ITAT Remands Section 69 Addition as Source of Cash Payments Was Not Properly Examined

DCIT Vs Navin Hanumanprasad Bagadiya (ITAT Pune)

The Revenue appealed against the order of the Commissioner of Income Tax (Appeals), Pune-12, for Assessment Year 2014-15, challenging the deletion of an addition of ₹6,05,31,261 made under Section 69 of the Income-tax Act in proceedings under Sections 143(3) read with 153C. The addition related to alleged unexplained cash payments reflected in seized pocket diaries recovered during a search conducted on the Pride Group.

During the search conducted on 21 January 2020, pocket diaries containing handwritten cash transactions were seized. The diaries were accepted as belonging to the Manjeet Disha Group by its Head Accountant, and Shri Devanand Narayan Kotgire (DNK), the key person of the group, also admitted ownership of the diaries. The entries recorded cash receipts and payments between DNK and the assessee over several financial years. Based on these entries, the Assessing Officer calculated a cumulative excess cash payment of ₹6,05,31,261 made by the assessee up to Financial Year 2013-14 and treated it as unexplained investment under Section 69, assessing the amount accordingly.

Before the Commissioner (Appeals), the assessee contended that the transactions were business transactions and had already been accepted by DNK, who had owned up all transactions recorded in the seized diaries. The assessee relied on DNK’s affidavit, wherein he stated that all transactions recorded in the diaries belonged to him and that he had offered the related income for taxation. Accepting this contention, the Commissioner (Appeals) held that since the transactions had already been taxed in the hands of DNK, making the addition again in the assessee’s hands would amount to double taxation. The addition of ₹6,05,31,261 was therefore deleted.

Before the Tribunal, the Revenue argued that the Commissioner (Appeals) had overlooked the distinction between the business income offered by DNK and the unexplained cash payments made by the assessee. It was submitted that DNK had offered only the profit element at 8% on the business transactions and the peak balance, whereas the Assessing Officer had added the unexplained cash payments made by the assessee. The Revenue further contended that the Commissioner (Appeals) failed to consider the seized diaries, the absence of any explanation from the assessee regarding the source of cash payments, and the fact that DNK’s affidavit had been executed only after completion of the assessee’s assessment.

The Tribunal observed that the transactions recorded in the pocket diaries had been admitted by both DNK and the assessee. It also noted that the assessee’s primary contention before the Commissioner (Appeals) was that the transactions had already been owned by DNK and therefore no separate addition should be made. However, the Tribunal found that the Commissioner (Appeals) had not examined whether DNK had accepted only the profit arising from the business transactions or had also explained the source of the excess cash payments made by the assessee. It held that merely because DNK had offered income on the business transactions did not automatically explain the source of cash available with the assessee for making payments to DNK. The Tribunal further observed that the Commissioner (Appeals) had not examined whether the unexplained cash itself had ever been offered by DNK for taxation or whether only the profit element had been taxed.

Holding that these issues required proper examination, the Tribunal set aside the order of the Commissioner (Appeals) and restored the matter for fresh adjudication. It directed the Commissioner (Appeals) to provide an opportunity to both the Assessing Officer and the assessee, examine the affidavit filed by DNK, compare the income accepted by DNK with the alleged excess cash payments made by the assessee, obtain a remand report if necessary, and decide the matter afresh in accordance with law. The Revenue’s appeal was accordingly allowed for statistical purposes.

FULL TEXT OF THE ORDER OF ITAT PUNE

The captioned appeal at the instance of Revenue pertaining to A.Y. 2014-15 is against the order dated 20.03.2024 of CIT(A), Pune-12 passed u/s.250 of the Income-tax Act, 1961 (in short ‘the Act’) arising out of Assessment Order dated 29.09.2021 passed u/s.143(3) r.w.s.153C of the Act.

2. Revenue has raised following grounds of appeal :

“1.Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in law and in facts by deleting addition made on account of unaccounted cash payments of Rs.6,05,31,261/- u/s 69A of the I.T. Act unearthed from seized material found during the course of search action.

2. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in law and in facts by deleting addition made on account of unaccounted cash payments of Rs.6,05,31,261/- u/s 69A of the LT. Act without appreciating the fact that affidavit submitted by Shri D.N. Kotgire cannot stand on any of legal parameter that all entries are of him only and no one else has anything to do with these transactions, whereas the entries are about receipts and payments of cash where no transactions can be there unless second party is there.

3. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in law and in facts by deleting addition made on account of unaccounted cash payments of Rs.6,05,31,261/ u/s 69A of the I.T. Act, 1961 without appreciating the fact that when D.N. Kotgire himself accepted and offered taxation for the transactions with the appellant then it has very much cleared that the appellant had entered into cash transaction with D.N. Kotgire for which the assessee had not offered any explanation during the course of assessment proceedings.

4. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in law and in facts by deleting addition made on account of unaccounted cash payments of Rs.6,05,31,261/- u/s 69A of the I.T. Act, 1961 without appreciating the fact that Shri D.N. Kotgire offered net profit at 8% in respect of business transaction apart from peak credit which was owned up by him as his own money & transaction whereas A.O. made the addition in the case of assessee on the basis of debit balance arose from difference of cash receipts and cash payment of Rs.6,05,31,261/- for which assessee has not offered any explanation during the course of assessment proceedings.

5. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in law and in facts by deleting addition made on account of unaccounted cash payments of Rs.6,05,31,261/- u/s 69A of the I.T. Act, 1961 without appreciating the fact that penalty proceedings and assessment proceedings are different. Thus, it cannot be said that the transaction contention of the assessee was accepted by the department.

6. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in law and facts by holding that addition made on account of unexplained investments u/s 69 amount to double taxation.

7. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and in facts by not appreciating the facts that the assessee had failed to explain the nature and source of cash payments made.

8. The appellant craves leave to add, alter, modify, delete and amend any of the grounds, as per the circumstances of the case.”

3. Briefly, the facts of the case are that the assessee is an individual and subsequent to the search u/s.132 of the Act conducted in the Pride Group of Aurangabad, Pune and Kolkata on 21.01.2020 certain documents were found and seized which pertains to and information contained therein relating to the assessee. Pride Group is engaged in Real Estate activity involving plotting activity and construction and sale of Flats and Shops. After recording the satisfaction notice u/s.153C of the Act issued to the assessee on 30.06.2021 and in compliance the assessee furnished the return of income on 24.09.2021 declaring income at Rs.47,77,590/-. Valid notices u/s.143(2) and 142(1) of the Act were issued. First addition of Rs.9,600/-was made by the ld. Assessing Officer for the lower amount of salary income declared in the return as compared to the income reflected in Form No.26AS. Another addition was made by the ld. Assessing Officer based on the seized documents containing records of cash transactions pertaining to various concerns and individuals and the same is in the form of small Pocket Diary wherein certain transactions in cash are entered. The fact that these hand-written diaries belong to Manjeet Disha Group has been accepted by Head Accountant of Manjeet Disha Group and even the key person namely Mr. Devanand Narayan Kotgiri (hereinafter referred to as ‘DNK’) has also accepted the ownership of these diaries. These diaries contain daily transactions in date-wise manner and appearing to be a cash book for such unaccounted receipts. There are transactions of cash payment to DNK and cash received from DNK. The details of such Receipts and Payments of such transactions are spread across F.Y. 2010-11 to F.Y. 2018-19 entered into between DNK and the assessee and the cumulative difference for A.Y. 2014­15 is calculated at Rs.6,05,21,261/-. For necessary reference, the transaction details referred in the assessment order are as under :

Working as per peak theory in case of the assessee under consideration

4. Based on the above tables, ld. Assessing Officer came to conclusion that the cumulative difference of Rs.6,05,31,261/-is the net cash payment made by the assessee to DNK and accordingly invoked section 69 r.w.s.115BBE of the Act and made addition of Rs.6,05,31,261/-.Income assessed atRs.6,53,28,451/-.

5. Aggrieved assessee preferred appeal before ld.CIT(A) and succeeded in the ground raised against addition of Rs.9,600/-. So far as ground raised against the addition u/s.69 at Rs.6,05,21,261/-, ld.CIT(A) gave relief to the assessee by observing that since the impugned transactions have already been owned by DNK, therefore, taxing the same amount in the hands of assessee would amount to Double taxation. Ld.CIT(W) gave reference to the Affidavit given by DNK before ld. ACIT, Circle-1, Aurangabad on 29.09.2021 and before Addl/JCIT, Nashik on 10.05.2022.

