Income Tax Proceedings based on diaries, loose sheets without corroborative evidence held contrary to the law declared by the Hon’ble Apex Court
In a recent judgment Hon’ble Supreme Court has dismissed the SLP of the Income Tax Department against the judgment of the Hon’ble Karnataka High Court which held that proceeding based on diaries/loose sheets against the assessee without producing corroborative evidence was void and illegal.
ABCAUS Case Law Citation:
4228 (2024) (08) abcaus.in SC
The Income Tax Department conducted search action under Section 132(1) of the Income Tax Act, 1961 (‘the Act’) at the premises of the one person and recovered certain diaries/loose sheets, which purportedly consisted certain entries relating to the affairs/transactions of the assessee. Based on the statement recorded of the said person during the investigation, the Revenue initiated action against the assessee.
After granting sufficient opportunity of hearing to the assessee and after considering the incriminating material and other material gathered post search investigation, the Assessing Officer concluded the assessment.
The assessee challenged the said order by preferring an appeal before the Commissioner of Income Tax, Appeals. When the appeal was still pending consideration, the assessee preferred writ petitions challenging the notice and the order of assessment.
The main grievance of the respondents was that impugned notices under Section 153C of the Act was to be issued on “other person” and the respondents being “searched person”, the impugned notice under Section 153C of the Act is not maintainable. Later, the order by the the CIT(A) was also challenged through Writ Petition.
The Single Judge of the Hon’ble High Court allowed all the writ petitions and quashed the respective impugned notices issued including the further proceedings and remanded the matter to the Revenue to re-consider the issue afresh.
Aggrieved by the order of the Single Judge of the High Court, the Revenue went before Division Bench challenging the order of the learned Single Judge as non-est and contrary to law.
The respondents contended that the Revenue Authorities had concluded that the income that has escaped assessment and notice under Section 153C of the Act were solely issued on “loose sheets” and were termed as “Dairies” during the search, which does not come under the ambit of “book of entry” or as evidence under the Indian Evidence Act, 1872. Hence, it was contended that the said evidence is not corroborative to show that such loose sheets found are connected to the petitioner or to the occupation of the petitioners.
The Hon’ble High Court examined the law declared by the Hon’ble Apex Court with regard to acceptance of diaries/loose sheets by the Income Tax Department. The Hon’ble High Court held that the two spiral note books and the two spiral pads were “books” within the meaning of Section 34, but not the loose sheets of papers.
The Hon’ble High Court observed that it is established in law by the Hon’ble Apex Court that a sheet of paper containing typed entries and in loose form, not shown to form part of the books of accounts regularly maintained by the assessee or his business entities, do not constitute material evidence. Following the law declared by the Hon’ble Apex Court, the Hon’ble High Court opined that the action taken by the Revenue against the Assessee based on the material contained in the diaries/loose sheets, was contrary to the law declared by the Hon’ble Apex Court. In that view of the matter, impugned notices issued under Section 153C of the Act, based on the loose sheets/diaries were contrary to law, which required to be set aside, as the same are void and illegal.
The Hon’ble High Court observed that the Revenue had not established the said loose sheets to be considered as evidence in law by producing corroborative evidence supported by judgments and findings. Further, since the statement made by other person under Section 132 of the Act was later retracted by him by filing an affidavit, the statement given by him did not hold any evidentiary value.
Also, the Hon’ble High Court noted that satisfaction note is required to be recorded under Section 153C of the Act for each Assessment Year and in the impugned proceedings, a consolidated satisfaction note had been recorded for different Assessment Years, which also vitiated the entire assessment proceedings.
The Hon’ble High Court held that d the notice issued under Section 153C was bad in law and Single Judge was right in allowing the Writ petitions. Accordingly, the Writ Petitions of the Revenue were dismissed.
Not satisfied with the decision of the Division Bench of the Hon’ble High Court, the Revenue filed a Special Leave Petition (SLP) before the Hon’ble Supreme Court. However, after hearing the counsel of the Revenue, the Hon’ble Supreme Court declined to interfere with the impugned judgment and order passed by the High Court and dismissed the SLP.
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