Loose Sheets Alone Insufficient for Tax Assessment: SC upholds Quashing of Notices

DCIT Vs Sunil Kumar Sharma (Supreme Court of India)

The legal dispute in DCIT vs. Sunil Kumar Sharma involves challenges to notices and assessment proceedings issued under the Income Tax Act, 1961, particularly under Sections 127 and 153C, following a search conducted on the premises of Sri D.K. Shivakumar and related parties, including Sri K. Rajendran, on August 2, 2017. The Revenue (Deputy Commissioner of Income Tax) transferred jurisdiction of the assessee’s case under Section 127, issued notices under Section 153C to file returns for AY 2015-16, and subsequently completed the assessment after considering incriminating material, including diaries and loose sheets recovered during the search. The assessee filed appeals under Section 246A and, later, writ petitions challenging the notices and assessment.

Read High Court Judgment :– DCIT Vs Sunil Kumar Sharma (Karnataka High Court)

Key Issues Considered by the High Court:

Evidentiary Value of Diaries and Loose Sheets:

The assessee contended that the seized diaries/loose sheets could not be treated as books of account and lacked corroborative evidence linking them to the assessee’s income. The High Court referred to the Supreme Court judgments in CBI v. V.C. Shukla (1998) and Common Cause v. Union of India (2017), which clarified that loose sheets or memoranda not maintained regularly as part of business books are inadmissible under Section 34 of the Evidence Act and cannot alone establish liability. The High Court concluded that the Revenue’s reliance on these loose sheets and diaries violated established evidentiary standards.