FAHIM IQBAL KAPADIA,MUMBAI vs. ACIT CIRCLE 23(1), MUMBAI

आदेश / ORDER

PER SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER: These three appeals are directed against separate orders passed by the National Faceless Appeal Centre, Delhi [hereinafter referred to as "the CIT(A)"], under section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act"], for A.Ys. 2019-20, 2020-21 and 2022-23. Since the appeals arise from a common factual background involving WhatsApp chats allegedly exchanged between the assessee and Shri Mansur Mehta, they are being disposed of by this common order. Facts of the Case 2. The assessee is an individual. The common factual foundation of the additions in all three assessment years is the information received by the respective Assessing Officers consequent to a search conducted under section 132 in the case of Shri Mansur Mehta. During the course of the search and post- search investigation, WhatsApp chats allegedly exchanged between the assessee and Shri Mansur Mehta were recovered from the iPhone of Shri Mansur Mehta. 3. On the basis of the figures and expressions appearing in the said chats, the Department inferred that the assessee had entered into cash transactions with Shri Mansur Mehta. The chats and the device from which they were recovered were not found from the possession of the assessee. The assessee admitted that Shri Mansur Mehta was his close friend but denied having any business relationship or unaccounted cash dealings with him. In relation to A.Y. 2022-23, the assessee explained that he had received a friendly loan of Rs.3,30,00,000/- through banking channels 2

ITA 6887, 6888 & 6889/MUM/2025 FAHIM IQBAL KAPADIA during F.Y. 2019-20 and contended that the said banking transaction could not establish a separate receipt of Rs.2,00,00,000/- in cash during the year under consideration. 4. The assessee disputed the interpretation placed upon the WhatsApp chats and contended that the figures mentioned therein did not, by themselves, establish the receipt or payment of cash. The assessee further contended that the chats were third-party electronic records, that there was no independent corroborative material, that the prescribed procedure relating to digital evidence had not been followed, and that no effective opportunity to cross- examine Shri Mansur Mehta had been afforded. 5. The Assessing Officers, however, treated the WhatsApp chats as reliable material recovered during a lawful search. According to them, the figures and expressions appearing in the chats, read with the surrounding circumstances and the absence of corresponding entries or satisfactory explanation, established unaccounted cash transactions. The CIT(A) substantially endorsed this reasoning and confirmed the additions in all three years. The year specific details of assessment are: Particular A.Y. 2019-20 A.Y. 2020-21 A.Y. 2022-23 s Date of 23.09.2019 15.12.2020 23.09.2022 filing original return Returned Rs.52,05,520/ Rs.50,95,310/- Rs.48,75,210/- income - Nature of Reassessment Reassessment Scrutiny proceeding u/s 147 r.w.s u/s 147 of the Assessment u/s s 144 of the Act Act 143(3) read with section 144B of the Act Date of 29.03.2025 29.03.2025 17.03.2024 assessmen t order

ITA 6887, 6888 & 6889/MUM/2025 FAHIM IQBAL KAPADIA Provision Section 69A Section 69A Section 68 read invoked for with section addition 115BBE Alleged Not separately Rs.42,47,250/- Rs.2,00,00,000/ cash described as - receipts receipt Alleged Rs.10,65,000/ Rs.28,43,600/- Nil cash - payments Total Rs.10,65,000/ Rs.70,90,850/- Rs.2,00,00,000/ addition - - Total Rs.62,70,520/ Rs.1,21,86,160/ Rs.2,48,75,210/ assessed - - - income Impugned 29.08.2025 29.08.2025 27.08.2025 order of the CIT(A) Result Addition Addition Addition before confirmed and confirmed and confirmed and CIT(A) appeal appeal appeal dismissed dismissed dismissed

