Reconciliation of seized diary entries with regular books defeated unexplained expenditure additions under the income-tax presumption.

Seized diary entries were treated as business-related material invoking the presumption under section 292C of the Income-tax Act, but the assessee rebutted that presumption by producing a reconciliation chart with day book, journal vouchers and ledger accounts showing the expenditure was already recorded in the regular books. The remand report did not disprove the reconciliation, and the assessment was completed in a very short span, leaving inadequate opportunity to explain the seized material. On the record, the explanation that the entries stood reflected in the regular books was accepted, and the additions for unexplained expenditure were deleted.

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Issues: Whether additions made as unexplained expenditure on the basis of seized diary entries were sustainable where the assessee claimed that the entries stood reconciled with the regular books of account and where adequate opportunity to explain the material was not provided.

Analysis: The seized papers were confronted to the assessee and were treated by the Assessing Officer as business-related entries attracting the presumption under section 292C of the Income-tax Act, 1961. The assessee, however, produced a reconciliation chart supported by day book, journal vouchers and ledger accounts to show that the impugned expenditure had already been recorded in the regular books. The remand report did not disprove this reconciliation, but only stated that the supporting accounts did not clearly substantiate the claim. The order-sheet also showed that the assessment was completed within a very short span, leaving inadequate time to explain the seized material. On the record, the explanation that the entries were duly reflected in the regular books stood established.

Conclusion: The additions for unexplained expenditure were deleted and the assessee succeeded on the substantive issue.

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