ITAT Delhi quashes Section 69A additions in Section 153C proceedings based on unreliable third-party material

Overview

The Delhi Bench of the Income Tax Appellate Tribunal in DCIT Vs Sanjay Jain has affirmed the relief granted by the CIT(A) in a group of appeals arising out of assessments framed under Section 153C read with Section 143(3) of the Income Tax Act 1961. The core controversy revolved around substantial additions under Section 69A across Assessment Years 2010–11 to 2020–21, premised largely on:

  • digital data (emails, WhatsApp chats, Excel sheets),
  • statements of third parties (most notably Rajiv Saxena), and
  • documents and findings emanating from investigations in the cases of Rajiv Saxena, Alankit Group, and other enforcement agencies.

The Tribunal held that the material relied on by the Assessing Officer (AO) did not meet the standard of reliable evidence, lacked contemporaneity, and was not independently corroborated. Further, denial of cross‑examination and adverse findings by other judicial/quasi‑judicial forums substantially undermined the evidentiary foundation of the additions.

Whether additions made under Section 69A in proceedings initiated under Section 153C—based substantially on alleged incriminating electronic data, statements of third parties (particularly Rajiv Saxena), and materials shared by the Enforcement Directorate and in the case of Alankit Group—can be sustained in law where:

  • the assessee has categorically denied involvement,
  • the key witnesses were not subjected to cross‑examination by the assessee, and
  • the primary material is found to be non‑contemporaneous, created for investigative purposes, or judicially declared as unreliable.

Factual Matrix

Search operations and initiation of proceedings

  1. A search and seizure operation under the Act was conducted on 30.06.2019 in the case of Sanjay Jain and connected persons. During this action, the authorities claimed to have found emails and chat conversations referring to:

    • alleged manipulation of fertilizer prices, and
    • possible kickbacks routed through foreign entities.

  2. Based on this initial material, the AO first triggered proceedings under Section 153A by issuing notices on **11.09.2021`. However, in the course of those proceedings, the AO felt that information from foreign jurisdictions was required and contemplated reference to the FT&TR division.

  3. While Section 153A proceedings were pending, information was received from another AO concerning a search in the case of Rajiv Saxena on 30.06.2019. He was described as a Dubai‑based intermediary who allegedly:

    • facilitated kickbacks to Indian beneficiaries in offshore accounts, and
    • arranged for funds to be brought into India through Indian entities without any real economic substance.

  4. A satisfaction note and seized material from the case of Rajiv Saxena were transmitted to the AO of Sanjay Jain. The AO decided that this material, combined with what had been seized in the assessee’s own search, should be considered afresh in a unified manner. Accordingly:

    • the ongoing Section 153A proceedings were dropped/abated, and
    • fresh proceedings under Section 153C were initiated.

  5. Subsequently, a further satisfaction note and additional material were received from the AO handling the Alankit Group search conducted on 18.10.2019. On review of this new set of documents (including certain Excel sheets and ledgers), the AO concluded that these findings also needed to be amalgamated in the same Section 153C proceedings.

  6. Ultimately, Section 153C assessments were framed for AYs 2010–11 to 2020–21. The AO made substantial additions under Section 69A treating alleged commissions, kickbacks, and accommodation entries as unexplained money in the hands of the assessee.

Nature and quantum of additions

For each Assessment Year, the AO invoked Section 69A on the footing that undisclosed money was owned by the assessee. Broadly, two heads of alleged unexplained income were identified:

  • amounts said to have been routed through Alankit Group and associated concerns, and
  • amounts linked to Rajiv Saxena (particularly in connection with Uralkali‑related transactions).

The AO clubbed these figures year‑wise, resulting in very substantial additions, including for instance:

  • AY 2010–11: Rs. 38,70,66,590/-
  • AY 2014–15: Rs. 55,87,49,433/-
  • AY 2015–16: Rs. 25,99,62,250/-
  • AY 2019–20: Rs. 17,36,96,125/-

The foundation for these additions largely lay in:

  • WhatsApp chats and emails allegedly involving the assessee and key officials of Indian Potash Limited (IPL) and Indian Farmers Fertilizer Co-operative Organization (IFFCO),
  • the statement of Rajiv Saxena recorded under Section 132(4),
  • a document referred to as the “Uralkali summary sheet”, and
  • Excel files and ledger extracts titled “JPS” and other entries found in the Alankit Group search.

The assessee challenged these additions before the CIT(A) and succeeded. Revenue, in turn, carried the matter to the ITAT.

Assessing Officer’s Reasoning

Alleged collusion in fertilizer imports

The AO referred to:

  • WhatsApp chats allegedly extracted from the phone of the assessee,
  • emails of one Archit Jain, and
  • various digital records,

to assert that there was a concerted effort between:

  • the assessee and his brother,
  • senior functionaries of IPL (including Parvinder Singh Gahlaut and his son Vivek Gahlaut), and
  • senior functionaries of IFFCO (such as Udai Shankar Awasthi and his son Amol Awasthi),

to influence and artificially inflate prices at which fertilizers were imported into India, including through tenders floated by entities like Madras Fertilizers Ltd.