The ITAT bench consisting of HC Shrivastava and GC Gupta has, in its order dated August 12, held that "no value can be attached to the entries in the diary in the absence of any corroborative evidence and that no addition can be made in the hands of the appellant on the basis of the entries in the said diaries".

The tribunal rejected the additions made in the five appeals referred by the revenue department for assessment years 1978-79, 1979-80, 1980-81, 1981-82 and 1982-83 against the Mumbai-based chartered accountant firm NV Vala & Co.

The department has filed the appeals stating that the Commissioner of Income Tax (Appeals) has erred in deleting the addition made by the assessing officer on account of a seized diary belonging to film actress Rekha Ganeshan.

The income-tax department had raided the premises of Rekha and TS Ganesh (former secretary of Rekha) in November, 1982, under section 132 of the Income-tax Act. During the search, two diaries from Ganesh's house were also seized. The diaries contained various amounts of expenditure incurred by Rekha or TS Ganesh on her behalf.

In one of the diaries, the name of the chartered accountant firm (NV Vala & Co) had appeared and payment of various amounts in cash falling in different years was mentioned against their name.

On the basis of these jottings, the assessing officer made additions in the assessment order of the firm. The additions were deleted by the tribunal by stating that the entries in the diary do not clearly indicate whether the amounts were paid to the late NV Vala in his individual capacity or to his partnership firm NV Vala & Co.

In January 1998, the ITAT had, in another case pertaining to Rekha, concluded that no value can be attached to the entries in the diaries.

In its August 12 order ITAT has noted that the diaries were not seized from the premises of the assessee (read NV Vala & Co) nor were they written by any of the partners of the assessee firm.

The tribunal has also taken into account the fact that the diary was hand-written by TS Ganesh from whose residence it was seized and that Ganesh had turned hostile to Rekha sometime before the search. Ganesh could not be cross-examined as he died before the assessment was framed.

"The diaries do not go beyond the point of suspicion and no addition can be sustained merely on the basis of suspicion", the order states.

"It is settled matter in the law that merely on the basis of some writing in the diaries, that too hand-written by an outsider, cannot become the basis for making any addition, till some corroborative independent evidence to support the entries is brought out on record", the ITAT order added.