ITA 6887, 6888 & 6889/MUM/2025 FAHIM IQBAL KAPADIA 2.1. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the addition of Rs. 10,65,000/- without any evidence. 2.2. Without prejudice to the above, the addition was confirmed by the NFAC based on the third-party WhatsApp chats without giving a copy of the statement or an opportunity of cross-examination; hence, the addition confirmed by the NFAC may be directed to be deleted. 2.3. Without prejudice to the above provision of section 69A of the Act cannot be applied to the facts of the appellant; hence, the addition confirmed by the CIT (A) may be directed to be deleted. 2.4. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the addition of Rs. 10,65,000/- wherein the procedure as per the CBDT Digital Manual is not followed. 2.5. Without prejudice to the above, the amount alleged to be a donation cannot be assessed as income of the appellant under section 69A of the Act. 3. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal. Grounds of appeal for A.Y. 2020-21 in ITA No. 6888/Mum/2026 1. Reassessment is bad in law. 1.1. That on the facts and circumstances of the case and in law the Ld. National Faceless Appeal Centre (NFAC) has erred in upholding the Reassessment proceedings for as the Notice under section 148 of the Act is issued in violation of section 151A of the Income-tax Act, 1961 (Act) 1.2. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the Reassessment proceedings for as the Notice under section 148 of the Act was issued in violation of section 148A of the Act, as the issue for which the reassessment Notice was issued was dropped by the Ld. Assessing Officer. 2. Addition of Rs. 70,90,850/- under section 69A of the Act 2.1. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the addition of Rs. 70,90,850/- without any evidence. 2.2. Without prejudice to the above, the addition was confirmed by the NFAC based on the third-party WhatsApp chats without giving a copy of the statement or an opportunity of cross-examination; hence, the addition confirmed by the NFAC may be directed to be deleted. 2.3. Without prejudice to the above provision of section 69A of the Act cannot be applied to the facts of the appellant; hence, the addition confirmed by the CIT (A) may be directed to be deleted.

ITA 6887, 6888 & 6889/MUM/2025 FAHIM IQBAL KAPADIA 2.4. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the addition of Rs. 70,90,850/- wherein the procedure as per the CBDT Digital Manual is not followed. 2.5. Without prejudice to the above, that on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the addition of Rs. 70,90,850/- wherein the alleged receipts and payments are both added. 2.6. Without prejudice to the above, that on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the addition of Rs. 70,90,850/- wherein the peak of the transaction is not considered. 2.7. Without prejudice to the above, that on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the addition of Rs. 40,00,000/- without considering the appropriate denomination in the alleged chats. 3. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal. Grounds of appeal for A.Y. 2022-23 in ITA No. 6889/Mum/2025 1. Addition of Rs. 2,00,00,000/- under section 69A of the Act 1.1. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the addition of Rs. 2,00,00,000/- without any evidence. 1.2. Without prejudice to the above, the addition was confirmed by the NFAC based on the third-party WhatsApp chats without giving a copy of the statement or an opportunity of cross-examination; hence, the addition confirmed by the NFAC may be directed to be deleted. 1.3. Without prejudice to the above provision of section 69A of the Act cannot be applied to the facts of the appellant; hence, the addition confirmed by the CIT (A) may be directed to be deleted. 1.4. That on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the addition of Rs. 2,00,00,000/- wherein the procedure as per the CBDT Digital Manual is not followed. 1.5. Without prejudice to the above, that on the facts and circumstances of the case and in law the Ld. NFAC has erred in upholding the addition of Rs. 2,00,00,000/-without considering the appropriate denomination in the alleged chats. 2. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal. 7. During the course of hearing, the learned Authorised Representative (AR) submitted that no search had been conducted in the case of the assessee and that the WhatsApp chats relied upon by the Revenue were recovered from the mobile phone of Shri 6

