Evidentiary Value of Third-Party Electronic Records in Tax Assessments: ITAT Chennai Rules in Favour of Assessee

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) recently adjudicated a crucial matter concerning the reliance on uncorroborated third-party digital evidence and retracted statements during tax assessments. In the case of DCIT Vs SAS Hotels and Enterprises Limited, the Tribunal dismissed multiple appeals filed by the Revenue, thereby upholding the first appellate authority's decision to delete additions made under Section 69 of the Income-tax Act 1961. The dispute primarily revolved around alleged cash transactions and unaccounted flat sale receipts derived from seized Excel spreadsheets and internal corporate communications.

Background of the Search and Assessment Proceedings

The assessee, a corporate entity engaged in hospitality and real estate development, was subjected to a search and seizure operation under Section 132 of the Income-tax Act 1961 on 03.11.2023. This operation covered the broader Appaswamy Real Estates Ltd. group and its associated concerns. Following the search, the Assessing Officer (AO) initiated reassessment proceedings for the assessment years 2017-18 to 2021-22 by issuing notices under Section 148 of the Income-tax Act 1961. The assessee complied by filing the respective returns of income, after which the AO issued statutory notices under Section 142(1) of the Income-tax Act 1961 to gather further explanations.

The AO's scrutiny resulted in two primary categories of additions:

  1. Alleged unexplained cash loans advanced to the Casagrand Group and the corresponding interest income.
  2. Alleged unaccounted cash collections from homebuyers over and above the documented sale consideration of residential apartments.

The Commissioner of Income Tax (Appeals) [CIT(A)] passed a consolidated appellate order on 16.04.2026 under Section 250 of the Income-tax Act 1961, deleting both sets of additions. The Revenue subsequently challenged this relief before the ITAT. Notably, the Revenue's appeals were filed with a delay of 20 days for the assessment year 2017-18 and 21 days for the remaining four assessment years. The ITAT condoned these delays, observing that sufficient cause was demonstrated, and admitted the appeals for a hearing on merits.

Issue 1: Additions Based on Third-Party Excel Spreadsheets

The Revenue's Allegations

During a parallel search at the residence of a Casagrand Group employee, Shri P. Ramji, the investigation wing seized a pen drive containing various Excel files. The AO observed that certain entries in these spreadsheets indicated cash inflows and outflows purportedly linked to the Appaswamy Group. The AO treated these notations as evidence of unexplained investments in the form of cash loans under Section 69 of the Income-tax Act 1961.

To support this inference, the AO relied on a statement recorded under Section 132(4) of the Income-tax Act 1961 from an Appaswamy Group employee, Shri T.V. Sathyanarayana. Although this statement was later retracted, the AO used it to corroborate the third-party Excel data. The AO also pointed to a specific banking transaction dated 16.12.2016, which was cross-referenced with a spreadsheet notation mentioning "cash conversion" for an amount of Rs. 50 lakh.