Munna Prasad Vs ACIT (ITAT Kolkata)
Book Cash Cannot Be Treated as Half Unexplained Without Specific Findings: ITAT Rejects Arbitrary 50% Addition
A Percentage Cannot Substitute for Reasons
The Patna Tribunal held that sustaining 50% of intercepted cash as unexplained required specific findings concerning the defects in the cash book. General doubts about the accounts and admitted suppression of certain business transactions did not justify an unexplained division of the same cash into equal explained and unexplained portions.
However, the Tribunal did not finally delete the disputed addition. It restored the appeal to the Commissioner (Appeals) for examination of the cash book and a reasoned determination of any unexplained amount.
Police Interception Leads to Scrutiny
The assessee, a retailer and wholesaler dealing in food, beverages and pan masala, was intercepted by the police on 9 October 2023 with cash of ₹20,65,000. He admitted ownership of the money.
For assessment year 2024–25, he filed his return declaring income of ₹7,21,130. His case was selected for scrutiny following information concerning the intercepted cash.
The assessee explained that the money was being carried to pay an advance for purchasing land at Narkatiyagunj. He relied on an agreement for sale executed on 5 October 2023.
Regarding the source, he produced books and supporting records, including the cash book, ledgers, stock register, purchase and sales bills, GST returns and tax audit report. The cash book showed ₹22,59,080 on the interception date, exceeding the cash found.
Unrecorded Petty Transactions Complicate the Explanation
During enquiry, the assessee admitted purchasing petty items such as supari, biscuits, toffees, chips and namkeen without bills and selling them without recording the transactions.
The Assessing Officer estimated undisclosed annual turnover of ₹20,40,000 and applied a profit rate of 4.63%, resulting in an addition of ₹94,452 as undisclosed business income.
The assessee accepted this addition and did not pursue a challenge against it.
Separately, the Assessing Officer questioned the reliability of the books because of the unrecorded transactions, earlier years’ low or nil closing cash balances and discrepancies in debtors’ accounts. Invoking section 145(3), he rejected the books and treated the entire intercepted amount as unexplained money under section 69A, taxable under section 115BBE.
Commissioner (Appeals) Adopts a Half-and-Half Approach
The Commissioner (Appeals) acknowledged that the recorded cash balance exceeded the intercepted amount. He also observed that the Assessing Officer had not produced direct evidence showing that the relevant cash-book balance was fictitious or fabricated.
The appellate authority recognised that rejection of books does not automatically convert recorded assets into unexplained assets. Nevertheless, considering the admitted unrecorded business activity, he declined to accept the explanation fully.
He sustained ₹10,32,500, representing 50% of the intercepted cash, and deleted the other half. The sustained amount was directed to be assessed as business income, rather than unexplained money under section 69A.
The assessee challenged this percentage-based conclusion before the Tribunal.
Tribunal Requires Identification of Defective Entries
The Tribunal found no justification for selecting 50% as the unexplained portion when the cash book recorded ₹22,59,080 on the relevant date.
Neither the Assessing Officer nor the Commissioner (Appeals) had identified entries preceding the interception that were incorrect or unacceptable. The Tribunal observed that any sustainable addition required findings identifying the extent to which the recorded cash remained unexplained.
It also questioned the inconsistent treatment of the books. The returned business income had been accepted without estimating the disclosed business results, yet the recorded cash balance was rejected through general observations about accounting deficiencies.
Earlier financial years’ closing cash balances did not, by themselves, determine the cash available near the middle of the current financial year.
Remand for a Speaking and Reasoned Order
The Tribunal set aside the Commissioner (Appeals)’s order as insufficiently reasoned and restored the appeal to him.
The assessee must produce the cash book for examination. The Commissioner (Appeals) must also provide the Assessing Officer an opportunity to examine it and record specific findings concerning any unexplained cash within the balance shown on 9 October 2023.
If the assessee fails to produce the required cash book, the appellate authority may draw an adverse inference and uphold the addition.
The Tribunal noted that profit on the estimated undisclosed turnover had already been separately added, while the disclosed business profit remained accepted. The appeal was partly allowed for statistical purposes.
Author’s Comments
The decision rejects an arbitrary estimate, rather than granting unconditional acceptance of book cash. A 50% allowance may appear balanced, but fairness requires an evidentiary explanation for the amount sustained.
Equally, recording a cash balance does not place it beyond verification where accounting defects exist. The relevant exercise is to examine the entries and identify why a particular amount cannot be accepted.
The separate addition of undisclosed business profit also does not automatically explain every cash holding. Its significance lies in requiring coherent findings. Specific defects must support specific additions; suspicion and percentages cannot replace that analysis.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)-3, Patna [Ld. ‘CIT(A)’] passed u/s 250 of the Income Tax Act, 1961 [the ‘Act’] for AY 2024-25 dated 10.03.2026.
