In a ruling that is important for taxpayers to know, the Rajasthan High Court recently upheld an income tax reassessment notice based primarily on WhatsApp chats. The reassessment was undertaken under Section 153C of the Income Tax Act, 1961 wherein the court dismissed a writ petition filed by an individual who challenged a notice issued by tax officials.
This ruling shows a shift in how digital communication, such as WhatsApp chats, can also be used in tax proceedings.
What was the case?
The petitioner, Giriraj Pungalia, filed a writ petition to challenge the validity of the notice he received under section 153C for the assessment year 2019-20. Following the notice, the Income Tax Department conducted a search and seizure operation on 13 July 2020 on the Om Kothari Group.
During their investigation, the officials found WhatsApp chats from the mobile phones of the group’s directors that suggested some undisclosed cash transitions for the sale of plots to the petitioner. Pungalia, who was caught up in this case, argued that his original return had already declared an income of Rs 41,89,700/- for the Assessment Year 2019-20 and that no incriminating documents had been seized directly from him.
He further maintained that the uncovered WhatsApp chats did not meet the legal standards set under Section 153C and that his name was not even clearly mentioned in the chats, only a surname which is common in Rajasthan.
What is Section 153C?
This section deals with the assessment of the income of any person other than the one being searched for if the authorities find any of the following during a search that belongs to or pertains to another person:
- Money
- Assets
- Documents
Moreover, such materials/assets should also have a bearing on the total income of that person. It is important to know that Section 153C also overrides the usual process of assessment or reassessment under Sections 139, 147, and 148 allowing for the re-opening of past six years’ assessments if any credible material is found.
What did the Court say?
The Rajasthan High rejected the petition after noting the following key factors:
WhatsApp chats found during the search were corroborated by images of cash books and some other physical records that were seized by the tax officials from Om Kothari Group
The chats mentioned some specific plots which also matched figures in the cash books
The tax department had already recorded a satisfaction note before initiating action against the petitioner, as required by the law.
(It’s important to know that any assessment under Section 153C mandates the recording of satisfaction by the Assessing Officer (AO) upon discovery of material likely to "have a bearing on the determination of the total income.")
The Court noted:
“The persons having the WhatsApp chats were connected with both the companies herein and the transactions were regarding specific plots and the details of cash payment were clearly contained in the WhatsApp chat, thus with such specific inputs, the same cannot be said to be vague or hit by the strict parameters of Section 153C of the Act of 1961.”
In its judgment, the Court clarified that while WhatsApp messages alone might not be sufficient, in this particular case they were supported by other evidence. This made the messages credible material for initiating action under Section 153C.
What are the key takeaways for taxpayers?
Digital Trails may Trigger an Action: This case, if anything, proves that Courts may accept WhatsApp messages and perhaps other forms of digital communication as valid triggers for tax reassessment. However, such messages need to be backed by corroborative evidence like books of account, financial ledgers, or statements under oath, etc.
More Scope of Inspection u/s 153C: This ruling also confirms that the section can be invoked even if the evidence doesn't originate from the taxpayer directly, as long as it pertains to them and also affects their declared income.
Burden of Proof, on Who?: It’s also important to know if the material (indicating undeclared income) found by the tax officials is supported by a satisfaction note, it’s up to taxpayers to disprove the claim during the proceedings.
Be Mindful of Your Digital Footprints: You should know that any content from even the personal messaging app WhatsApp if found during a lawful search, will be used as evidence in income tax proceedings.
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