Seized diary at husband's premises justifies Section 158BD assessment of wife for undisclosed school investment

Seized diary at husband’s premises justifies Section 158BD assessment of wife for undisclosed school investment

Issue

Whether proceedings and additions under Section 158BD against the assessee (wife) are valid based on incriminating material found during a search at her husband’s premises, which indicated unaccounted investments in a family-run society.

Facts

Search Operation: A search and seizure operation was conducted at the premises of the assessee’s husband.
Seized Material: During the search, incriminating materials such as cash books, ledgers, and diaries were found.
Section 158BD Notice: Based on these materials, a notice was issued to the assessee. In response, she filed a return for the block period declaring ‘Nil’ undisclosed income.
Additions Made: The Assessing Officer (AO) made additions to her income regarding unaccounted investments in the purchase of a school property from a Society and rental income received from it, relying on the seized diary entries.
Assessee’s Defense: The assessee contended that the search was not carried out at her premises and that the loose sheets/diary entries did not belong to her.
Family Nexus: It was noted that the Society involved was controlled by the assessee’s family (husband was Secretary, uncle was Chairman).

Decision

Control of Premises: The Court observed that the search was conducted at premises substantially under the control of the assessee’s husband, and the educational institution involved was managed by the assessee’s family.
Presumption of Ownership: Under Section 132(4A), the presumption regarding the truthfulness of contents applies to documents found during the search.
Concurrent Findings: The AO and Commissioner (Appeals) both found that the diary entries correlated with the undisclosed investments made by the assessee.
Nexus Established: The Court held that the close family connection and the location of the seized documents established a clear link to the assessee.
Ruling: The concurrent findings of the lower authorities did not warrant interference. The additions were upheld in favor of the Revenue.

Key Takeaways

Scope of Section 158BD: Incriminating material found at the premises of one person (e.g., husband) can be validly used to assess the undisclosed income of a related person (e.g., wife) if the documents demonstrate a clear nexus.

Presumption of Documents: Entries in diaries or loose sheets found during a search are strong evidence of undisclosed income, especially when the entities mentioned therein are controlled by the assessee’s family.

Shared Premises: The argument that a search was not conducted at the assessee’s specific premises holds no water if the search occurred at a shared family residence or office controlled by a spouse.

HIGH COURT OF TELANGANA

Smt. B. Renuka

Joint Commissioner of Income-tax^*

P. Sam Koshy and NARSING RAO NANDIKONDA, JJ.

I.T.T.Appeal No: 128 OF 2008

AUGUST 21, 2025

A.V.A. Siva Kartikeya and A.V. Krishna Koundinya for the Appellant. Ms. K. Mamata Choudary for the Respondent.

JUDGMENT

P. Sam Koshy, J.- Heard Mr. A.V.A. Siva Kartikeya, learned counsel, representing Mr. A.V. Krishna Koundinya, learned counsel for the appellant, and Ms. K. Mamata Choudary, learned Senior Standing Counsel for Income Tax Department appearing on behalf of the respondent.

2. The instant appeal under Section 260A of the Income Tax Act, 1961 (for short, the ‘Act’) has been filed by the appellant / assessee challenging the order passed by the Income Tax Appellate Tribunal, Hyderabad Bench ‘A’ (for short, the ‘ITAT’) in I.T. (S.S.) A.No.l48/Hyd/2002, for the block period 1989-90 to 1998-99 and 01.04.1999 to 27.07.1999, decided on 08.06.2007.

3. Vide the impugned order, the ITAT partly allowed the appeal preferred by the appellant to the extent of the findings of the Assessing Officer so far as the levy of surcharge under proviso to Section 113 of the Act which according to the ITAT could had been levied as Section 113 of the Act was introduced only w.e.f. 01.06.2002 and, therefore, surcharge could not had been levied upon in cases where search was itself carried out before the introduction of proviso to Section 113 of the Act. However, the ITAT disallowed the contention of the appellant and maintained the order passed by the Assessing Officer and that by the Commissioner of Income-tax (Appeals)-I, Hyderabad (for short ‘CIT (Appeals)’) to the extent of the value of the property being determined at Rs. 1,99,26,696/-and not Rs. 1,09,84,081/-..

4. As has been mentioned earlier, the matter pertains to the block period 1989-90 to 1998-99 and 01.04.1999 to 27.07.1999.

5. The brief facts of the case are that, search and seizure proceedings were initiated by the Department under Section 132 of the Act. The Department found certain incriminating materials such as cash books, ledgers and other documents and, subsequently, a notice under Section 158BD of the Act was issued to the appellant. In response to the said notice, the appellant filed its return of income in Form No.2B declaring undisclosed income as ‘nil’ for the aforesaid block period. Later on, notices under Section 142(1) and 143(2) of the Act were issued by the Department calling upon the appellant to produce evidences and explanations. Based upon the response given by the appellant, the Department added an amount of Rs.7,75,000/- to be the undisclosed income by way of financial transaction with one Sri B.Naganna, unaccounted investment made in Meridian school property for an amount of Rs. 17,78,523/- and rental income received from Meridian school property amounting to Rs.5,10,000/-; all totaling to Rs.30,73,523/-.

6. Aggrieved by the above additions made by the Assessing Officer, the appellant preferred an appeal before the CIT (Appeals) and it was contended that the appellant along with Sri B. Naganna had subscribed for a private chit and the starting chit was drawn by the appellant. Out of the said amount, the appellant used to pay monthly instalments to the chit fund. Hence, the appellant prayed for deletion of this amount of Rs.7,75,000/- from the income of the appellant.

