Mere reflection of unexplained cash in books of accounts not valid ground to delete addition

DCIT Vs Bindal Papers Mills Ltd. (ITAT Delhi)

ITAT Delhi held that mere reflection of unexplained cash in the books of accounts without any supportive documents is not valid ground for deletion of the addition by CIT(A). Accordingly, addition towards unexplained cash sustainable.

Facts-

The assessment proceedings initiated against the assessee, the representative of the assessee has participated in the assessment proceedings. The assessment order came to be passed on 17/12/2018 by making an addition of Rs. 1 crore seized from one Mr. Pankaj Goel on 05/06/2016 which is found to be unaccounted cash of the assessee company. Accordingly, the said cash has been treated as unexplained money and added to the Assessee’s total income u/s 69A of the Act. Further, the Ld. A.O. made disallowance of Rs. 6,23,081/-u/s 14A of the Act and computed the total income of the assessee at Rs. 1,06,23,081/-.

Aggrieved by the assessment order dated 17/12/2018, the assessee has preferred an appeal before the Ld.CIT (A). The Ld.CIT(A) vide order dated 03/07/2019 deleted the addition of Rs. 1 crore made on account of unexplained money u/s 69 of the Act.

Aggrieved by the said deletion of Rs. 1 crore by the CIT(A), which was made u/s 69A of the Act by the A.O., the Revenue has preferred the present appeal.

Conclusion-

When the cash is found with an assessee, it is the duty of the assessee to prove the source of such cash by providing sufficient evidence to come to a conclusion to satisfy the source of such cash. In the absence of such proof, the Revenue Authorities are bound to make additions. Mere reflecting the unexplained cash in the books of accounts in absence of any supportive documents, cannot be ground for deletion of the addition. In our considered opinion, the Ld. CIT(A) has committed an error in deleting the addition. Therefore, the order of the Ld. CIT(A) is deleting the addition is herby set aside and the addition made by Ld. A.O. is hereby sustained.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal is filed by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-29, New Delhi [hereinafter referred to as CIT (Appeals)] dated 10.07.2019 for assessment year 2017-18.

2. The substantive grounds of appeal raised by the Revenue are as under:-

“1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in totally deleting the addition of Rs.1,00,00,000/-on account of unexplained money u/s 69A on the ground that (i) the cash seized belongs to the Assessee’s imprest fund meant for normal course of its business; and (ii) the cash transaction is covered under sub-section (e), (f) and (g) of Rule 6DD of Income Tax without appreciating the fact that such transaction of cash through imprest account has never taken place in the past in its cash book which can prove cash purchases of raw materials, wheat straw.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in totally deleting the addition of Rs. 1,00,00,000/- on account of unexplained money U/s 69A on the ground that the same was duly recorded in the books of account and addition u/s 69A of the Act can only be made when the assessee is found to be in possession of money bullion, jewellery, etc, not recorded in his books of account without appreciating the fact that recording of the transaction in cash book was an afterthought exercise to make the cash appear to be from genuine source.

3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in totally deleting the addition of Rs. 1,00,00,000/-on account of unexplained money u/s 69A on the ground that applicability of section 40A(3) has to be without appreciating the fact that addition was made u/s 69A and not u/s 40A(2) of the Act.

3. There is a delay of 154 days in filing the present appeal by the Revenue. The Revenue has pleaded that the delay in filing of appeal caused ‘due to inadvertent mistake in calculation of tax effect while allowing the relief as per the decision of CIT(A), the appeal was not to be filed in view of monetary limit laid down by the CBDT. Later, it was found that there was mistake in calculation of tax effect and the same has been corrected’. Therefore, the delay has been caused in filing the appeal which is not willful default but bonafide mistake. For the reasons stated in the application for condoning the delay, the delay of 154 days in filing the appeal is hereby condoned.

4. Brief facts of the case are that, the assessee was engaged in manufacturing and trading of paper and paper board. The assessee filed return of income declaring ‘NIL’ income u/s 139(1) of the Act. Subsequently, the assessee revised the return of income again declared ‘NIL’ income. The case of the assessee was selected under CASS for complete scrutiny. The assessment proceedings initiated against the assessee, the representative of the assessee has participated in the assessment proceedings. The assessment order came to be passed on 17/12/2018 by making an addition of Rs. 1 crore seized from one Mr. Pankaj Goel on 05/06/2016 which is found to be unaccounted cash of the assessee company. Accordingly, the said cash has been treated as unexplained money and added to the Assessee’s total income u/s 69A of the Act. Further, the Ld. A.O. made disallowance of Rs. 6,23,081/-u/s 14A of the Act and computed the total income of the assessee at Rs. 1,06,23,081/-.

5. Aggrieved by the assessment order dated 17/12/2018, the assessee has preferred an appeal before the Ld.CIT (A). The Ld.CIT(A) vide order dated 03/07/2019 deleted the addition of Rs. 1 crore made on account of unexplained money u/s 69 of the Act.

6. Aggrieved by the said deletion of Rs. 1 crore by the CIT(A), which was made u/s 69A of the Act by the A.O., the Revenue has preferred the present appeal on the grounds mentioned above.

7. The Ld. DR vehemently submitted that the Ld.CIT(A) has erred in deleting the addition of Rs. 1 crore on account of unexplained money u/s 69A of the Act on the ground that the cash seized belonged to Assessee’s impressed fund meant for normal course of business and the cash transaction is covered under Sub Section (e)(f) and (g) of Rule 6DD of the Income Tax Act without appreciating the fact that the such transaction of cash through impressed account has never taken place in the past in its book which can prove cash purchase of raw materials, wheat straw.