ITA 6887, 6888 & 6889/MUM/2025 FAHIM IQBAL KAPADIA Mansur Mehta during the search conducted in his case. It was submitted that, except for the said WhatsApp chats, no documentary or corroborative evidence was found to establish any receipt or payment of cash by the assessee. The learned AR further submitted that no confirmation from Shri Mansur Mehta or any other concerned party was brought on record in support of the alleged cash transactions. 8. Per contra, the learned Departmental Representative (DR) relied upon the orders of the authorities below. The learned DR submitted that the assessee had not denied the existence or authenticity of the WhatsApp chats and had failed to furnish any satisfactory explanation regarding the figures and transactions recorded therein. It was accordingly submitted that the assessee had not discharged the onus cast upon him and that the additions confirmed by the CIT(A) deserved to be sustained. 9. We have considered the rival submissions and perused the material available on record. The common controversy in these appeals concerns additions made principally on the basis of WhatsApp conversations allegedly exchanged between the assessee and Shri Mansur Mehta. We note that the appeals in the case of Shri Mansur Mehta, arising from the same search and involving additions based upon the WhatsApp conversations retrieved from his mobile phone, have already been restored by our bench to the file of the AO for de novo examination. The additions in the present appeals arise from the electronic material recovered from the same mobile phone and relate to conversations in which the present assessee is alleged to be the counterparty. The factual foundation and evidentiary material in both sets of proceedings are, therefore, closely interconnected and require a consistent and coordinated examination. 10. At the outset, a material distinction requires notice. No search under section 132 of the Act was conducted in the case of the present assessee. The mobile phone from which the WhatsApp conversations were retrieved was not found or seized from the possession or control of the assessee but from Shri Mansur Mehta during the search conducted in his case. Further, no corresponding cash, money, bullion, jewellery, valuable article, books of account or other documentary evidence was found or 7

ITA 6887, 6888 & 6889/MUM/2025 FAHIM IQBAL KAPADIA seized from the possession of the assessee evidencing the alleged cash receipts or payments. 11. The learned DR has submitted that the assessee has not denied the existence or authenticity of the WhatsApp chats and has failed to explain the figures appearing therein. However, the mere fact that the assessee does not dispute having exchanged messages with Shri Mansur Mehta does not, by itself, establish that every numerical expression appearing in the conversations represents an actual receipt or payment of cash. Acceptance of the existence of a conversation is distinct from acceptance of the interpretation placed upon its contents by the Revenue. 12. The WhatsApp conversations constitute relevant material which cannot be discarded merely because they were recovered from the device of a third party. At the same time, such conversations cannot, without examination of their complete context and independent verification, be treated as conclusive evidence that the assessee received, paid or owned the amounts inferred by the AO. The evidentiary value of the chats must be determined with reference to the complete conversation, the identity of the parties, the surrounding circumstances, the chronology of the alleged transactions and the contemporaneous documentary evidence. 13. The statutory presumption concerning documents or electronic records found during a search primarily operates with reference to the person from whose possession or control such material is found. In the present case, the device and the chats were recovered from Shri Mansur Mehta. The assessment orders and the impugned orders do not contain a clear examination of the extent to which any presumption arising from material found in the possession of Shri Mansur Mehta could be applied against the present assessee without obtaining confirmation or a statement from Shri Mansur Mehta and without independently verifying the alleged transactions. 14. Shri Mansur Mehta is an identified person and is the person from whose mobile phone the impugned WhatsApp conversations were recovered. The appeals in his case having already been restored to the AO, the genuineness, context, denomination and

