There is no presumption of accuracy or truthfulness of any loose sheet found in search premises of a third party – ITAT
In a recent judgment, ITAT has held that presumption u/s 132(4A) r.w.s. 292C is applicable only in case of searched person and cannot be raised against the not the third person.
ABCAUS Case Law Citation:
5181 (2026) (07) abacus.in ITAT
In the instant case, the Income Tax Department had challenged the order passed by the CIT(A)/ NFAC in deleting addition u/s 69A of the Income Tax Act, 1961 (the Act).
A search and seizure operation u/s 132 of the Act was conducted on a person. During the course of search, various incriminating material/documents were found and seized which indicated that the respondent assessee had entered into a financial transaction with searched persons.
Accordingly, notice u/s 148 of the Act was issued to the respondent assessee and proceedings u/s 147 of the Act were initiated in the case of the respondent assessee on the basis of document found in the course of search, reflecting calculation of interest amounts on loan advanced by the respondent assessee to the searched party. The re-assessment was completed by making an addition of interest u/s 69A of the Act.
The respondent assessee challenged the assessment before CIT(A). It was the case of the assessee that apart from the presumption drawn by the Assessing Officer (AO), there was no evidence against the assessee, even found from searched persons.
It was submitted that the Searched party, a close friend of the respondent assesseee who borrowed loan had also confirmed in statement recorded at the time its investigation proceedings, that interest calculations were only notional and arbitrary which were never transacted between the parties.
The CIT(A) held that in law, there is no presumption of accuracy or truthfulness of any loose sheet found in search premises of a third party. The statute only raises such presumption against the appellant in terms of section 132(4A) and 292C, which is applicable only in case of searched person and not the third person.
The CIT(A) placed reliance upon the decision Hon’ble Delhi High Court wherein the addition u/s. 69 of the Act was made, on the basis of materials seized from another person, but not from the possession and control of the Assessee, by taking refuge of presumption as prescribed u/s 132(4A) and scction 292C of the Act , whereas the Assessee claimed to have never received any amount as depicted in the seized papers and the person from whose possession and control, the seized documents were found also denied to have never received or paid any cash to the Assessee or those connected with him. The High Court held that amounts attributed to the Assessee in fact, had not been established and that in the given circumstances, the reference of section 132(4A) and 292C of the Act was not justified.
The CIT(A)/NFAC held that once, the document found in the course of search of third party loses its veracity as to the accuracy of its content, the same can be relied upon only if other corroborative evidences are found in search or from further investigations. The CIT(A) observed that in the facts of the case, there was no whisper of any other evidence, direct or circumstantial, which could suggest that the appellant had received interest from the borrower (searched party). Therefore, the amount of addition could only be considered as notional in nature made on the basis of assumption.
The CIT(A) held that the addition made by the AO could only be considered as notional in nature which cannot even be justified by applying deeming fiction contained in section 69A of the Act. Accordingly, the addition was deleted.
The Tribunal observed that in a recent judgment, the ITAT had held that when the document in question was recovered from searched person and not from the assessee and also both the parties had denied having received/paid any interest on the loan. There was no other evidence, whatsoever, to show that any interest had been paid by the assessee.
Accordingly, the Tribunal upheld that CIT(A)’s action granting relief to the assessee in very terms and the Revenue’s appeals were dismissed.
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