Evidentiary Validity of Third-Party WhatsApp Chats in Tax Assessments: ITAT Mumbai Quashes Uncorroborated Additions

In the contemporary landscape of tax administration, the reliance on digital footprints and electronic communications during search and seizure operations has become increasingly prevalent. However, the legal threshold for admitting such electronic evidence remains stringent. The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, recently delivered a highly significant ruling in the case of ACIT Vs Dinesh Jaiprakash Baheti, addressing the fundamental question of whether uncorroborated WhatsApp conversations extracted from a third party's mobile device can form the sole basis for making substantial additions under Section 69A of the Income Tax Act 1961.

The Tribunal's comprehensive decision, pronounced on 7 March 2025, provides critical insights into the intersection of tax law and the Indian Evidence Act, specifically focusing on the admissibility of electronic records and the procedural mandates governing assessments based on third-party seized materials.

The Genesis of the Dispute: Search Operations and Digital Discoveries

The factual matrix of the case originates from a search and seizure operation conducted by the investigation wing on the Rucha Group. During the course of these proceedings, the authorities examined the mobile phone of one Shri Shailendra Rathi, who functioned as a consultant for the said group. The investigating officers retrieved certain WhatsApp conversations between Shri Shailendra Rathi and another individual, Shri Nilesh Toshniwal.

Simultaneously, a separate search action was executed at the premises of the assessee, an individual engaged in the business of cement trading and transportation, on 23 September 2021.

The core of the Revenue's case rested upon an image found within the aforementioned WhatsApp chat on Shri Shailendra Rathi's iPhone. According to the Assessing Officer (AO), this image contained tabular entries with an "out" column, which purportedly detailed cash payments directed to the assessee during the financial year 2019-20. To bolster this hypothesis, the AO relied on a statement recorded from Shri Shailendra Rathi under Section 132(4) of the Income Tax Act 1961. In this statement, it was alleged that substantial cash amounts were routed to the assessee at various geographical locations, including Mumbai, Pune, Jalna, and Nanded, through multiple intermediaries.

The Assessing Officer's Contentions and Additions

Based on the interpretation of the digital image and the third-party statement, the AO proceeded to make massive additions to the assessee's income, categorizing the alleged receipts as unexplained money under Section 69A of the Income Tax Act 1961. The assessments were framed under Section 147 and Section 143(3) of the Act.