Seized diary entries can sustain an unexplained investment addition when the section 132(4A) presumption is properly applied.

Entries in a diary seized during search can support an income-tax addition where section 132(4A) applies, because the presumption as to ownership and correctness of contents is rebuttable but available in search proceedings. The Madras High Court held that the appellate authorities erred in treating the diary entries as mere scribbling and in ignoring the statutory presumption. It also rejected the argument that the assessee-firm was unconnected with the transaction merely because the property stood in the partners' names. The Assessing Officer's addition for unexplained investment was therefore upheld and the Tribunal's deletion was unsustainable.

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Issues: Whether the addition made on the basis of entries in a diary seized during search could be sustained by applying the presumption under section 132(4A) of the Income-tax Act, 1961, and whether the Tribunal was right in deleting the addition of unexplained investment.

Analysis: The seized diary was found during search proceedings and contained entries indicating a higher purchase value for the land than that reflected in the assessee's documents. The statutory presumption under section 132(4A) is a rebuttable presumption and, as explained by the Supreme Court, it operates in search and seizure proceedings. The Court held that the presumption could validly be drawn on the material found in search, and that the appellate authorities had erred in treating the diary entries as mere scribbling and in disregarding the effect of section 132(4A). The Court also rejected the contention that the assessee-firm was unconnected with the transaction merely because the property stood in the partners' names.

Conclusion: The addition was rightly made by the Assessing Officer and the deletion by the Tribunal was unsustainable.

Ratio Decidendi: Entries found in a document seized in search may be acted upon under section 132(4A) of the Income-tax Act, 1961, because the presumption as to ownership and correctness of contents is rebuttable but available in search and seizure proceedings.

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