ITA 6887, 6888 & 6889/MUM/2025 FAHIM IQBAL KAPADIA nature of the transactions reflected in those chats are required to be examined in the de novo proceedings in his case. However, the material placed before us in the present appeals does not indicate that his confirmation was obtained regarding each alleged transaction involving the assessee or that he was examined specifically with reference to the corresponding chats. No confirmation from any other person allegedly connected with the transactions was brought on record. The orders also do not disclose any independent verification from the books of account, bank statements, cash-flow statements or other contemporaneous records of the concerned parties. Separate adjudication of the present appeals without coordinating the verification in the case of Shri Mansur Mehta may result in inconsistent findings concerning the same conversations and alleged transactions. 15. The AO proceeded substantially on the footing that, once the chats were confronted to the assessee, the entire burden shifted upon him to disprove the inference drawn by the Revenue. In our considered view, before calling upon the assessee to explain the nature and source of an alleged transaction, the Revenue was required to identify, on the basis of the complete conversation and supporting material, whether the figure represented money, whether it denoted the amount attributed to it, whether it constituted a receipt or payment, whether the transaction was actually carried out and whether it belonged to the assessee. These foundational facts have not been independently verified. 16. The CIT(A) also treated the absence of a satisfactory explanation from the assessee as sufficient to sustain the additions. However, the impugned orders do not cure the absence of transaction-specific verification. The conclusions were reached without obtaining confirmation from Shri Mansur Mehta, without verifying his books and financial records and without examining whether the expressions used in the chats represented the denominations attributed to them by the AO. 17. Thus, the rival positions represent two extremes. The WhatsApp chats cannot be disregarded merely because no search was conducted in the case of the assessee or because no corresponding cash was seized from him. Equally, the chats recovered from the mobile phone of a third party cannot, without 9

ITA 6887, 6888 & 6889/MUM/2025 FAHIM IQBAL KAPADIA corroboration and contextual examination, conclusively establish that the assessee received or paid the amounts inferred by the Revenue. The electronic material must be examined with the complete conversation, the explanation of both participants and the relevant books, bank accounts and other contemporaneous evidence. A.Y. 2019-20 18. For A.Y. 2019-20, the addition of Rs.10,65,000/- was made under section 69A on the basis of three figures interpreted as Rs.1,00,000/-, Rs.4,83,500/- and Rs.4,82,000/-. The assessee disputed both the denomination and the interpretation of these figures. No finding has been recorded on the basis of independent evidence that the assessee was found to be the owner of the corresponding money. There is also an apparent discrepancy inasmuch as certain portions of the orders refer to an aggregate amount of Rs.10,65,500/-, whereas the addition actually made and confirmed is Rs.10,65,000/-. This discrepancy also requires reconciliation. 19. The AO shall, therefore, examine the complete conversations and ascertain whether the figures represented money, the denomination in which they were expressed, whether they constituted payments by the assessee and whether the assessee was found to be the owner of any money so as to attract section 69A. The AO shall also reconcile the difference between Rs.10,65,500/- referred to in the factual narration and the addition of Rs.10,65,000/- actually made. A.Y. 2020-21 20. For A.Y. 2020-21, the reassessment was initiated on the basis of the alleged unexplained sources for the purchase of immovable property. However, no addition was ultimately made in respect of the amount forming the foundation of the reopening. Instead, the AO made an addition of Rs.70,90,850/- under section 69A by aggregating alleged cash receipts of Rs.42,47,250/- and alleged cash payments of Rs.28,43,600/- inferred from the WhatsApp chats.

ITA 6887, 6888 & 6889/MUM/2025 FAHIM IQBAL KAPADIA 21. The assessment order does not adequately examine whether the alleged payments were made out of the alleged receipts or whether the same funds were circulated. Addition of both receipts and payments without first determining their chronology and interrelationship may result in duplication. The alternative grounds concerning the peak of the transactions can be considered only after identifying the receipts and payments which, upon verification, are established to represent unaccounted transactions belonging to the assessee and after determining whether the same funds were available for rotation. 22. The AO shall also examine the assessee’s contention regarding the appropriate denomination of the expressions “40” and “15”. The denomination cannot be determined merely from the size of the assessee’s property transactions. It must be ascertained from the entire conversation, the pattern of communication between the concerned parties and corroborative evidence. A.Y. 2022-23 23. For A.Y. 2022-23, the addition of Rs.2,00,00,000/- was made under section 68. The foundational condition for invoking section 68 is the existence of a sum credited in the books of the assessee maintained for the relevant previous year. The orders of the authorities below do not clearly identify any entry of Rs.2,00,00,000/- in the books of account of the assessee. The AO proceeded on the basis of the WhatsApp chat dated 11.05.2021 and inferred that the assessee had received the amount in cash. 24. The admitted banking loan of Rs.3,30,00,000/- received from Shri Mansur Mehta during an earlier financial year neither establishes nor disproves the alleged cash receipt of Rs.2,00,00,000/-. The alleged cash transaction must be independently verified from Shri Mansur Mehta and from the records of both parties. The AO shall first identify whether any corresponding credit exists in the books of the assessee and thereafter determine whether the statutory requirements of section 68 are satisfied. 25. We further notice that the assessment order and the impugned order describe the addition as one made under section 68, whereas the grounds filed before the Tribunal describe it as an 11

