ITAT Delhi Quashes Section 69A Addition Based Solely on Third-Party Excel Entries Without Recovery of Physical Assets

The evidentiary value of digital records recovered from third parties has been a subject of intense judicial scrutiny under the Income Tax Act 1961. In a highly significant ruling, the Delhi Bench of the Income-tax Appellate Tribunal (ITAT) in the case of PSS Solutions Pvt. Ltd. Vs Assessment Unit has clarified the strict statutory boundaries of Section 69A. The tribunal decisively ruled that an addition under this specific provision cannot be sustained merely on the foundation of entries found in an Excel sheet during a search operation on a third party, especially when no physical money, bullion, jewellery, or valuable articles were recovered from the possession of the assessee.

This comprehensive analysis explores the factual matrix, the reassessment proceedings, the legal arguments presented, and the broader implications of the ITAT Delhi's verdict on the interpretation of deemed income provisions.

Factual Background of the Dispute

The genesis of the dispute traces back to the income tax return filed by the assessee for the Assessment Year (AY) 2018-19. As per the records, the assessee submitted its original return on 14 September 2018, declaring a nil income and reporting a net loss amounting to ₹16,20,383.

The sequence of events took a turn when the revenue department received specific intelligence through the Insight Portal. This information indicated that the assessee had allegedly generated undisclosed income through trading activities in the equities and derivatives markets. The source of this intelligence was a search and seizure operation conducted by the investigation wing on 31 January 2020, targeting Shri Sushil Goel and associated group entities.

During this search operation, the revenue department alleged that the searched individuals were engaged in the purchase and sale of foreign currency, alongside domestic and international hawala operations. As part of the evidence gathering, digital data was extracted from electronic devices belonging to an individual named Paras Goel.

Within this retrieved digital data was an Excel sheet that became the primary basis for the department's allegations against the assessee. Relying on the entries within this digital document, the revenue authorities alleged that the assessee had made an initial unaccounted investment of ₹1 crore. Furthermore, the department claimed that the assessee had accrued profits from equity and derivative trading activities. The specific profit figures alleged by the department were:

• ₹19,09,107 for the trading period spanning from 27 April 2017 to 21 June 2017.
• ₹14,94,677 for the trading period spanning from 22 June 2017 to 18 July 2017.

The aggregation of these two alleged profit figures resulted in a total disputed amount of ₹34,03,784.

Mechanics of the Reassessment Proceedings

Acting upon the intelligence gathered from the third-party search, the Assessing Officer initiated reassessment proceedings. A formal notice under Section 148A(b) was issued to the assessee on 14 March 2022.

In response to the notice, the assessee vehemently denied the allegations. The assessee submitted a detailed reply stating that no transactions amounting to ₹34,03,784 existed outside its regular books of accounts, nor was there any unrecorded initial investment of ₹1 crore. To substantiate its defense, the assessee requested the Assessing Officer to provide the specific underlying materials and exact particulars that formed the basis of these allegations.