2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in sustaining the addition of Rs. 10,32,500/- without any direct evidence on record to establish that the intercepted cash to the extent of partly disallowed sum of Rs. 10,32,500/- was not from recorded business sources.
2. The Ld. CIT(A) has appreciated the fact that during the assessment proceeding, complete books of accounts including cash book, ledgers, stock register, sales bill, GST returns and Tax Audit Report was produced before AO, on the basis of which cash in hand lying with the assessee i.e. 09.10.2023, Rs. 22,59,080/- when the cash was intercepted by police and out of it, only Rs. 20,65,000/- being carried in the vehicle was intercepted. Further CIT(A) has observed that “the additions has largely been made on the basis of suspicion arising out of earlier year low cash balances and ledger observations” and therefore, CIT(A) arbitrarily estimated the total cash intercepted as 50% explained and 50% i.e. Rs. 10,32,500/- as unexplained from the same set of records and findings which Is not legal and contrary to natural justice.
Further grounds if any shall be urged at the time of hearing.”
3. Brief facts of the case are that the assessee had filed the return of income for AY 2024-25 on 26.10.2024 declaring the total income at ₹7,21,130/-. The case was selected for scrutiny based on the information received from the SHO on 09.10.2023 regarding the interception of cash amounting to ₹20,65,000/- from the possession of the assessee. During the assessment proceedings, the Assessing Officer [Ld. ‘AO’] noted that the assessee had admitted to the unrecorded purchase and sale of petty items, leading to an addition of ₹94,452/- on account of undisclosed business income. Further, the Ld. AO rejected the books of account and added the entire intercepted cash of ₹20,65,000/- to the total income, treating it as unexplained money u/s 69A of the Act. The Ld. AO assessed the total income at ₹28,80,580/-u/s 143(3) of the Act. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A), who confirmed the addition of ₹94,452/- as the assessee had accepted it during the assessment proceedings. Regarding the intercepted cash, the Ld. CIT(A) treated 50% of the cash as not satisfactorily explained and attributable to unaccounted business circulation, and accepted the balance 50% as explained out of recorded business cash. Accordingly, the Ld. CIT(A) modified the order of the Ld. AO and partly allowed the appeal of the assessee vide his findings as under:
“I have carefully considered the assessment order, the written submissions filed by the appellant, the material placed on record and the facts of the case.
Ground No. 01 is general in nature, hence need not be adjudicated upon.
Ground No. 02& 03: Addition of Rs. 94,452/- on account of Undisclosed Business Income
The AO observed that during post-search enquiry, in statement recorded on oath dated 09.01.2024, the assessee admitted that he was purchasing petty items such as supari, biscuits, toffee, chips and namkeen from local hawkers without bills and selling them without recording such transactions in the books of account. The assessee further stated that the monthly sale of such items was approximately Rs. 1,70,000/-.
On the basis of such admission, the AO estimated undisclosed turnover at Rs. 20,40,000/- and applied a profit rate of 4.63%, thereby making addition of Rs. 94,452/- as undisclosed business income.
During appellate proceedings, the appellant has categorically accepted the above addition and has not pressed this ground.
Since the addition is based on the appellant’s own sworn statement and the same has been accepted during appellate proceedings, the addition of Rs. 94,452/- is found justified and is hereby confirmed.
Ground No. 04 & 05: Addition of Rs. 20,65,000/- u/s 69A – Unexplained Money
During the course of assessment proceedings, the AO observed that the assessee along with two other persons was intercepted on 09.10.2023 by the SHO, Kuchaikot, Gopalganj, with cash amounting to Rs. 20,65,000/-. The accompanying persons stated that the cash belonged to the assessee.
In post-search enquiry proceedings, the assessee admitted ownership of the cash but failed, according to the AO, to satisfactorily explain its source.
The AO further noted that the assessee had admitted in his sworn statement that certain petty sales and purchases of items such as supari, biscuits, toffee, chips and namkeen were not recorded in the books of account. On analysis of past financial statements, the AO found that cash in hand shown at the end of earlier financial years was either negligible or nil. The AO also pointed out discrepancies in the debtors’ ledger, particularly regarding a summary invoice dated 31.03.2023 for Rs. 28,60,288/- and mismatch in opening balances of debtors in the subsequent year.
In view of these factors, the AO held that the books of account, including the cash book, were unreliable and invoked section 145(3) of the Act. Consequently, the explanation regarding availability of book cash was rejected and the entire amount of Rs. 20,65,000/- was treated as unexplained money under section 69A and taxed under section 115BBE.
