No addition justified on the basis of Unverified Diary Entries Found During Search without any other Corroborative Evidence
ITAT recently has held that no addition is justified on the basis of Unverified Diary Entries Found During Search without any other Corroborative Evidence
Let us have a Short Overview of the case:
The case of Munesh Tyagi vs. DCIT involved tax disputes for AY 2011-12, 2013-14, and 2015-16. During a search on 03.11.2016, the AO found diary entries and treated them as evidence of unexplained investments and expenses. The AO made additions of ₹3.95 crore, which the CIT(A) later reduced to ₹1.52 crore using the ‘Peak Credit Theory’. The assessee appealed, claiming the entries were unrelated to him.
The assessee contended that as a ‘Mukhiya’ (community leader), locals frequently visited him for guidance. He claimed the diary entries were random notes that did not pertain to his income. The absence of unaccounted cash, jewelry, or supporting documents further weakened the AO’s allegations. The assessee maintained that the diary entries lacked corroborative evidence.
The Tribunal noted that the AO relied solely on the presumption under Sections 132(4A) and 292C, assuming the entries belonged to the assessee. However, the Tribunal stressed that this presumption is rebuttable when unsupported by evidence. Since the AO failed to verify the diary contents or identify related transactions, the Tribunal found the additions unjustified. The absence of inquiries further weakened the Revenue’s case.
The Tribunal rejected the CIT(A)’s application of the ‘Peak Credit Theory’, stating it was invalid without proof that the diary entries were genuine. The Tribunal ruled that the alleged transactions were speculative and lacked credible evidence. Given the assessee’s social role and the absence of corroborating material, the Tribunal concluded the entries could not be linked to him. The Tribunal emphasized that diary entries alone cannot justify tax additions.
In conclusion, the Tribunal deleted the ₹1.52 crore addition and dismissed the Revenue’s appeal. The ruling reinforced the principle that unsupported diary entries without evidence cannot determine taxable income. The Tribunal relied on judicial precedents such as Maulikumar K Shah (Guj. HC) and P.R. Metrani vs. CIT (SC). This decision underscored the need for solid evidence in tax assessments.
The Copy Of the Appellate is as under:
