The Income Tax Appellate Tribunal (ITAT), Chennai, has rejected the Revenue’s attempt to levy substantial tax additions based solely on unverified data recovered from an electronic file during a search and seizure operation. In a significant relief for IG3 Infra Limited and its former management, the Tribunal dismissed four appeals filed by the tax department, upholding the decision of the Commissioner of Income Tax (Appeals) which had earlier slashed the department’s demand by 75 percent.

The dispute originated from a search and seizure operation conducted by the Income Tax Department on November 3, 2020, covering the IG3 Group’s business premises. During the search, investigators discovered an Excel file titled “others” on a computer system used by the company’s accounts executive. The file contained tabulated records of cash receipts, payments, and running balances, which the Assessing Officer (AO) estimated to aggregate ₹13.51 crore across several financial years. Based on this data, the AO concluded that the company had booked bogus business expenditure and received the amounts back in cash, subsequently treating this aggregate as undisclosed income.

The ITAT Bench, comprising Judicial Member Manu Kumar Giri and Accountant Member S.R. Raghunatha, observed that the AO’s reliance on the Excel sheet was misplaced because the document lacked the rigour of a regularly maintained book of account. The Tribunal pointed to significant internal inconsistencies in the file, including negative cash balances, missing carry-forward figures, and abrupt discontinuities that undermined its reliability as a definitive financial record.

“The mere fact that the electronic record was found in a computer located at the premises of M/s. IG3 Infra Limited cannot, without further examination, justify attributing every transaction recorded therein exclusively to the assessee-company,” the Tribunal remarked. The Bench further emphasized that the Revenue had failed to undertake a necessary entity-wise segregation of the entries. Because the IG3 Group involved multiple entities, the Tribunal held that it was legally impermissible to attribute every cash movement recorded in the seized file solely to IG3 Infra Limited without establishing that the funds were actually received by the company or represented expenditure it had claimed for tax deductions.

During the assessment process, the AO had sought to substantiate the Excel entries by comparing a closing balance of ₹70.50 lakh reflected in the file with physical cash of ₹71.11 lakh discovered during the search. While acknowledging that this proximity provided some evidentiary relevance, the Tribunal cautioned that it did not constitute conclusive proof of the nature of every transaction over several years. The ITAT noted that the AO had never formally rejected the company’s regular books of account under Section 145 of the Income-tax Act, nor had he identified specific vouchers or invoices as fictitious.

The ITAT also addressed the procedural strategy of the Revenue, which had initiated substantive additions against the individual, Shanmugham Thiagarajan, while making protective additions against IG3 Infra Limited for the same amount. The Tribunal found this dual approach indicative of an unresolved uncertainty regarding the ownership of the alleged income. By deleting the additions against the individual in their entirety and restricting the company’s liability to 25 percent of the assessed amount, the Tribunal reinforced that tax liability must be based on proven taxable events rather than aggregate figures extracted from working documents.

Regarding the evidentiary value of statements recorded under Section 132(4) of the Income-tax Act, the ITAT emphasized that such admissions cannot be read in isolation. While the managing director had acknowledged that certain cash receipts were handled under her instructions, she had also provided an explanation regarding their utilization for the group’s business needs. The Tribunal criticized the AO for selectively relying on the admission of receipts while summarily dismissing the accompanying explanation regarding business utilization without sufficient independent verification.

The Tribunal also rejected the Revenue’s reliance on the statutory presumptions available under Sections 132(4A) and 292C of the Act. While these sections facilitate the use of seized material as evidence, the ITAT clarified that they do not create an automatic, unrebuttable presumption that every entry in a seized file constitutes personal or corporate income. The ITAT’s decision to sustain only 25 percent of the additions serves as a corrective measure against the AO’s arbitrary reliance on gross receipts. The Bench reasoned that the company had failed to furnish a comprehensive transaction-wise reconciliation, justifying a partial sustainment, but this did not validate the AO’s "mechanistic adoption" of the entire gross sum as taxable income.

This ruling clarifies that search-derived electronic evidence requires a rigorous nexus to be established before it can form the basis of a tax liability. The ITAT has effectively signaled that tax authorities must perform a granular reconciliation of complex electronic data rather than relying on aggregated sums. With this dismissal, the legal process concerning the specific additions for the assessment years 2019-20 and 2020-21 has concluded in favour of the assessee. The Revenue’s attempt to restore the full additions was rejected across all four appeals, bringing finality to the quantum of tax liability for the company and the individual concerned.