diff --git a/erpnext/controllers/queries.py b/erpnext/controllers/queries.py
index 8de84a3044f..931d6361efe 100644
--- a/erpnext/controllers/queries.py
+++ b/erpnext/controllers/queries.py
@@ -216,11 +216,8 @@ def item_query(doctype, txt, searchfield, start, page_len, filters, as_dict=Fals
 			group = "Customer Group" if filters.get("customer") else "Supplier Group"
 			item_rules_list = frappe.get_all(
 				"Party Specific Item",
-				filters={
-					"party": ["!=", party],
-					"party_type": party_type,
-				},
-				fields=["restrict_based_on", "based_on_value"],
+				filters={"party_type": party_type},
+				fields=["party", "restrict_based_on", "based_on_value"],
 			)
 
 			party_group_rules_list = frappe.get_all(
@@ -229,21 +226,30 @@ def item_query(doctype, txt, searchfield, start, page_len, filters, as_dict=Fals
 				fields=["party as party_group", "restrict_based_on", "based_on_value"],
 			)
 			current_party_group = frappe.get_value(party_type, party, frappe.scrub(group))
+
+			restricted_items = defaultdict(set)
+			allowed_items = defaultdict(set)
+
+			for rule in item_rules_list:
+				restrict_based_on = "name" if rule.restrict_based_on == "Item" else rule.restrict_based_on
+
+				if rule.party == party:
+					allowed_items[restrict_based_on].add(rule.based_on_value)
+				else:
+					restricted_items[restrict_based_on].add(rule.based_on_value)
+
 			for rule in party_group_rules_list:
-				if current_party_group != rule.party_group:
-					item_rules_list.append(rule)
+				restrict_based_on = "name" if rule.restrict_based_on == "Item" else rule.restrict_based_on
 
-			filters_dict = {}
-			for rule in item_rules_list:
-				if rule["restrict_based_on"] == "Item":
-					rule["restrict_based_on"] = "name"
-				filters_dict[rule.restrict_based_on] = []
+				if current_party_group == rule.party_group:
+					allowed_items[restrict_based_on].add(rule.based_on_value)
+				else:
+					restricted_items[restrict_based_on].add(rule.based_on_value)
 
-			for rule in item_rules_list:
-				filters_dict[rule.restrict_based_on].append(rule.based_on_value)
-
-			for filter in filters_dict:
-				filters[scrub(filter)] = ["not in", filters_dict[filter]]
+			for field, restricted_values in restricted_items.items():
+				values_to_exclude = restricted_values - allowed_items[field]
+				if values_to_exclude:
+					filters[scrub(field)] = ["not in", list(values_to_exclude)]
 
 			if filters.get("customer"):
 				del filters["customer"]