ITAT quashed additions based on entries found in small diary found during search without any corroborative evidence.
In a recent judgment, the ITAT Delhi quashed addition based on entries found in small diary found in the course of search without making any independent enquiry or any corroborative evidence.
ABCAUS Case Law Citation:
4475 (2025) (03) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the additions made in the assessment completed under section 153A r.w.s. 143(3) of the Income Tax Act, 1961 (the Act).
One of the grounds taken was that the additions made by the Assessing Officer (AO) were based merely on certain loose papers/diaries.
The AO had made an addition based on certain entries as per seized diary/loose paper and another addition of towards purchase of property based on seized papers. The CIT(A) had scaled down the additions applying ‘Peak Theory’ and granted partial relief to the assessee.
A search and seizure operation was carried out under section 132 of the Act at the premises of the assessee connected to group of cases. During the search and seizure operation, certain incriminating documents in the form of a small diary and other papers were found and seized from the premises of the assessee. Those papers contained hand-written reference to purchase of plots.
In consequence of search, notice u/s 153A was issued and the assessment proceedings was set in motion. The Assessing Officer (AO), in view of the seized diaries/papers concluded that the assessee has made unexplained investment by way of purchase of plot and also incurred expenditure thereon. The AO invoked the provision of section 69 of the Act and made an addition towards various entries purportedly recorded in relation to purchase of plot.
The AO also took cognizance of a small diary on which certain date-wise hand-written entries towards payments made to different parties were found. The entries so found were aggregated and additions were made under s. 69C of the Act holding such entries to be unexplained payments.
Before the Tribunal the assessee submitted that he being a ‘Mukhiya’ of the community, the residents who intend to go through transactions of any nature, may be in agriculture land, other land, loan transaction etc. would approach the ‘Mukhiya’ [assessee] to get the transaction notified by the assessee for the sake of security and evidence in the hour of need. The diary/loose papers found are only random jotting made by office person but have no meaning or connection with the income or the funds of the assessee. No weight thus could be given to such rough entries which are neither in the writing of the assessee nor these entries were supported by any corroborative evidence/documents despite extensive search at the premises of the assessee.
The Tribunal observed that the AO appeared to have mainly relied upon the entries recorded in the dairy. No independent enquiry from the recipient of the payments, whereabout a plot from the office of the Sub-Registrar etc. had been made. The assessee was not acquiesced with the entries so made. The approach of the AO to draw adverse inference against the assessee solely on the basis of entries found in a diary in the course of search without making an iota of enquiry at the time of search or in the course of assessment did not appear sound.
The Tribunal observed that Section 132(4A) creates a presumption with respect to the truthfulness or genuineness of the contents of the books of account, its parts, signature and handwriting, etc., found during a search. However, while the operation of section 132(4A) is not extended to the regular assessment in view of judgment of the Hon’ble Supreme Court, the operation of section 292C seeks to extend the presumption even to assessment proceedings. The presumption under s. 132(4A) and section 292C are however rebuttable. Section 132(4A) and Section 292C are replica of each other and expression used in such provisions are ‘may presume’ which is also the expression used in section 114 of the Evidence Act and it was not a mandate that whenever the books of account were seized, the Court shall necessarily draw the presumption, irrespective of any other factors which may dissuade the Court from doing so as held by the Kerala High Court.
The Tribunal observed that the Gujarat High Court had held that mere entries in seized diary is not sufficient to prove the assessee is indulged in such transactions. The Courts had consistently held that the presumption available u/s 132(4A) r.w.s 292C of the Act are rebuttable presumptions.
The Tribunal noted that as asserted by the assessee, the entries in loose papers/documents did not belong to the assessee. The entries could relate to any visitor coming for consultations on their proposed transaction. The assessee had denied the contents of loose papers. In the absence of any corroborative material or any admission on the part of the assessee, the primary onus which lay upon the assessee stood discharged.
The Tribunal further observed that the circumstantial evidence did not stand contrary to the assertions made by the assessee. The additions based on mere discovery of diary without anything more, in such circumstances would tantamount to assuming such entry to be conclusive for the purpose of assessment. Such view, if taken, would run contrary to the judicial dicta available in this regard. The adverse view taken by the AO as well by CIT(A) based on the entries in diary seized in the course of search was of abstract nature and without corroboration. Preponderance of probabilities in the facts of the case were in favour of the assessee and against the Revenue. It is well settled that onus lies on the person who alleges.
The Tribunal further observed that the assessee cannot be placed with impossible burden to prove a negative point as held by the Hon’ble Supreme Court. No negative evidence to support the entries was found despite a drastic step of search. The absence of material and denial by the assessee coupled with social status of the assessee where, as claimed, number of people regularly visit the premises of the assessee, do raise estoppels. The benefit of doubt thus, goes in favour of the assessee.
The Tribunal held that the CIT(A) was thus not justified in applying ‘Peak Theory’ to partially confirm additions carried out by AO. Where the veracity of entries itself was not conclusively established, the additions made by the AO were not justified at all.
Accordingly, the Tribunal deleted the additions made by the AO.
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