Case Law Details
Pawan Raj Goyal Vs DCIT (ITAT Delhi)
ITAT Delhi held that addition of unexplained money under section 69A of the Income Tax Act via rectification order passed under section 154 stating there was mistake apparent from record is based on surmises and conjectures and hence unsustainable.
Facts- Assessee has preferred the present appeal contending that CIT(A) has erred in sustaining additions of Rs. 10,00,626/- under section 69A of the Income Tax Act made by AO on account of cash found during the course of search and seizure operation as unexplained money by ad-hoc estimation of expenses incurred. Notably, impugned addition was made vide rectification order u/s 154.
Conclusion- Section 154 enables the AO to rectify a mistake apparent on record. A reading of the assessment order and the order u/s 154 nowhere speaks of any mistake which has occurred in the assessment order. The order passed by the AO is as if he is sitting into the shoes of ld. CIT and passing an order u/s 263 of the Act, which is not actually correct. How these additions of cash have been done u/s 154 claiming that there was a mistake apparent from record in the original order, is not borne out anywhere in the records.
In our considered opinion, this is solely on the basis of surmises and conjectures. The estimate of cash under the presumptive regime by the AO as well as ld. CIT (A) is flawed. The same is based on surmises and conjectures and the same is not sustainable on merits also. So, to conclude, this estimate of cash in order passed u/s 154 is jurisdictionally not permissible and secondly, on merits also, we note that the addition is based on surmises and conjectures which cannot be sustained. Accordingly, we direct that the addition of Rs. 10,00,626/- in this regard be deleted.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is directed against the order of ld. CIT (Appeals)-27, New Delhi dated 31.01.2022 pertaining to the Assessment Year 2018-19.
2. The grounds of appeal taken by the assessee read as under :-
“1. That on the facts and circumstances of the case, the order passed by the learned CIT(A) sustaining additions aggregating to Rs. 10,00,626/- under section 69A of the Act made by the A.O., is bad both in the eyes of law and on facts.
2. That on the facts and circumstances of the case, Ld. CIT(A) has erred both on facts and in law in confirming
addition to the extent of Rs. 10,00,626/- u/s 69A of the Act on account of cash found during the course of search and seizure operation as unexplained money by ad-hoc estimation of expenses incurred.”
3. In this case, following assessment order was passed under section 143 (3) read with section 153A of the Income-tax Act, 1961 (for short ‘the Act’) :-
“In this case original return u/s 139 of the I.T. Act declaring income of Rs.46,21,330/- was filed on 3 1.08.2,018.
2. Subsequently, search & seizure operation u/s 132 of the Income Tax Act, 1961 was conducted on 08.02.2018 and on subsequent dates in Havells Group of cases at different business and residential premise of the Group. The case of the assessee was also covered u/s 132 of the IT Act which included the residential premises of Shri Pawan Raj Goyal at H-1/10 lower Ground Floor, Hauz Khas, New Delhi-110 016.
3. Subsequently, the case was centrslized u/s. 127 of the I.T. Act, 1961 with DCIT Central Circle-17, New Delhi consequent o the order passed by ld. Pr.CIT-24, New Delhi vide letter F.No.Pr.CIT-24, New Delhi vide letter F.No.24/Centralization/ 2018-19/601 dt. 25.11.2018.
4. Accordingly, notice u/s 143 (3) of the Income Tax Act, 1961 was issued on 20.05.2019 & 12.09.2019 and duly served upon the assessee. A questionnaire along with notice u/s 142(1) of the Act, dated 15/10/2019 was issued and served on the assessee fixing the date for compliance on 30/1012019. In response to the aforesaid notices, Shri Akshat Jain, Authorized Representatives (A/Rs) of the assessee attended the hearings and filed details/explanations from time to time.
5. During the course of hearing various details/evidences were filed as per requisition, which were test checked. During the year under consideration, the assessee has derived income under head ‘Income from Salary’, ‘Income from House Property’, income from medical professionals under head ‘Income from business or profession’ and ‘Income from other source’. The case is heard and discussed with the Ld. A/R. After discussion, the total income of the assessee for the A.Y. 2018-19 is computed as under:-
Returned Income : Rs. 46,21,330/-
Assessed income : Rs. 46,21,330/-
Assessed u/s. 153A/143(3) of the I.T. Act, 1961. Calculate tax and charge interest as per law. Give credit for prepaid taxes. Copy of the order and demand notice are being issued to the assessee.
This order has been passed with the prior approval of the Addl.CIT, Central Range 5, New Delhi vide his approval letter No.Addl.CIT/CR-5 ,Approval 153 -D/20 19-20/2016 dated 29.12.2019.”
