ITAT Delhi on Electronic Evidence in Search Assessments: Lessons from DCIT vs. Balar Marketing Pvt. Ltd.

Overview

The decision of the ITAT Delhi in DCIT vs. Balar Marketing Pvt. Ltd. provides important guidance on how electronic records such as WhatsApp chats, SMS messages and screenshots can (and cannot) be used to support additions in search assessments.

The Tribunal examined whether uncorroborated digital material, extracted from seized mobile phones and alleged images of “Sambhav Software”, is sufficient to justify substantial additions, particularly when there is no supporting physical or third-party evidence. It also scrutinised the manner in which approval under Section 153D was granted.

The ruling reiterates that:

  • Mere suspicion based on unauthenticated digital data does not amount to legal proof.
  • Statements recorded during search, even if treated as admissions, must be backed by corroborative material.
  • Electronic evidence must comply with section 65B and basic forensic safeguards to have probative value.
  • Approval under section 153D must show conscious application of mind and cannot be mechanical.

1. Reliance on Electronic Data as Sole Basis for Additions

The primary controversy was whether additions in search assessments under the Income Tax Act 1961 can be sustained when:

  • The entire case of the Revenue is built on:
    • WhatsApp chats,
    • SMS logs, and
    • screenshots/images of alleged parallel books in “Sambhav Software”;
  • There is no independent corroboration by way of stock records, movement of goods, counterparties’ confirmations or other physical documents; and
  • The electronic evidence itself suffers from deficiencies in terms of authenticity, chain of custody, and compliance with section 65B.

2. Validity of Approval Under Section 153D

A connected issue was whether the approval granted by the higher authority under section 153D was:

  • Granted after a real and substantive examination of the material, or
  • Issued in a routine, mechanical manner merely to complete the formality.

The Tribunal had to decide if such mechanical approval could vitiate the assessment orders passed pursuant to a search.

Factual Background

Search and Seizure under Section 132

A search under section 132 was carried out in the Balar Group. During this operation:

  • Mobile phones belonging to one employee, Vimal Jain, were seized.
  • From these devices, the investigation team extracted:
    • WhatsApp message histories,
    • SMS correspondence, and
    • Photographs/screenshots allegedly showing parallel accounts maintained in a software named “Sambhav Software”.

The authorities interpreted these materials as representing:

  • Unaccounted cash dealings,
  • Use of “hawala” type channels, and
  • Maintenance of parallel books of accounts outside the regular financial statements.

Statements of Vimal Jain and director Parasmal Jain were recorded, describing an alleged modus operandi for routing unaccounted sales and purchases.

However, the search and subsequent enquiries did not unearth:

  • Any stock discrepancy,
  • Irregularities in physical inventories,
  • Transport or delivery records supporting secret movement of goods, or
  • Confirmations from alleged counterparties named in chats.

The Revenue’s stance remained entirely anchored to digital data and the statements of these individuals.

Findings of the Assessing Officer

Additions Based on Digital Material and Statements

The Assessing Officer drew heavily from:

  • The seized WhatsApp and SMS conversations,
  • Images of alleged Sambhav Software pages, and
  • Statements of Vimal Jain and Parasmal Jain,

to conclude that the assessee had engaged in:

  • Unrecorded sales,
  • Bogus purchases,
  • Unexplained investments, and
  • Cash transactions outside the books.

The AO proceeded to: