Summary of this article
ITAT Delhi quashed a Rs 22.5 crore income tax notice.
The digital data failed to meet the strict benchmark.
Tax administrators are intensifying their efforts to reach the roots of tax evasion.
The Income Tax Appellate Tribunal (ITAT), Delhi quashed a Rs 22.5 crore income tax notice in a recent ruling. The notice which was sent to a Delhi resident, Mr. Kumar was based mostly on data recovered from a mobile phone in a separate investigation on a third party. The tribunal’s ruling is significant for taxpayers as it establishes an important precedent regarding the validity of digital evidence in tax assessments.
In’s and Out’s Of The Case
According to an article from the Economic Times, a search operation was conducted on a real estate company. During the search operation a mobile phone belonging to two persons associated with the company, namely, Mr Praveen Kumar Jain and his son Vaibhav Jain were seized. The tax department also alleged that Jain was acting as an intermediary for investment transactions for a private company which offered guaranteed returns schemes.
Following the seizure of the mobile phone, the Assessing Officer (AO) examined WhatsApp chats and images and found photos of envelopes and a sheet allegedly containing interest calculations involving Mr Kumar. Based on this digital evidence, Mr. Kumar was sent a tax notice for Rs 22 crore under Section 69 of the Income Tax Act, 1961 and Rs 22 lakh under Section 69A. The tax department claimed that the notice was sent due to unexplained cash investment and interest earned on the same.
As per the report one of the envelopes allegedly bore Kumar’s name which led the AO to believe that transactions related to an unsecured loan and payments of assured income or interest occurred between Kumar and the real-estate company. This in turn led to the initiation of proceedings under Section 153C of the Income Tax Act, 1961 against both the assessee and that private company for the Assessment Year 2020-21. Notably the Section 153C of the Income Tax Act, 1961 deals with the assessment of income for a person other than the person who was originally searched during a tax raid. The section seeks to prevent tax evasion where assets or documents are held in someone else's name.
ITAT’s Findings
As per ET’s report, Kumar appealed against the action before the Commissioner of Appeals (CIT A). However, the CIT (A) rejected Kumar’s plea. Post which Kumar took up the matter before ITAT Delhi. Ultimately, the Delhi bench of the ITAT gave a ruling in Kumar’s favour on October 15, 2025. In its ruling, the
ITAT concluded that the tax department's claims were unsubstantiated and quashed the tax demand for the following reasons:
Absence of Incriminating Evidence
The ITAT stated that the proceedings which were initiated under Section 153C were done in an unabated manner and the jurisdiction had to be based on "incriminating material" uncovered during the search. However, in this case the digital data failed to meet the strict benchmark. The tribunal stressed that any digital screenshotted chats, without forensic authentication, cannot be formed as evidence for any cases, especially of this magnitude.
Unauthenticated Data
The envelopes in the photos did not clearly bear Mr. Kumar’s name, and the sheet showing calculations was unsigned and unauthenticated. Additionally neither the third party (Mr. Jain) nor his son attributed any dealings to the assessee. The tribunal found that the AO of the case assumed that the envelope which had Mr Kumar's name pointed to a loan-interest arrangement between both the parties and did not track the history of the investments.
Lack of Independent Corroboration
The tribunal highlighted the lack of any paper trail like loan agreements, receipts, or signed documents which could tie the alleged transactions to Mr Kumar. The bench stated that images from a mobile phone, in the absence of independent proof, have "no evidentiary value." Thus there was no direct evidence that linked the search operation at Jain’s business with Mr Kumar.
Inconsistent Action
The ITAT also pointed out the inconsistency that no corresponding addition was made in the assessment of the private company (the alleged source of the income), which was initiated on the very same search material.
In India, and even globally, tax administrators are intensifying their efforts to reach the roots of tax evasion. This case sets an example that unverified WhatsApp messages and images cannot constitute legal evidence. Thus authorities should ensure that digital tips are supported by forensic authentication.
