The Delhi Income Tax Appellate Tribunal (ITAT) strongly asserted that a conclusion based on mere WhatsApp chats, which do not have self-contained information of the transaction but need interpolation, could not be the basis for making any sort of additions in respect of profit earned by the taxpayer.
The Tribunal emphasized that in the absence of specific provisions in the Income-tax Act regarding the admissibility of electronic evidence, the Digital Evidence Investigation Manual issued by the CBDT would substantially hold the ground, and the tax authorities must ensure substantial compliance with the Manual to make the electronic evidence relevant and admissible under the law and thus pass judicial scrutiny in appellate jurisdictions.
Reference was made to the decision of the Apex court in the case of Addl. Director General Adjudication vs. Suresh Kumar and Co. Impex Pvt Ltd. [Civil Appeal Nos. 11339-11342 of 2018 dated August 20, 2025], wherein the provisions of section 138C of the Customs Act, 1962, regarding the admissibility of electronic evidence have been accepted subject to the availability of a certificate to be obtained in accordance with the sub-section (4) of section 138C of the 1962 Act.
The Division Bench comprising Anubhav Sharma (Judicial Member) and S. Rifaur Rahman (Accountant Member) observed that the necessity of a certificate under Section 65B(4) of the Indian Evidence Act may not be mandatory by certainly to make an addition exclusively based on electronic evidence like WhatsApp chat, the authenticity of source and extraction of such evidences must be reflected in the assessment order.
From the WhatsApp chat, the Bench found a discussion about the transfer and NEFT of a transaction involving payment of Rs. 50 lacs, but noted that the same pertained to a banking transaction, where it was disclosed that it is a transaction of cash, and a discussion about some other transaction involving profit.
However, the Bench was surprised by the assumption drawn by the Revenue Authorities that this WhatsApp chat was regarding some cash sales made by the appellant-taxpayer without recording the same in their books of account, when the chat also talked of the NEFT.
Briefly, in this case, a search and seizure operation was conducted at the residential as well as office premises of LSL Tools Group of Companies and others, including the appellant. During post-search analysis of evidence found from the WhatsApp chat between Kashif and Vikash Singla (who looks after the sales in the company), the AO observed that regular cash sales are made with this group, apart from the sales made through other modes.
The AO therefore asked the appellant to explain the source of such cash with documentary evidence and accounting treatment of the same. Finally, the AO assumed that the appellant must have made sales out of the books of account profit on it, and hence, normal profit ratio @10% of total sales made in cash, which is not recorded in the books of account, were added to the income of the appellant, i.e., Rs. 5 lacs.
Appearances:
Advocates Gautam Jain and Ankit Kumar, for the Appellant/ Taxpayer
CIT Amisha S. Gupt, for the Respondent/ Revenue
