Typed Entries On Loose Sheets Of Paper Which Are Not Part Of Regularly Maintained Books Of Accounts Are Not Considered As Material Evidence: Karnataka HC

The Karnataka High Court has reiterated that typed entries on loose sheets of paper, not forming part of regularly maintained books of accounts, are not considered substantial evidence.

In that context, the Bench of Justice K Somashekar and Justice Rajesh Rai K observed that, "a sheet of paper containing typed entries and 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."

Former ASG Balbir Singh and Counsel YV Raviraj appeared for the appellants, while Senior Counsel Kiran S Javali and Counsel Sreehari Kutsa appeared for the respondent. 

Appeals were filed by the Deputy Commissioner of Income Tax (Revenue) against a common order, challenging proceedings initiated under Section 153C of the Income Tax Act, 1961. 

The disputes arose from a search in August 2017, revealing diaries and entries related to the assessee. The Revenue claimed centralization of the case under Section 127 of the Act, while the assessee argued a lack of notice and opportunity.

The Assessing Officer issued notices under Section 153C of the Act post jurisdiction transfer. The Single Judge's order on 12.08.2022 quashed the notices, leading to appeals. The Revenue contended that there was a violation of natural justice, questioned the maintainability of writ petitions during a pending statutory appeal, and raised objections on jurisdiction transfer and correctness of Section 153C proceedings.

The assessee argued against the admissibility of loose sheets as evidence, questioned centralization, and asserted the non-applicability of Section 153C. 

The High Court Court held that the action taken by the Revenue against the Assessee based on the material contained in the diaries/loose sheets were contrary to the law.

In light of the same, the Court directed that the impugned notices issued under Section 153C of the Act, based on the loose sheets/diaries were required to be set aside as they were void and illegal. 

Cause Title: The Deputy Commissioner of Income Tax & Anr. vs Sunil Kumar Sharma 

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