ITA 6887, 6888 & 6889/MUM/2025 FAHIM IQBAL KAPADIA addition under section 69A. This discrepancy shall also be considered in the de novo proceedings, and the assessee shall be permitted to raise all contentions concerning the provision legally applicable to the alleged transaction. 26. The assessee has raised jurisdictional grounds challenging the notices issued under section 148 with reference to sections 151A and 148A. For A.Y. 2020-21, the assessee has additionally contended that the issue on the basis of which the reassessment was initiated was not ultimately made the subject matter of any addition. The complete records relating to the initiation of reassessment, including the information received, show-cause notices, replies, orders under section 148A(d), approvals and the manner in which the notices under section 148 were issued, are not available before us. 27. Since the assessments are otherwise being restored for de novo adjudication, the AO shall first consider the jurisdictional objections of the assessee for A.Ys. 2019-20 and 2020-21 with reference to the complete reassessment records and pass a speaking order thereon in accordance with law. Only if the proceedings are found to be valid shall the AO proceed to examine the additions on merits. All the legal contentions of the assessee in this regard are kept open. 28. In view of the foregoing discussion, the material presently available does not enable us to either confirm or delete the additions with the degree of certainty required for adjudication. The additions have been made on the basis of electronic material recovered from the mobile phone of Shri Mansur Mehta, but the alleged transactions have not been independently verified from him or from the records of both parties. We further note that the connected appeals in the case of Shri Mansur Mehta, involving the same search material, have already been restored to the file of the AO for transaction-wise de novo examination. The nature, denomination and actual execution of the transactions represented by the chats cannot appropriately be determined differently in the hands of the two parties without a coordinated examination of the same material. In these circumstances, and to secure consistency in the findings concerning the same conversations, we set aside the impugned orders of the CIT(A) and 12

ITA 6887, 6888 & 6889/MUM/2025 FAHIM IQBAL KAPADIA restore the assessments for all three assessment years to the file of the AO for de novo adjudication in accordance with law and in coordination, to the extent necessary, with the de novo proceedings in the case of Shri Mansur Mehta. 29. In the de novo proceedings, the AO shall: a. examine the complete context, continuity and metadata of each WhatsApp conversation relied upon; b. furnish to the assessee the complete conversations, statements, investigation material and other evidence proposed to be used against him; c. ascertain whether each numerical expression represents money, goods, foreign currency or any other item and determine its proper denomination; d. verify whether the alleged transaction was actually carried out and whether it represented a receipt, payment, loan, advance, donation or any other transaction; e. obtain and verify the confirmation or statement of Shri Mansur Mehta and of every other concerned party, and obtain from the jurisdictional AO of Shri Mansur Mehta the relevant material gathered in the de novo proceedings in his case, insofar as such material relates to the conversations and transactions involving the present assessee; f. coordinate, wherever practicable, with the jurisdictional AO conducting the de novo proceedings in the case of Shri Mansur Mehta so that the same WhatsApp conversation, numerical expression or alleged transaction is examined on a consistent factual foundation in the hands of both parties; g. examine the books of account, bank statements, cash-flow statements and other contemporaneous records of the assessee and the concerned parties; h. determine, for A.Ys. 2019-20 and 2020-21, whether the assessee was found to be the owner of any money so as to satisfy the statutory requirements of section 69A; i. determine, for A.Y. 2022-23, whether any corresponding sum was credited in the books of the assessee so as to attract section 68; j. examine the applicability of the peak or fund-flow method for A.Y. 2020-21 only after determining the ownership, nature, 13