During the appellate proceedings, the appellant submitted that the intercepted cash belonged to him and was being carried for payment of advance for purchase of land at Narkatiyagunj pursuant to an agreement for sale executed on 05.10.2023. A copy of the agreement (Mahadnama), executed on non-judicial stamp paper of the Government of Bihar, was furnished before the Investigation Wing during proceedings under section 132A. It was contended that the motive and purpose of carrying cash stood duly substantiated.
It was further submitted that during the assessment proceedings, complete books of account including cash book, ledger, stock register, purchase and sale bills, GST returns and Tax Audit Report were produced before the AO. The AO himself recorded in the assessment order that as per the cash book, cash in hand as on 09.10.2023 was Rs. 22,59,080/-, which was more than the intercepted amount of Rs. 20,65,000/-.
The appellant contended that comparison of cash balances of earlier financial years was irrelevant, as each assessment year is a separate unit of assessment. It was argued that low or nil cash balance in earlier years cannot be the basis for rejecting the cash position in the current year. The alleged discrepancy in debtors was also explained by stating that goods had been delivered earlier through challans and summary billing was done on 31.03.2023 for amounts already realized, and therefore there was no actual inconsistency.
It was thus argued that in the absence of any specific defect in the books and when sufficient cash balance was available in the cash book on the date of interception, the addition under section 69A was arbitrary, illegal and liable to be deleted.
I have carefully considered the assessment order, the written submissions of the appellant and the material available on record. The undisputed facts are that the assessee was found in possession of cash amounting to Rs. 20,65,000/- on 09.10.2023 and that he admitted ownership of the same.
The AO has primarily based the addition on two grounds: (i) unreliability of books due to admitted non-recording of certain petty transactions, and (ii) alleged discrepancies in past cash balances and debtors’ accounts. It is true that the assessee has admitted that certain sales and purchases were not recorded in the books. Such admission does affect the completeness of accounts and justifies caution in accepting the cash book at face value.
At the same time, it is also a matter of record that as per the cash book produced before the AO, cash in hand as on the date of interception was Rs. 22,59,080/-, which exceeds the intercepted amount. The AO has not brought any direct evidence on record to demonstrate that the cash book entry as on that date was fictitious or fabricated. The addition has largely been made on the basis of suspicion arising from earlier years’ low cash balances and ledger observations.
Section 69A applies where money is found which is not recorded in the books of account and the assessee offers no satisfactory explanation about its nature and source. In the present case, the money is prima facie recorded in the cash book. Therefore, before invoking section 69A, it must be shown that the books themselves are so unreliable that the recorded cash cannot be accepted at all.
Though rejection of books under section 145(3) may be justified due to partial suppression of turnover, such rejection does not automatically lead to the conclusion that the entire book cash is unexplained. Rejection of books enables estimation of income; it does not per se convert recorded assets into unexplained assets without specific finding.
Considering the totality of circumstances, admitted unrecorded business activity on one hand and availability of substantial book cash on the other, it would not be reasonable to sustain addition of the entire amount under section 69A. However, given the defects and admitted suppression, full acceptance of the explanation is also not warranted.
In view of the above, a fair and reasonable approach would be to treat 50% of the intercepted cash as not satisfactorily explained and attributable to unaccounted business circulation, and to accept the balance 50% as explained out of recorded business cash.
Accordingly, addition to the extent of Rs. 10,32,500/- is sustained and the balance Rs. 10,32,500/- is deleted. Further, the sustained amount is directed to be assessed as business income of the appellant, as it arises from defects in business accounts and cash circulation, and not as unexplained money under section 69A. With these observations, the above grounds taken by the appellant are partly-allowed.
5. In the result, the appeal is partly-allowed.”
4. Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.
5. Rival contentions were heard and the submissions made have been examined.
6. The Ld. AR submitted that the assessee is a retailer/wholesaler of food, beverages and pan masala. He was intercepted by the SHO with cash of ₹20,65,000/- which he was carrying for purchase of land. The assessee explained the source before the ADIT(Inv.) that the same was for purchase of land and the event did not occur as he was intercepted by the police. It was submitted before the Ld. AO that the assessee filed the cash book, bills etc. which was found in order by the Ld. AO. Our attention was drawn to page 9 of the order of the Ld. CIT(A) for the submission that as on 09.10.2023 the assessee was having cash of ₹22,59,080/- which was more than the intercepted amount of ₹20,65,000/- and the submission to this effect was also made before the Ld. AO which has been recorded in the assessment order.
7. However, the Ld. CIT(A) upheld 50% of the intercepted cash as not satisfactorily explained and attributable to unaccounted business circulation and accepted the balance 50% as explained out of recorded business cash. The Ld. AR questioned when books of account were accepted, how 50% of the amount could have been sustained. It was further submitted that out of books transactions were accepted by the assessee and the addition of ₹94,452/- was not contested. It was argued that the addition was not sustainable and no justification was given for sustaining the addition of 50% of the intercepted amount.
8. In the rejoinder the Ld. DR submitted that the assessee was intercepted with cash and thereafter the same was subjected to search and seizure. The assessee had admitted the suppression of sales of petty items such as supari, biscuits, toffees, chips and namkeens from local hawkers without bills which were sold without recording in the books of account and on the estimated undisclosed turnover of ₹20,40,000/-a profit rate of 4.63% was applied and addition of ₹94,452/- was upheld as undisclosed business income. The assessee had categorically accepted the above addition during the appellate proceedings and had not pressed this ground. Our attention was also drawn to page 10 of the order of the Ld. CIT(A) in support of the claim that the books were rejected but full acceptance of the explanation was also not warranted and 50% relief was granted by the Ld. CIT(A) and therefore, requested that the addition should be upheld.
9. The Ld. AR further submitted that the assessee had already been penalized for out of books turnover as the income of ₹94,452/- was admitted and further addition was not warranted.
10. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). The Ld. CIT(A) confirmed 50% of the addition u/s 69A of the Act vide his findings as under:
“Though rejection of books under section 145(3) may be justified due to partial suppression of turnover, such rejection does not automatically lead to the conclusion that the entire book cash is unexplained. Rejection of books enables estimation of income; it does not per se convert recorded assets into unexplained assets without specific finding.
Considering the totality of circumstances, admitted unrecorded business activity on one hand and availability of substantial book cash on the other, it would not be reasonable to sustain addition of the entire amount under section 69A. However, given the defects and admitted suppression, full acceptance is also not warranted.
In view of the above, a fair and reasonable approach would be to treat 50% of the intercepted cash as not satisfactorily explained and attributable to unaccounted business circulation, and to accept the balance 50% as explained out of recorded business cash.”
11. The Ld. CIT(A) has not given any justification as to why 50% of the intercepted cash should be treated as unexplained when the assessee had shown the cash of ₹22,59,080/- as on 09.10.2023 in the books of account. Neither the Ld. AO nor the Ld. CIT(A) have mentioned any of the entries prior to 09.10.2023 in the cash book which were not acceptable or were not correct, for if it were so, only to that extent the addition ought to have been sustained. The assessee had shown income of ₹7,21,130/- in the return filed and while the books of account were rejected by the Ld. AO, which were not found to be reliable and the source of intercepted cash emanated from the rejected books of account, without rejecting the book results in toto, there was no justification for addition of the intercepted cash by the Ld. AO nor any reason has been given by the Ld. CIT(A) for upholding 50% of the amount added u/s 69A of the Act. Once the income returned as per the ITR was accepted and the same was not estimated as there is no discussion of the source or the computation of the income returned, rejection of the books of account for the reason that the sale made on the last day of the financial year of ₹28,60,288/- was reported in the audited balance sheet at ₹9,83,045/- coupled with the other discrepancy relating to NIL cash in hand as on 31.03.2020, 31.03.2021, 31.03.2022 and cash in hand of ₹1,32,700/- as on 31.03.2023 did not warrant acceptance of the returned income which ought to have been estimated and since the same was accepted on the basis of the books of account, there was no justification for not accepting the cash in hand of ₹22,59,080/- as on 09.10.2023 which happens to be nearabout the middle of the financial year and has no relation with the cash in hand as on 31st March of the other financial years noted by the Ld. AO. Thus, the order of the Ld. CIT(A) upholding 50% of intercepted cash is found to be not justified in the absence of not giving any finding as to which of the entries in the audited books of account were not acceptable as only to that extent the addition could have been sustained. Thus, the order of the Ld. CIT(A) not being a speaking and reasoned order is hereby set aside and the appeal is restored before him for granting one more opportunity to the assessee and to give a specific finding relating to the cash book for not accepting the transaction relating to the cash in hand as on 09.10.2023. The assessee shall produce the cash book before the Ld. CIT(A) who shall also grant an opportunity to the Ld. AO to examine the same and give a specific finding as to the unexplained cash out of that recorded in the books of account as on 09.10.2023. On failure of the assessee to produce the required cash book for examination, the Ld. CIT(A) shall be at liberty to draw an adverse inference and the addition may be upheld. This exercise is required to be carried out as the Ld. AO has already added a sum of ₹94,452/- as profit being @4.63% on the total estimated undisclosed turnover of ₹20,40,000/-, which is apparently in addition to the profit disclosed on the disclosed turnover and which has not been disturbed but accepted as such as per the return of income. Hence, the grounds of appeal are partly allowed for statistical purposes.
12. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on 8th October, 2026.