7. Likewise, it was contended by the appellant that the total payment made to the landlord in the process of purchasing of Meridian school property was Rs. 1,09,84,081/-. Whereas, the landlord has shown the value of the property sold to be Rs. 1,99,22,696/-. Meanwhile, the appellant and others had also proposed to acquire the entire property, besides the property purchased by them from Meridian school property and therefore, the landowner might have added the value of the property to Rs. 1,99,26,696/-. But the proposed acquiring of the property besides Meridian educational society somehow failed and the sale did not materialize. _ – ‘

8. It was further contended by the appellant that the Department has also seized certain day-to-day cash transactions maintained by their accountant. Further, during the search and seizure operation, no cash payments were found to have been made in all these transactions and, therefore, the appellant prayed for deletion of an amount of Rs. 17,88,523/- which was added by the Assessing Officer.

9. The CIT (Appeals) upon due verification of the facts, and on due scrutiny of the documents and explanations provided by the appellant, found that the explanations given by the appellant were not satisfactory or unacceptable. It was the observation of the CIT (Appeals) that these amounts were not reflected in regular returns of income filed by the appellant and therefore, it had to be treated as unaccounted income earned by the appellant in the past. The CIT (Appeals) also found that the appellant has not been able to produce cogent and strong piece of evidence, both in respect of having subscribed the chits and also having received any gifts etc. In the absence of which, a presumption has to be drawn that the amount of Rs.7,75,000/- represents investment out of undisclosed sources of income and affirmed the additions of the said amount made by the Assessing Officer.

10. The explanation given by the appellant was that the value of property purchased by her from Meridian educational society was Rs. 1,09,84,081/- and not Rs. 1,99,26,696/- as was projected by the landowner of the said society, and found it to be unacceptable explanation of there being an in-between negotiations for adjacent lands, the process of which might have been added by the society in their books of accounts while showing the sale of property to the appellant.

11. The said explanation was found to be unacceptable for the simple reason that.the manner of entries made in the books of accounts of, Meridian educational society as to whether there was a complete breakup given of tallying the amount of cheque payment made by the appellant of Rs.1,09,84,081/- and an amount of Rs.69,80,000/- was added and below which there was also registration charges reflected at Rs. 19,64,615/-. All of which added together comes to Rs. 1,99,28,696/-.

12. The aforesaid entries got substantiated from further material which was collected in the course of seizure that is part of the diary entry which reflected that, of this Rs. 1,99,28,696/-, there was a total amount paid of Rs. 1,87,50,000/- with a balance shown at Rs. 11,76,690/-. Again there was an additional Rs.6,00,000/- payment made reducing the balance amount payable at Rs.5,76,696/- and there was yet another entry which showed that of the total amount payable of Rs.1,93,50,000/- only a balance of Rs.5,76,696/- was left to be paid. Therefore, the CIT (Appeals) taking into consideration Sub-Section 4(A) of Section 132 of the Act disallowed the contentions raised by the appellant and in the process treated the amount of Rs.89,42,611/- as an unaccounted investment.

13. The said finding given by the CIT (Appeals) was also tested by the appellant before the ITAT and the ITAT also found that the explanation given by the appellant was not satisfactory or did not have much force.

14. The learned counsel for the appellant had relied upon the following judgments in support of his contentions, viz.,

Commissioner of Income Tax v. Engineers India Limited (SC)/ (2014) 16 supreme Court cases 420;

B. J. Services Co. Middle East Ltd. v. Asstt. CIT (Uttarakhand);

Common Cause (A Registered Society) v. Union of India (SC);

Deputy Commissioner of Income-tax v. Sunil Kumar Sharma (Karnataka) (; and

Deputy Commissioner of Income-Tax v. Sunil Kumar Sharma [2024] 469 ITR 271 (SC).

15. The contention of the learned counsel for the appellant primarily was, firstly the search and seizure was not carried out at the premises of the appellant and secondly, the nature of search and seizure was on loose sheets of paper or entries made in a diary which again did not belong to the appellant. Therefore, on both these counts those materials would be wholly irrelevant so far as evidence admissible under Section 34 of the Indian Evidence Act and also does not carry any evidential value.

16. However, when we look into the material facts of the present case, it would reveal that the premises where the search and seizure was conducted in fact belonged to the appellant’s husband namely Sri B.S. Neelakanta. Further, the so-called transactions carried out in the name of Meridian educational society also belongs to the family of the appellant where the appellant’s husband is the secretary and her uncle is the chairman of the said society respectively.

17. Because the search and seizure was carried out in the premises which was substantially under the control of the appellant’s husband and seizure also being made in the course of search of the said premises; the relevance of those documents and articles seized receives more relevance and importance, unlike the facts in the judgments which were relied upon by the learned counsel for the appellant where the nexus between the person from whose custody the documents were received and the name of the individuals reflected were quite different. Moreover, apart from the fact that the search and seizure was conducted at the premises of the appellant’s husband, it is also relevant to mention that even the educational institution in ^– whose name the transactions relating to investments have been made also belong to the same family i.e. the appellant, as it is all are relatives who are managing the affairs of the said educational society including her uncle and her husband.

18. In the aforesaid factual backdrop and the judgments relied upon by the learned counsel for the appellant being distinguishable on facts itself, we are of the considered opinion that the concurrent findings given by the Assessing Officer which have been affirmed by the CIT (Appeals) does not warrant interference. The instant appeal therefore fails and is accordingly dismissed. The question of law raised stands answered in favour of the Revenue and against the appellant. No costs.

19. As a sequel, miscellaneous petitions pending if any, shall stand closed.