6. Aggrieved Revenue is now in appeal before this Tribunal against the deletion of addition of Rs.6,05,31,261/-.

7. Departmental Representative alongwith referring to the paper book dated 19.08.2025 containing Annexures A, B and C and written submissions running from page 2 to page 10 stated that ld. Assessing Officer has made the addition for unexplained cash payments made by the assessee to DNK whereas in the Affidavit given by DNK, the total transactions have been accepted to be business transactions and only income @8% has been offered on the peak balance of such business receipts. Ld. DR submitted that only offering one part of unaccounted transactions only by DNK would not be sufficient and the other part of unaccounted business transactions needs to be taxed and that ld.CIT(A) has misdirected himself in stating that the whole of the unaccounted money has been owned by DNK and there is no question of any income in the hands of assessee. Ld. DR further submitted that the impugned order is non-speaking to the extent that it is completely silent on the evidence gathered during the search in form of pocket diaries having the name of assessee and further ld.CIT(A) ignored the finding of ld. Assessing Officer that the assessee did offer any reply explaining the nature and source of the unaccounted transactions. He further submitted that DNK has not owned cumulative amount of net cash payment but has only offered the income @8% of the peak balance of such transactions.

8. On the other hand, ld. Counsel for the assessee vehemently argued referring to the finding of CIT(A) and also referred to the paper book containing 35 pages which includes Affidavit executed by DNK on 29.09.2021, copy of assessment order of DNK for A.Y. 2014-15 and other details. Ld. Counsel failed to controvert the contentions made by ld. DR that the Affidavit of DNK was given subsequent to the completion of the assessment proceedings in the case of assessee and there was no occasion for the ld. Assessing Officer to deal with the contents of the Affidavit of DNK and then to examine the same with the seized documents.

9. We have heard the rival contentions and perused the record placed before us. During the course of search and seizure action conducted in the Pride Group of Aurangabad, Pune and Kolkata on 21.02.2020, certain documents were seized including pocket diaries which contain the transactions between DNK and the assessee. During the post search enquiries, DNK in the statements recorded accepted the ownership of these diaries. Undisputedly, the transactions mentioned in the pocket diaries which have been entered have been accepted by DNK including the cash transactions with assessee. As per these diaries, there were transactions of receipts and payments and the payments from the assessee’s side has been higher and the working of cumulative difference of the net payment made by the assessee to DNK has also been referred in the assessment order and the same has been extracted (supra) as per which during F.Y. 2010-11 the cumulative difference was Rs.58,58,000/- which increased to Rs.6,05,31,261/- during F.Y. 2013-14 and which finally came done to Rs.4,85,55,855/- during F.Y. 2016-17. The alleged transactions have been admitted by DNK as well as the assessee and the same is also discernible from the grounds filed before ld.CIT(A) which appears at para 6.2 of the impugned order. The said submissions read as under :

“2.1 Ground No. 01: The addition made at Rs. 6,05,31,261/- is invalid and bad in law. The addition made is unjustified and unwarranted.

a. The search u/s 132 of the Income Tax Act, 1961 was also conducted at assessee premises and no documents or any noting’s etc is found with relation to DISHA GROUP.

b. If this transaction seems to be business transaction and not loans and advances then also it cannot be treated as income of assessee as DISHA GROUP has admitted all these transaction as their income.

c. The assessee has filed reply u/s 271D & 271E, elaborating all the points that it is not loans and advances and Addl. CIT (Central), Nashik has accepted the submissions and dropped penalty proceedings. The copy of orders of Sec. 271D & 271E are enclosed.

d. The transactions into diaries are from many people more than 300 but all the transactions are admitted by DISHA GROUP as his own transactions and no one is concerned with these transactions.

e. The assessee submits that, Shri Devanand Kotagiri has owned up all the transactions in the seized diaries as his own transactions and thereby, offered income on such transactions. Shri Devanand Kotagire has also offered net profit at 8% in respect business transactions apart from peak credit which was owned up by him as his own money & transactions.

f. The assessee is filing regular return of income from the business, profession and other sources and sources of investment are on record.

g. The transaction noted in the diaries are already considered as income in the hands of Shri Devanand Kotgire and the said transaction are already included yearwise in the income of Shri Devanand Kotgire and tax was paid thereon. Once the transactions are accepted by A.O. as income of Shri Devanand Kolgire and tax is also paid by him thus addition made by learned A. O, are seems to be as double taxation.

h. O. has made addition in relevant assessment year on account of working as per peak theory for the FY 2010-11, 2011-12, 2012-13 amounting to Rs. 5,96,42,291/-. The addition so made is for previous year are not as per law and secondly the learned A.O. has accepted all these transaction from diaries in the hands of Shri Devanand Kotgire.

i. That on the facts and the circumstances of the case and in law, the learned A.O. has erred in making addition u/s 69 of 1.T. Act on account of noting in pocket diaries found at DISHA GROUP at 6,05,31,261/- is unwarranted and required to be deleted.

j. That additions u/s 69 is not required as learned A.O. has not proved that these are loan-transactions. In fact, the assessee and Disha-group-has-business transactions-In view of this, addition made u/s 69 is not sustainable.”

