Seized cash presumed father-in-law's money under s.110 Evidence Act, s.292C Income-tax Act; assessee cleared of wrongdoing

HC held that cash seized during a search at the residence of the assessee's father-in-law belonged to the father-in-law, not the assessee. Applying section 110 Evidence Act and section 292C Income-tax Act, the court ruled that possession creates a presumption of ownership unless rebutted, and here the money was found at, and claimed by, the father-in-law. Since section 292C presumes that seized money belongs to the person in whose possession it is found, the revenue erred in treating it as the assessee's undisclosed income. The block return and cash-flow statement filed by the father-in-law were accepted, and the questions of law were answered in favour of the assessee.

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Issues Involved:
1. Ownership and attribution of cash found during a search.
2. Application of Section 292C of the Income Tax Act.
3. Presumption of ownership under Section 292C.
4. Legality of refusal to tax the cash as undisclosed income of the person claiming ownership.

Issue-wise Detailed Analysis:

1. Ownership and Attribution of Cash Found During a Search:
The search and seizure operation conducted on 29.01.2002 at the residential premises of the appellant’s father-in-law, Deo Lal Sah, led to the discovery of Rs. 6,18,850 in cash. The appellant argued that the cash belonged to his father-in-law, who had substantial rental income and had filed a return of income for the block period, explaining the cash accumulation. The Commissioner of Income Tax (Appeals) initially deleted the addition of Rs. 6,18,850, considering the cash to belong to Deo Lal Sah. However, the Income Tax Appellate Tribunal restored the addition, presuming the cash to belong to the appellant under Section 292C.

2. Application of Section 292C of the Income Tax Act:
Section 292C, introduced by the Finance Act, 2007 with retrospective effect from 01.10.1975, presumes that any money found during a search belongs to the person from whom it was seized unless proven otherwise. The Tribunal held that the appellant did not rebut this presumption effectively. However, the High Court noted that the cash was found in the residence of Deo Lal Sah, who claimed ownership and provided a cash flow statement explaining the accumulation.

3. Presumption of Ownership Under Section 292C:
The High Court emphasized that Section 292C presumes ownership based on possession at the time of the search. Since the cash was found in the residence of Deo Lal Sah and he claimed ownership, the presumption should apply to him, not the appellant. The court noted that the appellant was residing in a different house owned by his mother-in-law, and there was no evidence connecting the seized cash to the appellant.

4. Legality of Refusal to Tax the Cash as Undisclosed Income of the Person Claiming Ownership:
The High Court found that the refusal to accept Deo Lal Sah’s claim over the cash was unjustified. Deo Lal Sah had filed a return of income for the block period, including a cash flow statement explaining the source of the cash. The court held that the refusal to tax the cash as undisclosed income of Deo Lal Sah, in absence of any contrary evidence, was illegal.

Conclusion:
The High Court concluded that the cash found at the residence of Deo Lal Sah belonged to him and not the appellant. The presumption under Section 292C should apply to Deo Lal Sah, who claimed ownership and provided an explanation for the cash. The court quashed the Tribunal’s order restoring the Assessing Officer’s addition of Rs. 6,18,850 to the appellant’s income and allowed the appeal in favor of the appellant. The substantial questions of law were answered accordingly, and no order as to costs was made.

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