Thereafter, the AO passed a rectification order u/s 154 of the Act. In this, inter alia, the issue of addition on account of unaccounted cash found was dealt with by the AO in the order u/s 154 as under :-
“Addition on account of Unaccounted cash found-
1.1. A Search/seizure operations were carried out at the residence of Pawan Raj Goyal on 06.02.20 18 and search action was also conducted at locker no. 830, HDFC Bank, Gurgaon on 31/03/2018. During the search in the residence of Pawan Raj Goyal at N-4/26, DLF Phase-II, Gurgaon on 06.02.20 18, total cash of Rs. 1,18,06,990/- was found out of which Rs.25.00.000/- was seized from residence. Further. foreign currency equivalent to Rs.2,55,170/- was also found During the course of search and seizure proceedings.
1.1. The assessee was show-caused vide notice u/s 142(1) of the Income Tax dt. 15.10.2019 and was specifically asked to provide the source of cash found.
2. In response to above stated notice, the assessee has submitted a written reply on 24.12.2019. In his reply, assessee has justified cash found mainly on the following grounds
2. Cash amounting to Rs.87,20,064/- belongs to PRG Medicares and Reseraches Private Limited in which assessee is one of the directors.
3. Cash amounting to Rs.30,86,926/- out of professional receipts earned by the assessee and considered in return of Income filed in AY 20 18-19 and pin money of house wife and out of savings accumulated over the years by the family members of the assessee.
4. In respect of foreign currency, assessee has submitted that his son Shivanshu Raj Goyal travel outside India to attend medical conference etc and foreign currency found belongs to him and his son which is leftover from their foreign travel.
1. 1. During the course of assessment proceedings assessee has tried to justify the excess cash of Rs. 30,86,926/- through professional receipts earned by the assessee
1. 1. Further, on perusal of the ITR form of the assessee, it is noticed that assessee has shown gross receipts of Rs.3 1,29,300/- and offered the same as per the provisions of section 44ADA of the Income Tax Act, 1961. Apart from above assessee has also earned professional receipt subsequently amounting to Rs.4,00,000/- reflected in the bank statement for the year under consideration and which forms part of the gross receipts. Against these professional receipts, the assessee has further claimed expenses of Rs.15,64,650/- u/s 44ADA @ 50% and offered Rs. 15,64,650/- as income under the head income from business and profession. However even if contention of the assessee is accepted the amount claimed to have been shown as expenses can not be accepted as the assessee was having undeclared cash of Rs.30,86,926/- as on the date of search. Therefore, the assessee is claiming the expense which it has not incurred. Therefore, total available cash in hand comes out to be Rs.11,04,650/- (31,29,300 – 15,64,650 – 60,000 – 4,00,000). Therefore, excess cash found of Rs. 19,82,276/- (i.e. Rs.30,86,926/- Less Rs.11,04,6501-) cannot be justified with the cash available with the assessee even after declaring professional receipts.
1. 1. Balance cash amounting to Rs.2,55, 170/- is accepted being part of pin money of house wife and out of savings accumulated over the years.
1. 1. In view of the above, the cash found amounting to Rs. 19,82,276/- is treated as unaccounted cast) which remain unexplained and added to the income of the assessee as per the provisions of section 69A of the Income Tax Act, 1961. The same is to be taxed @ 60% u/s 115BBE of the Income Tax Act.”
4. Assessee appealed before the ld. CIT (A) challenging the addition made on account of jewellery as well as cash of Rs. 19,82,276/- u/s 69A of the Act. Ld. CIT (A) noted that before him, it was stated that provisional receipt of Rs.31,29,300/- is duly substantiated from the documents seized during the course of search. He noted that assessee has stated that AO has erred in determining the cash-in-hand due to following reasons :-
“The AO wrongly taken deemed expenses @ 50% of gross turnover under section 44ADA as expenses actually incurred by the appellant by ignoring non- cash expenses i.e. depreciation and expenses incurred on accrual basis which defeat the intend of the legislature,
Nature of expenses incurred of Rs -60,000/- was not specified in assessment order,
Wrongly taken cash deposited in bank account of Rs 4,00,00Q/- while such cash was deposited in bank account after the date of search and therefore cannot be considered for the purpose of’ determining cash available in hand on the date of search i.e. 06.02,2018.”
5. The assessee has also stated that AO has failed to understand the provisions of section 44AD which deals with presumptive taxation and gives an option to the assessee to declare his profits and gains from profession on deeming basis. Assessee’s further submission in this regard which was noted by the ld. CIT (A) is as under :-
“The assessment in the case search cases cannot be made merely on the basis of doubt, suspicion conjecture and surmises-and the AO has completely failed to brought on record any evidence which could disprove the contention of the appellant. Further, cash seized by the department is Rs. 25,00,000/- therefore, cash deposit of Rs.4,00,000/- into bank account was made out of cash in hand of Rs.(30,86,926 – 25,00,000) which should not be’ considered in determining cash in hand as on 06.02.2018. Further, on considering the fact of the case where income has been declared on presumptive basis u/s 44ADA which is duly accepted by the AO, Further, there is no requirement to maintain books of account u/s 44AA of the Act, then it cannot be presumed that the appellant has incurred exactly 50% of gross receipts towards expenses applying the ratio of judgment rendered by the Hon’ble ITAT, Chandigarh in the case or Nand Lal Popli, vs, The Deputy Commissioner of Income Tax, [2016] 71 taxmann.com 246. Further, the expenses were incurred through banking canners and credit card is also not ruled out.”
6. CIT (A) observed that there were some merits in the assessee’ s submissions and held as under :-
“The AO has not given any detail of reducing Rs.60,000/- while calculating the cash available in the hands of the appellant. Therefore, this reduction of Rs.60,000/- is deleted.
6.6.2 Similarly, Rs.4,00,000/- which was deposited into the Bank ale after the date of search is also deleted.
6.6.3 Claim of the appellant in respect of non cash expenses can be ruled out. However, the appellant has not provided details of such expenses. Still keeping in mind that there would have been some non cash expenses also, one third of expenses calculated by AO i.e. Rs.5,21,650/- (one third of Rs.15,64,650) is allowed.
6.7 Now the availability of cash in the hands of the appellant is calculated as under:
| Head | Amount (in Rs. |
| Professional receipts as declared in return of Income | 31,29,300 |
| Less: 50% of expenditure as return was filled by invoking provisions of 44AD of the IT Act, 1961 | 15,64,650 |
| Add : Non cash expenses as discussed in para 6.6.3 | 5,21,650 |
| Total availability of cash | 20,86,300 |
6.8 Therefore, addition on account of unexplained cash u/s 69A of the IT Act, 1961 found during the course of search and seizure operation is restricted to Rs.10,00,626/- (30,86,926 – 20,86,300).”
7. Against this order, assessee is in appeal before us. We have heard both the parties and perused the records.
8. The only grievance raised by the assessee before us is that addition of Rs. 10,00,626/- sustained u/s 69A of the Act by the authorities below is not correct in law.
9. At the outset, we note that AO has already passed an order u/s 143(3) of the Act wherein no such addition was made. Subsequently, order u/s 154 was passed wherein the impugned addition was made.
Relevant portions of original assessment order as well as rectification order u/s 154 have already been reproduced herein above. Section 154 enables the AO to rectify a mistake apparent on record. A reading of the assessment order and the order u/s 154 nowhere speaks of any mistake which has occurred in the assessment order. The order passed by the AO is as if he is sitting into the shoes of ld. CIT and passing an order u/s 263 of the Act, which is not actually correct. How these additions of cash have been done u/s 154 claiming that there was a mistake apparent from record in the original order, is not borne out anywhere in the records. Apart from the above, we note that assessee has filed return under presumptive taxation regime of section 44ADA in which books of accounts were not required. Assessee’s submissions in explanation of cash-in-hand are sufficiently cogent. The estimate of cash by the ld. CIT (A) was also not done on correct basis. Ld. CIT (A) himself stated that claim of the assessee in respect of non-cash expenses cannot be ruled out. However, the assessee has not provided details of such expenses. This is a strange observation and ld. CIT (A) has on ad hoc basis held that on some non-cash expenses, 1/3rd of the expenses calculated by AO in this regard i.e. Rs.5,21,650/- (1/3rd of Rs.15,64,650/-) is allowed.
10. In our considered opinion, this is solely on the basis of surmises and conjectures. The estimate of cash under the presumptive regime by the AO as well as ld. CIT (A) is flawed. The same is based on surmises and conjectures and the same is not sustainable on merits also. So, to conclude, this estimate of cash in order passed u/s 154 is jurisdictionally not permissible and secondly, on merits also, we note that the addition is based on surmises and conjectures which cannot be sustained. Accordingly, we direct that the addition of Rs. 10,00,626/- in this regard be deleted.
11. In the result, the appeal filed by the assessee stands allowed.
Order pronounced in the open court on this 13th day of February, 2023.
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