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Presumptions from Third-Party Seized Documents and Procedural Mandates for Post-2021 Search Assessments Favor Taxpayer Relief

Issue

Whether additions for unexplained expenditure can be sustained based solely on unsigned loose papers found with a third party without independent corroborative evidence.
Whether an assessment for a year preceding a search (conducted after April 1, 2021) is valid if completed under Section 143(3) instead of following the mandatory Section 148 reopening procedure.

Facts

Unexplained Expenditure (AY 2019-20):
- The assessment was reopened based on an unsigned loose paper seized from a third party.
- The document contained notings of a property purchase and cash payments allegedly linked to the assessee.
- The AO relied on a statement from the assessee’s son to attribute the paper to the assessee.
- The property was not registered in the assessee’s name, and the AO failed to verify the transaction with the seller or co-buyers.
Search and Seizure Procedure (AY 2021-22):
- A search was conducted on January 4, 2022 (relevant to AY 2022-23).
- The AO finalized the assessment for the preceding year (AY 2021-22) under the regular assessment section 143(3).
- The Revenue did not issue a notice under Section 148 or obtain approval under Section 148B, as required by the law amended post-April 1, 2021.

Decision

Regarding Seized Papers:
- The court held that the legal presumption under Section 292C and Section 132(4A) only applies to the person from whose possession the documents were actually found.
- In the absence of the assessee’s signature or corroboration from external parties (like the seller), a third-party document cannot be used to make an addition.
- The addition under Section 69C was ordered to be deleted.
Regarding Assessment Procedure:
- The court ruled that for searches conducted after April 1, 2021, the AO must follow the new procedure for prior years, which involves reopening the assessment under Section 148.
- Obtaining mandatory approval under Section 148B is a jurisdictional requirement.
- Since the AO bypassed these steps and used Section 143(3), the assessment order was declared bad in law and quashed.

Key Takeaways

Possession Defines Presumption: The “burden of proof” stays with the Department when using documents seized from others; they must prove the link with hard evidence rather than relying on legal presumptions.
Strict Procedural Compliance: Post-2021 tax reforms for search cases are not optional. Failure to issue a Section 148 notice or obtain Section 148B approval is a fatal flaw that voids the entire assessment.
Corroborative Necessity: Statements (even from family members) regarding unexplained expenditures are insufficient if they are not backed by registered deeds, bank trails, or seller confirmations.

HIGH COURT OF KERALA

Aroor Central Service Co-Operative Society Ltd.

Income-tax Officer^*

ZIYAD RAHMAN A.A., J.

WP(C) NO. 35412 and 34868 OF 2025

FEBRUARY 19, 2026

R. Muraleedharan and Dr. Anies George, Advs. for the Petitioner. Jose Joseph, SC for the Respondent.

JUDGMENT

1. The petitioner is a Co-operative Society carrying on the business of providing credit to its members, and it is also a primary agricultural credit society. The petitioner is also an assessee under the Income Tax Act. In both these writ petitions, the challenge raised by the petitioner is against Ext.P6, which is a common order passed by the Income Tax Appellate Tribunal rejecting the second appeals submitted by the petitioner, on the ground that, the petitioner failed to explain the delay occurred in filing the appeal. The extent of the delay that occurred in filing an appeal against the assessment order passed for the assessment year 20172018 was 358 days, whereas, in respect of the appeal filed in respect of the assessment year 2021-2022, the delay was 361 days. The Tribunal came to the conclusion that the delay was not properly explained, and the appeals were rejected without entering into the merits of the contentions.

2. The case of the petitioner is that, the petitioner, being a primary agricultural credit society, is entitled to the benefit of deduction as contemplated under Section 80P of the Income Tax Act and therefore, it was pointed out that, had the appeal been considered on merits, the reliefs would have been received by the petitioner. Now that the said appeals are rejected, without going into the merits solely on the ground of delay, serious prejudice has been caused. It is also pointed out by the learned counsel for the petitioner that, the delay caused in filing the appeal was due to the fact that the tax consultant to whom the matter was entrusted, did not intimate the issuance of the order passed by the Assessing Authority to the petitioner. According to the petitioner, the said order was uploaded in the portal and also sent to the email address of the tax practitioner and the petitioner, never received the same.

3. I have heard Sri.R.K.Muraleedharan, the learned counsel for the petitioner and Sri.Jose Joseph, learned Standing Counsel for the respondents.

4. On going through Ext.P2 order, it can be seen that, the Appellate Tribunal specifically considered the reasons for the delay, and found to be not satisfactory. As observed above, the reason highlighted by the petitioner was that the receipt of the order was not communicated by the Tax Practitioner to the petitioner. The learned counsel petitioner placed reliance upon the decision rendered by the Hon’ble Supreme Court in Rafiq v. Munshilal AIR 1981 SC 1400 wherein, it was held that the party should not suffer for the misdemeanour or inaction of his counsel.

5. However, on carefully going through the facts of this case, it can be seen that, even though the failure of the tax practitioner, with whom the matter was entrusted, in communicating the order was highlighted as the reason, the Tribunal, after examining all the relevant aspects, came to a definite conclusion that, the same is not satisfactory. Apparently, the Tribunal was not all convinced of the reason that, it was on account of the default on the part of the Tax Practitioner, the delay in filing an appeal had occurred. Besides, as far as these writ petitions are concerned, the interference in the orders passed by the Tribunal is necessary only if the reason cited by the Tribunal is perverse and therefore requires interference. When the reasons that formed the basis of impugned orders are taken into account in that perspective, I am of the view that the findings do not fall in that category.

6. Besides, yet another aspect to be noticed in this regard is that, the main contention raised by the petitioner in both the above appeals is that, the petitioner is entitled to the benefit of Section 80P of the Income Tax Act. This aspect was specifically considered in the First Appellate Order, which was impugned before the Tribunal, and after referring to the decision rendered by a Division Bench of this Court in Nileshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT (Kerala)/[2023] 459 ITR 730 (Kerala), where the sustainability of such a contention was considered, the appellate authority came to a definite conclusion that, as the petitioner failed to submit the returns, in respect of both the assessment years, within the period stipulated under Section 139(1), 139(4), 142(1) or Section 148, there was no valid return to claim the benefit of Section 80P.

7. It is to be noted in this regard that, the fact that the returns were not filed by the petitioner within the period prescribed is not under dispute. Thus, in the light of the above legal position as referred to above, the petitioner would not be entitled to get the benefit of Section 80(p) of the Act. Therefore, practically no purpose would be served in setting aside the impugned orders and restoring the appeals.

In such circumstances, I do not find that, in these cases, the jurisdiction of this Court under Article 226 is to be invoked and, accordingly, these writ petitions are dismissed.