Presumption u/s 292C of Income Tax is Rebuttable and Not Conclusive: ITAT Deletes ₹18 Lakh Addition [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (“ITAT”) has held that the presumption under Section 292C of the Income-tax Act, 1961, regarding ownership and truth of documents found during search, is rebuttable and not conclusive in determining undisclosed income.

The assessee, Krishna Gopal Saraf, a salaried employee of Sarthak Vanijya India Ltd (SVIL), was subjected to search and seizure operations on 7 March 2014 along with the Bindal Group and related entities. Pursuant to the search, assessments for Assessment Years (AYs) 2013-14 and 2014-15 were framed under Section 153A read with Section 143(3).

The Assessing Officer made additions on two counts, unexplained credit card payments of ₹4.55 lakh and ₹7.28 lakh, and an addition of ₹18 lakh as undisclosed income based on a loose paper found during the search.

The assessee contested the additions before the CIT(A) and subsequently before the ITAT, alleging absence of incriminating material, improper initiation of search, lack of notice under Section 143(2), and arbitrary treatment of legitimate expenses as unexplained income.

Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

The Tribunal first dealt with the preliminary objections challenging the validity of the search under Section 132. It held that such challenges are not maintainable before the ITAT and lie outside its jurisdiction.

On the question of non-issuance of notice under Section 143(2), the Bench relied on the Delhi High Court ruling in Ashok Chadda v. ITO (337 ITR 399), reiterating that a separate notice under Section 143(2) is not mandatory for finalising assessments under Section 153A. Accordingly, these grounds were dismissed.

For AY 2013-14, the AO had treated credit card payments aggregating ₹4.55 lakh as unexplained expenditure under Section 69C, based on Annual Information Return (AIR) data. The assessee explained that the payments were made from salary income, encashment of fixed deposits, borrowings from friends and family, and cash savings.

Similarly, for AY 2014-15, additions of ₹7.28 lakh were made on similar grounds. The CIT(A) largely disbelieved the explanations citing a lack of supporting bank statements and cash flow details.

The ITAT found that both the AO and CIT(A) failed to properly evaluate the explanations or verify the bank accounts and salary records. Observing that the assessee was a salaried individual with modest transactions, the Bench held that a deeper factual examination was warranted.

The issue of credit card expenditure was therefore remitted back to the Assessing Officer for fresh verification of sources such as salary receipts, FDR maturity, and borrowings, after giving due opportunity to the assessee.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The principal dispute related to the addition of ₹18 lakh as undisclosed income for AY 2014–15. During the search, a red bag found at the assessee’s residence contained office keys and a loose paper with a note of “withdrawal ₹18,00,000 on 16.10.2013” under the name “R.K. Mishra.” The AO invoked Section 292C, presuming ownership and truth of the document, and treated the amount as the assessee’s unexplained income.

The Tribunal, however, observed that the presumption under Section 292C is limited to ownership and truth of the document’s contents, but does not automatically establish the transaction as unaccounted income.

Once the assessee denied authorship and explained that the note related to another employee (R.K. Mishra), the burden shifted to the AO to conduct further enquiry, such as verifying handwriting, examining Mishra, or linking the transaction with the assessee’s finances.

Since the AO neither conducted such an investigation nor brought corroborative evidence, the two-member bench comprising Sudhir Pareek (Judicial Member) and Naveen Chandra (Accountant Member) held that the presumption was rebutted and the addition could not be sustained merely on inference.

The Bench cited judicial precedents, including Godwin Construction Pvt. Ltd. v. ACIT (ITAT Delhi), stating that deeming provisions must not be applied mechanically without factual substantiation.

Concluding that the addition of ₹18 lakh was made without an adequate evidentiary basis and that the lower authorities failed to discharge their onus, the Tribunal deleted the addition. Both appeals for AYs 2013-14 and 2014-15 were partly allowed, with directions to the AO to re-examine the limited issue of credit card payments.

Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates