Loose Sheets Found in House of 3rd Party Can’t be Considered As Evidence Without Producing Corroborative Evidence | HC

Case Details: DCIT v. Sunil Kumar Sharma - [2024] 159 taxmann.com 179 (Karnataka)

Judiciary and Counsel Details

• • K. Somashekar & Rajesh Rai K, JJ.
  • Balbir Singh & Y.V. Raviraj for the Petitioner. & Others.
  • Kiran S. Javali & Sreehari Kutsa, Advs. for the Respondent. & Others.

Facts of the Case

The Assessing Officer (AO) filed the instant writ petition challenging the order passed by the single Judge of the Karnataka High Court. The case involved AO searching at the premises of one Rajendran at New Delhi and recovering certain diaries/loose sheets, which purportedly consisted of certain entries relating to the assessee.

Based on Rajendran’s statement during the investigation, AO initiated action against the assessee. Assessee challenged the action taken by AO, and the single Judge of the High Court set aside the initiation of proceedings by setting aside the notice issued to the assessee under Section 153C.

It was contended by the AO that single Judge was not right in referring to Section 34 of the Evidence Act and then holding that loose sheets cannot be considered as evidence. The single judge failed to appreciate one more aspect: Section 132 refers to not only books of accounts but also other documents. Even if it is to be assumed that the loose sheets would not fall within the ambit of books of accounts, undoubtedly, the same would fall within the ambit of documents.

High Court Held

The Karnataka High Court held that the entire allegation was made out based on loose sheets of documents, which does not come under the ambit and scope of ‘books of entry’ or as ‘evidence’ under the Indian Evidence Act.

The Hon’ble Supreme Court, in the case of Common Cause And Others v. Union of India [2017] 77 taxmann.com 245 (SC), has ruled that a sheet of paper containing typed entries 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.

Thus, the action taken by AO 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.

Accordingly, notices issued under Section 153C, based on the loose sheets/diaries, are contrary to law, which is required to be set aside in these writ appeals, as the same is void and illegal.