Excel File on Employee's Computer Cannot Attribute Undisclosed Income to Director: ITAT Chennai in DCIT vs Shanmugham Thiagarajan

1. Background and Context

The Chennai 'C' Bench of the Income Tax Appellate Tribunal recently adjudicated four appeals filed by the Revenue arising out of search assessments conducted on the IG3 Group. The appeals concerned two assessees — Shri Shanmugham Thiagarajan in his individual capacity and IG3 Infra Limited as a corporate entity — spanning Assessment Years 2019-20 and 2020-21. The core controversy revolved around whether an Excel file discovered on a company employee's computer during a search operation under Section 132 could independently sustain large-scale additions in the hands of the individual director, and whether a percentage-based estimate of income was appropriate in the company's case.

The Assessing Officer had made substantive additions of ₹3,69,77,575 and ₹9,14,90,284 in Thiagarajan's individual assessments and corresponding protective additions in IG3 Infra Limited's assessments for alleged bogus expenditure. The Commissioner of Income Tax (Appeals)-19, Chennai, by orders dated 20 February 2026, granted significant relief — deleting the additions entirely in Thiagarajan's hands and restricting the company's additions to 25% of the amounts assessed. The Revenue challenged both outcomes before the Tribunal, which ultimately dismissed all four appeals.

2. The Search, the Excel File, and What Was Found

A search and seizure operation under Section 132 of the Income Tax Act, 1961 was conducted on 3 November 2020 at the premises of the IG3 Group, including Thiagarajan's premises. During the course of the search at IG3 Infra Limited's business premises, the search team found an Excel file titled "others" stored on the computer of the company's accounts executive, R. Ramamoorthi. This file contained entries reflecting receipts, payments, and running balances across financial years 2017-18 to 2020-21. The aggregate alleged cash receipts recorded in the file amounted to ₹13,51,22,303. A second worksheet, "otherscash(2)", and certain loose sheets were also examined and formed part of the evidentiary record.

Physical cash of ₹71,11,060 was found at the premises, against the company's regular book balance of ₹1,02,132. The Excel file reflected a closing cash balance of ₹70,50,484 as on 21 October 2020. The Assessing Officer treated the approximate correspondence between the cash found and the closing balance in the file as corroborative of the undisclosed cash transactions recorded therein. WhatsApp conversations retrieved from the Managing Director's devices were also relied upon to support the Revenue's case.

Ramamoorthi, in his statement, said that he recorded cash transactions on the instructions of the Managing Director, Rukmini Thiagarajan. The Managing Director's own search statement under Section 132(4) acknowledged that cash had been received back against expenses that had been booked in the accounts, though she also explained that a substantial portion had been utilized for company purposes. Written explanations submitted on 3 February 2021 clarified that the Excel sheet reflected disclosed bank withdrawals, inter-party loans, routine business receipts and payments, and transactions across different group concerns — not solely undisclosed or independent taxable receipts.

3. Additions in Thiagarajan's Individual Hands: Why They Were Deleted

(i) The Personal Nexus Requirement

The Tribunal's analysis on the individual additions centered on a fundamental evidentiary principle: the mere existence of a document in someone's vicinity, or even in a related entity's premises, does not automatically render the transactions recorded therein as income of a specific individual. The Excel file was located on the computer of a company employee at the company's business premises — not at Thiagarajan's residence, not on his personal device, and not in his personal custody. The entries in the file related to business transactions of IG3 Infra Limited and associated group entities.