10. In the above submissions, the main contention of the assessee is that since the alleged transactions are business transactions and have been owned by DNK no separate additions need to be made in the hands of assessee. We note that during the course of assessment proceedings the transactions appearing in the pocket diaries indicate that assessee has made net cash payment to DNK on year to year basis and the cumulative difference has increased upto Rs.6,05,31,261/-. It is also an admitted fact that during F.Y. 2013-14 relevant to the A.Y. 2014-15 the receipts are Rs.22,38,970/- and payments are at Rs.13,50,000/-. Prior to A.Y. 2014-15 whether any addition has been made in the hands of assessee during A.Y. 2010-11 to A.Y. 2013-14, information is not available on record. In the subsequent assessment proceedings from A.Y. 2015-16 and onwards the ld. AO has made the addition only if the cumulative balance has increased in comparison to the preceding years cumulative balance. Now the transactions in diaries clearly depict that cash payments have been made by the assessee and the source of such cash payments needs to be explained.

11. Now coming to the Affidavit given by DNK, the same has been executed on the very same day when the assessment proceedings have been concluded in the case of assessee on 29.09.2021 and there is no reference of said Affidavit in the assessment order. This Affidavit was placed before ld.CIT(A) in the said Affidavit DNK has stated as under :

“I Devanand S/o. Narayan Kotgire aged about 56 years R/o. Disha Square, Sutgirni Chowk, Garkheda, Aurangabad – 431 001 hereby declare and confirm that there was a search u/s.132 of Income Tax Act, 1961 on dated 21.01.2020 and during the search operation some diaries were found and seized containing cash transactions, some names, some expenses and sale receipts in cash from various projects. I hereby confirm that I owned up all transactions and nobody is related to it. The income calculated by me on the basis of diaries for all assessment years from 2014-15 to 2020-21, belongs to me only and I am ready to pay tax and interest thereon to avoid litigation and buy mental peace. Hence this Affidavit.”

12. On the basis of the above Affidavit, the assessment proceedings in the case of DNK were concluded and additions were made keeping into consideration the peak balance and treating the transactions as business transactions and income calculated @8% on such business receipts. However, ld.CIT(A) has observed that since DNK has owned up the transactions, sustaining the addition in the hands of assessee would tantamount to double addition. We however find that this finding of ld.CIT(A) is not correct because the transactions in the pocket diaries were regarding cash receipts and payments and the payments made by the assessee in cash were much more than the receipts from DNK and ld.CIT(A) ought to have dealt with the issue about source of cash available with the assessee for making payment to DNK. On the contrary, ld.CIT(A) merely took the basis of the Affidavit and has deleted the addition without examining as to whether DNK has owned up total cash payments or only the profit element in such business transactions. The transactions in the pocket diaries records the two types of transactions, firstly receipt and payment in cash and secondly if the transactions is of business nature then the profit element embedded in such transactions in the hands of DNK who has carried out the same. DNK has carried out the business transactions and so he has offered the net profit on the business transactions but the question still remains about the first part of the transactions, i.e. the source of cash available with the assessee to make payments to DNK. This issue remained to be adjudicated by ld.CIT(A) inspite of the fact that ld. Assessing Officer has referred to the total transactions in the assessment order but ld.CIT(A) failed to examine the issue in entirety. Further, ld.CIT(A) has totally disregarded the fact that ld. Assessing Officer has made the addition for unexplained cash which has never been owned up by DNK in the return of income filed before the AO as unexplained/unaccounted cash. Merely offering the net profit on the business transaction will not be sufficient to explain the source of cash payment made by assessee to DNK. Ld.CIT(A) failed to verify all these aspects prior to giving relief to the assessee.

13. In light of our aforesaid discussion, we are of the considered opinion that the issues need to be remanded to the file of lower authorities. We therefore set aside the impugned order and restore the issues raised by Revenue in the instant appeal to the file of ld.CIT(A) for re-adjudication as per our observations referred supra. Ld.CIT(A) shall give reasonable opportunity to the ld. Jurisdictional Assessing Officer to make submissions regarding the Affidavit filed by DNK as well as to the assessee and examine the amount of addition accepted by DNK vis-à-vis the total amount of excess cash payment given by the assessee to DNK. If necessary, ld.CIT(A) may also call for a remand report from ld. JAO. After considering the same, ld.CIT(A) shall decide the issue in accordance with law as contemplated u/s.250(6) of the Act. Grounds of appeal raised by the Revenue are allowed for statistical purposes.

14. In the result, the appeal filed by Revenue is allowed for statistical purposes.

Order pronounced on this 26th day of September, 2025.