Facts of the Case

The Revenue conducted a search and seizure operation under Section 132 of the Income Tax Act at the residence of the Secretary General of the assessee association and collected documents allegedly indicating receipt of funds for unlawful purposes. Based on these materials, assessment under Section 153A was completed with substantial additions (over ₹45 crore), treating receipts as unexplained income and denying exemption under Section 11.

However, it was an admitted fact that no search under Section 132 was conducted at the premises of the assessee association itself, and only a survey under Section 133A had been carried out.

The Tribunal set aside the additions, holding the assessment invalid, which led to the present appeal before the High Court.

Issues Involved

  1. Whether assessment under Section 153A can be invoked without a valid search under Section 132 at the assessee’s premises.
  2. Whether entries in loose papers/diaries can be treated as valid evidence for making additions under Section 68.
  3. Whether exemption under Section 11 can be denied based on such materials.

Petitioner’s Arguments (Revenue)

  • The seized documents indicated undisclosed income received by the assessee.
  • Statements recorded under Section 132(4) supported the existence of such transactions.
  • The Assessing Officer rightly invoked Section 153A and made additions based on incriminating material.

Respondent’s Arguments (Assessee)

  • No search under Section 132 was conducted at the assessee’s premises; hence Section 153A was wrongly invoked.
  • The alleged evidence consisted only of loose sheets and diaries, which do not qualify as books of account.
  • Such documents lack evidentiary value and cannot justify additions under Section 68.
  • The denial of exemption under Section 11 was arbitrary and unsustainable.

Court’s Findings / Order

  • The Court upheld the Tribunal’s finding that Section 153A assessment is invalid in absence of a search under Section 132 at the assessee’s premises.
  • It was clearly observed that:

If the assessee was never searched, assessment under Section 153A is bad in law.

  • The Court further held that:
    • Loose papers and diaries do not constitute “books of account” for Section 68.
    • Such materials lack evidentiary value, especially when not maintained in the regular course of business.
    • Reliance on such documents alone is insufficient to justify additions.
  • The Court relied upon principles laid down in Common Cause v. Union of India (394 ITR 220), emphasizing that loose sheets are not admissible evidence.
  • Final Order:
    The appeals filed by the Revenue were dismissed as no substantial question of law arose.

Important Clarifications

  • Section 153A can be invoked only when a valid search under Section 132 is conducted on the assessee.
  • Entries in loose sheets, diaries, or electronic records without corroboration are not admissible evidence.
  • Additions under Section 68 require entries in regular books of account, not informal documents.
  • Denial of exemption under Section 11 must be based on legally admissible and reliable evidence.

Sections Involved

  • Section 132 – Search and Seizure
  • Section 133A – Survey
  • Section 153A – Assessment in Case of Search
  • Section 68 – Unexplained Cash Credits
  • Section 11 – Exemption of Charitable Trust
  • Section 34 of Indian Evidence Act – Entries in Books of Account

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2019:DHC:7421-DB/VSA23092019ITA8502019_170022.pdf

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