2019 (8) TMI 993 - HC - Income Tax

Owner of Cash found and seized in course of search - Undisclosed income - presumption in terms of section 292C - block assessment - Whether cash found was held to be the amount belonging to the assessee - appellant and not of his father-in-law ? - refusal of the respondents to not accept the entire cash found in course of search to be the undisclosed income of Deo Lal Sah - HELD THAT - Section 110 of the Evidence Act stipulates that when the question is whether any person is owner of anything of which he is shown to be in possession, onus of proving that he is not the owner is on the person who affirms that he is not the owner. It was observed that it is well settled principles of law, unless contrary is established, that title always follows possession. The cash found and seized in course of search on 29.01.2002 at the East Lohanipur residential premises of Deo Lal Sah (father-in-law of the appellant) belongs to Deo Lal Sah alone and not the appellant. The respondent authorities in drawing presumption in terms of section 292C that the cash found and seized belongs to the appellant, have committed serious error in law as section 292C provides that if money is found in possession of any person in course of search u/s 132, it may in any proceeding under the Act be presumed that such money belongs to such person and thus in the instant case since the money/seized cash was found in possession of Deo Lal Sah, it could not have been presumed to belong to the appellant. The cash was found at the residence where not only Deo Lal Sah was residing but he also claimed the said cash and thus it will necessarily have to be presumed to be his undisclosed income in terms of section 292C. In view of the fact that Deo Lal Sah filed return of income for block assessment along with the cash flow statement explaining the seized cash, there remains no doubt that the refusal of the respondents to not accept the entire cash found in course of search to be the undisclosed income of Deo Lal Sah, in absence of any material to the contrary, is illegal. The substantial questions of law so framed, are answered accordingly.

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 ?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 ?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 ?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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