8. Further Ld. DR submitted that, the Ld.CIT (A) has erroneously observed that ‘the amount of Rs. 1 crore was duly recorded in the cash books of the account and the addition u/s 69A of the Act can only be made when the assessee is found to be possession of money bullion jewellery etc. not recorded in his books of accounts.’ The Ld.CIT (A) has ignored the fact that recording of transaction in the cash book was an afterthought exercise to make the cash appear to be genuine source. The Ld.CIT(A) has also erred in totally deleting the addition of 1 crore made on account of unexplained money without appreciating the fact that addition was made u/s 69 A and not u/s 40A(2) of the Act.

9. Per contra, the Ld. Counsel for the assessee vehemently submitted that the subject amount has been reflected in the cash book of the assessee. Further submitted that the assessee has withdrawn the cash from the bank in different dates which has been accumulated and the said cash was carried by Sh. Pankaj Goel on behalf of the company for purchase of wheat straw from the villagers of Ludhiana. Further submitted that, Sh. Rakesh Gupta did not have any link with the transaction and he was just providing accommodation to Sh. Panak Goel on the request of Sh. Mayank Bindal, the Director of the assessee company. Further submitted that, the transaction is duly explained which was recorded in the books of accounts. Therefore, addition u/s 69A cannot be made, which has been rightly examined and deleted by the Ld.CIT(A) which requires no interference in the hand of the Tribunal.

10. We have heard the parties, perused the material on record and gave our thoughtful consideration.

11. It emerges from the record that the cash was seized on 05/06/2016 from Mr. Pankaj Goel, who is an employee of the assessee Company. In order to verify the facts, the statement of Pankaj Goel (Sr. Officer) (HR of Assessee Company) was recorded by the A.O. The said Pankaj Goel has admitted on oath that the cash of Rs. 1 crore found and seized in possession was handed over by Sh. Mayank Bindal, the Director of the assessee and further stated that, he was carrying the cash of Rs. 1 Crore as per the directions of the Director of the assessee company for the purpose of purchase of husk on behalf of the assessee company. When asked about the source of the cash, no documentary evidence in support of his contention was provided by Sh. Pankaj Goel. Further he was not carrying any authorization letter from the Company to carry the said huge sum. Summons u/s 131(1A) of the Act was issued to Rakesh Gupta to cross verify the above statement of Rakesh Gupta who stated that ‘Sh. Mayank Bindal is his family friend and he had informed on telephone that he is sending his employee with some cash for purchase of husk and asked him to provide necessary accommodation in stay in Ludhiana and further stated that he has no connection or transaction with the cash seized from the employee of the assessee’.

12. During the course of the investigation, the representative of the assessee submitted reply stated that, the said cash seized belongs to the Assessee Company, the said Pankaj Goel is an employee of the assessee company who was authorized for purchase of wheat straw from the state of Punjab and in support of his contention, submitted the copy of the part cash book for the day 04/06/2016. It is found that the representative of the assessee has not produced complete cash book even after giving sufficient opportunity, the said cash book produced before the A.O. had no opening balance of cash in hand. The representative of the assessee furnished one more cash book on 13/03/2016 covering the dates from 01/04/2016 to 04/06/2016, but the assessee failed to provide audited balance sheet, profit and loss account along with tax audited report for financial year 2015-16 relevant to Ay 2016-17, therefore, the cash in hand as on 31/03/2106 could not be established by the assessee before the A.O. Admittedly, the assessee company is the owner of the seized cash, but the assessee has failed to explain with regard to source of the said cash. Therefore the Ld. A.O. has rightly made the addition which should not have been interfered by the Ld.CIT(A).

13. The Ld. Counsel for the assessee vehemently argued that the assessee has withdrawn the cash from the bank and accumulated the same to the total tune of Rs. 1 crore which has been carried by the employee of the assessee. To support the said contention, the assessee has not made available of any documentary proof before Lower Authorities such as bank statement withdrawing such huge sum. Further at no point of time such transactions of cash through imprest account has taken place in the past in the cash book which can prove cash purchase of raw material, wheat straw. The assessee has only relied on the cash book which cannot be believed in the absence of corroborative evidence such as bank statement, audited balance sheet, profit and loss account along with tax audit report for the year under consideration.

The Ld. CIT(A) without appreciating the above facts, based on the statements of the parties and mere relying on the cash book which was not corroborated with other documents, deleted the addition made by the A.O. which cannot be sustained.

14. The Ld. Counsel has produced the statements of the accounts for the before us, on verifying the details, it is found that, certain cash withdrawals have been made by presenting the cheques during the months of April 2016 to June, 2016. There is nothing on record to suggest that those cash withdrawals have been actually done by the assessee himself and not by any other person to whom the cheque has been issued to draw the cash for any other transactions. Further it is highly impossible to a prudent person to draw the cash to the tune of Rs. 1 crore in a period of two months into several parts and accumulate the same for the purpose of making the payment for purchase of husk after 2 months. Further nothing on record to establish that the cash withdrawn in past two months by the assessee were the same that of seized by the Department.

15. When the cash is found with an assessee, it is the duty of the assessee to prove the source of such cash by providing sufficient evidence to come to a conclusion to satisfy the source of such cash. In the absence of such proof, the Revenue Authorities are bound to make additions. Mere reflecting the unexplained cash in the books of accounts in absence of any supportive documents, cannot be ground for deletion of the addition. In our considered opinion, the Ld. CIT(A) has committed an error in deleting the addition. Therefore, the order of the Ld. CIT(A) is deleting the addition is herby set aside and the addition made by Ld. A.O. is hereby sustained.

16. In the result, appeal filed by the Revenue is allowed.

Order pronounced in the Open Court on 02nd December, 2022.