documents, especially loose sheets or private diaries, do not carry evidentiary value against an assessee unless supported by independent and credible corroboration. Mere presence of coded entries such as “DD” cannot justify attribution to a particular person without direct identification.
The ITAT further held that digital evidence such as mobile contacts, WhatsApp chats, and Truecaller data is inherently weak and cannot, by itself, establish identity or financial transactions unless backed by legally admissible corroboration. The Tribunal strongly cautioned against reliance on crowd-sourced applications like Truecaller, observing that such data lacks evidentiary sanctity and authenticity required in quasi-judicial proceedings.
A significant observation of the Tribunal was that the doctrine of human probabilities cannot be invoked in the absence of foundational evidence. Suspicion, however strong, cannot replace proof. The Tribunal reiterated that jurisdictional conditions under section 153C are not procedural formalities but substantive safeguards, and failure to satisfy them renders the entire proceedings void ab initio.
The ITAT also clarified that presumptions under sections 132(4A) and 292C are confined to the person from whose possession documents are found and cannot be extended to third parties. In the absence of the assessee’s name in the seized material, absence of corroborative financial trail, and absence of any direct evidence, the Tribunal held that the Revenue’s case was based purely on conjectures and inferential assumptions.
Ultimately, the Tribunal concluded that there was no legally admissible material having a bearing on the determination of the assessee’s income, and therefore, the assumption of jurisdiction itself was invalid. Consequently, the entire assessment was rightly quashed.
Cases Relied Upon: The Tribunal considered and applied principles from several landmark decisions. The Revenue relied on Shiv Prakash Bansal v. DCIT and on CIT v. Durga Prasad More and Sumati Dayal v. CIT regarding human probabilities. However, the Tribunal preferred the ratio of Common Cause v. Union of India (394 ITR 220) and CBI v. V.C. Shukla (Jain Hawala Diaries case), holding that loose sheets and uncorroborated documents lack evidentiary value. It also relied on DCIT v. Sunil Kumar Sharma and Saksham Commodities Ltd. to emphasize that additions cannot be sustained without a clear nexus between seized material and the assessee.
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