Presumption as to assets, books of account, etc

524(1)

Where any books of account, other documents money, bullion, jewellery, virtual digital asset or other valuable article or thing, is found in the possession or control of any person in the course of a search under section 247 or survey under section 253, it may, in any proceeding under this Act, be presumed—

• (a) that such books of account, other document, money, bullion, jewellery, virtual digital asset or other valuable article or thing belong or belongs to such person;
• (b) that the contents of such books of account and other document are true;
• (c) that the signature and every other part of such books of account and other document, which purports to be in the handwriting of any particular person, or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in the handwriting of that person; and
• (d) in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested article or thing belong or belongs to such person;

524(2)

Where any books of account, other documents or assets have been delivered to the requisitioning officer as per section 248, then, the provisions of sub-section (1) shall apply as if such books of account, other documents or assets, which had been taken into custody from the person referred to in sub-section (1)(a) or (b) or (c) of the said section, had been found in the possession or control of that person in the course of a search under section 247.

Explanation

Section Summary:

Section 524 of the Income Tax Act establishes legal presumptions regarding ownership, authenticity, and truthfulness of books of account, documents, money, bullion, jewellery, virtual digital assets, or other valuable items found during a search (under Section 247) or survey (under Section 253). It also extends these presumptions to items delivered to a requisitioning officer under Section 248.

Key Changes:

1. Inclusion of Virtual Digital Assets: The section now explicitly includes "virtual digital assets" (e.g., cryptocurrencies, NFTs) as part of the items subject to presumptions, reflecting the growing importance of digital assets in financial transactions.
2. Expanded Scope of Presumptions: The section clarifies that the presumptions apply not only to physical items but also to documents and digital records, ensuring consistency in treatment across different types of assets.
3. Extension to Requisitioned Items: Sub-section (2) ensures that items delivered to a requisitioning officer under Section 248 are treated as if they were found during a search, streamlining the legal process.

Practical Implications:

1. Taxpayers: If books of account, documents, or assets are found during a search or survey, the burden of proof shifts to the taxpayer to disprove the presumptions. This could make it harder to contest ownership or authenticity claims by tax authorities.
2. Businesses: Businesses must ensure proper documentation and record-keeping, especially for virtual digital assets, to avoid adverse presumptions during tax investigations.
3. Compliance Processes: Tax authorities can rely on these presumptions to expedite investigations, reducing the need for additional evidence in certain cases.

Critical Concepts:

1. Presumption of Ownership: If items are found in a person's possession, they are presumed to belong to that person unless proven otherwise.
2. Presumption of Truthfulness: The contents of books of account and documents are presumed to be accurate and true.
3. Handwriting and Execution: Signatures and handwriting in documents are presumed to be genuine unless challenged.
4. Virtual Digital Assets: This term includes cryptocurrencies, NFTs, and other digital assets recognized under Indian tax law.

Compliance Steps:

1. Maintain Accurate Records: Ensure all books of account, documents, and records are accurate, complete, and up-to-date.
2. Document Ownership: Keep clear records proving ownership of assets, especially virtual digital assets.
3. Verify Signatures and Execution: Ensure all documents are properly signed, stamped, and executed to avoid disputes.
4. Prepare for Scrutiny: Be ready to provide evidence to counter presumptions if items are found during a search or survey.

Examples:

1. Example 1: During a search, tax authorities find ₹10 lakh in cash and a ledger in Mr. A's possession. Under Section 524, it is presumed that the cash and ledger belong to Mr. A, and the entries in the ledger are true. Mr. A must provide evidence to disprove these presumptions.
2. Example 2: A business is found to hold cryptocurrency during a survey. The tax authorities presume the cryptocurrency belongs to the business and that the transaction records are accurate. The business must provide documentation to prove otherwise if necessary.

This section strengthens the tax authorities' ability to enforce compliance while placing a greater onus on taxpayers to maintain and prove the accuracy of their records.