ITA 6887, 6888 & 6889/MUM/2025 FAHIM IQBAL KAPADIA chronology and interrelationship of the alleged receipts and payments; and k. confront the assessee with every material or statement proposed to be used adversely and afford an opportunity of cross-examination wherever a third-party statement is relied upon. 30. The AO may exercise the powers available under the Act, including issuance of notices or summons to Shri Mansur Mehta and the other concerned parties. The AO shall also obtain the relevant records and material from the AO conducting the de novo proceedings in the case of Shri Mansur Mehta and shall, as far as practicable, coordinate the verification of the common conversations and transactions. However, any finding recorded or material gathered in the proceedings of Shri Mansur Mehta shall not be applied mechanically against the present assessee. Every such material proposed to be used adversely shall first be furnished to the assessee, and he shall be afforded an effective opportunity to explain and rebut the same, including an opportunity of cross-examination wherever a third-party statement is proposed to be relied upon. The assessee shall furnish the explanations and supporting evidence available with him and shall extend due cooperation in the proceedings. 31. We make it clear that the AO shall neither treat every numerical reference appearing in the WhatsApp chats as an unexplained transaction merely because it forms part of the electronic material recovered during search, nor accept the assessee’s explanation merely on the basis of an unsupported denial. Each transaction shall be decided independently on the basis of the complete conversation, the evidence gathered on verification and the essential requirements of the relevant statutory provision. 32. The AO shall pass a reasoned and speaking order after considering the complete material gathered in the present proceedings as well as the relevant material obtained from the de novo proceedings in the case of Shri Mansur Mehta. While consistency shall be maintained in the appreciation of the common WhatsApp conversations, the liability of the present assessee shall be determined independently with reference to the statutory 14

ITA 6887, 6888 & 6889/MUM/2025 FAHIM IQBAL KAPADIA requirements applicable to each assessment year. The AO shall not adopt any conclusion recorded in the proceedings of Shri Mansur Mehta without confronting the underlying material to the assessee and examining his explanation. The scope of the de novo proceedings shall remain confined to the transactions and additions which formed the subject matter of the original assessment orders. The restoration shall not authorise the AO to introduce any fresh transaction or new source of addition, nor shall any addition exceed the amount originally made for the respective assessment year. 33. Accordingly, having regard to the restoration already directed in the connected appeals of Shri Mansur Mehta and the necessity of a coordinated examination of the common electronic material, the substantive grounds concerning the additions for all three assessment years are restored to the file of the AO for de novo adjudication and are treated as allowed for statistical purposes. The jurisdictional grounds concerning the reassessment proceedings for A.Ys. 2019-20 and 2020-21 are also restored for fresh consideration in terms of the directions recorded hereinabove. The general grounds require no separate adjudication. 34. In the result, all three appeals filed by the assessee are allowed for statistical purposes. Order pronounced in the open court on 18.08.2026.

Sd/- Sd/-

(SAKTIJIT DEY) (MAKARAND VASANT MAHADEOKAR) VICE PRESIDENT ACCOUNTANT MEMBER

Mumbai, Dated 18/08/2026 Soumili, PS आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant

ITA 6887, 6888 & 6889/MUM/2025 FAHIM IQBAL KAPADIA 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / The CIT(A) 4. आयकर आयु�(अपील) / Concerned CIT 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, मु�बई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER, स�ािपत �ित //True Copy//

उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपीलीय अिधकरण, मु�बई मु�बई मु�बई / ITAT, Mumbai मु�बई