Seized Cash Explained from Past Records: ITAT Grants Major Relief, Sustains Only Unproved Portion

Mulchand Sejmal Jain Vs DCIT (ITAT Hyderabad)

Seized Cash Explained from Past Records: ITAT Grants Major Relief, Sustains Only Unproved Portion

In this case, cash of ₹1.10 crore was seized from a vehicle, out of which ₹1 crore belonged to one assessee and ₹10.73 lakh to another. The Assessing Officer treated the amounts as unexplained under Section 69A due to lack of supporting evidence, and the CIT(A) upheld the additions.

Before the ITAT, the assessees argued that the cash represented accumulated funds, supported by past disclosures of cash-in-hand in their income tax returns. The Tribunal noted that substantial cash balances had already been disclosed in earlier years and accepted in scrutiny assessments, and therefore carried strong evidentiary value. Relying on settled law, it held that past disclosed cash can constitute a valid source unless disproved by the Revenue.

Accordingly, the ITAT accepted the explanation to the extent supported by records-₹95 lakh (approx.) in one case and ₹2 lakh in the other-and held that the balance amounts, lacking documentary support, could not be explained. The additions were therefore restricted only to the unexplained portions, and both appeals were partly allowed

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

The present appeals filed by the respective assessee’s are directed against the orders passed by the CIT(Appeals), dated 26.02.2025, which in turn arises from the orders passed by the AO under Section 143(3) of the Income-tax Act, 1961 (for short, “Act”), dated 26.02.2025 and 17.06.2025, in their respective cases for the Assessment Year 2023-24, which in turn arises from the respective orders passed u/s 143(3) of the Income-tax Act, 1961 (for short, “Act”) both dated 26.02.2025. We shall first take up the appeal in ITA No. 1499/Hyd/2025. The assessee has assailed the impugned order of the CIT(Appeals) on the following grounds of appeal before us:

“1.      The order passed by the Learned Commissioner of Income Tax (Appeals) is erroneous both on facts and in law, and therefore unsustainable.

2. The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition oft 1,00,00,000 seized during search, without appreciating that the Appellant had duly explained that the said cash represented accumulated funds specifically kept aside for purchase of new machinery, including amounts generated from the sale of old machinery.

3. The Learned Commissioner of Income Tax (Appeals) failed to appreciate the explanations and supporting records furnished by the Appellant. The rejection of such evidence as self-serving, without any contrary material or cogent evidence brought on record by the Revenue, is erroneous and contrary to settled principles of law.

4. The Learned Commissioner of Income Tax (Appeals) erred in sustaining the addition under section 69A of the Income-tax Act, 1961 and further taxation under section 115BBE, even though the explanation offered by the Appellant was proper, reasonable, and consistent with his disclosed financial position.

5. The Appellant craves leave to add, alter, amend, or withdraw any ground/grounds of appeal at the time of hearing.”

2. Succinctly stated, the assessee is an individual deriving income from business and other sources and had filed his return of income for AY 2023-24, declaring an income of Rs. 4,89,950/-. Subsequently, the case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Act, dated 20/06/2024, was served upon him.

3. During the course of the assessment proceedings, it was observed by the AO that on 20/10/2022, the Police, PS Shahinayathung, while checking of vehicles at MJ Bridge, Jummerath Bridge, had intercepted a car (Make: Chevrolet Spark) with four occupants, viz. (i). Shri. Kamlesh Kumar Jain (assessee’s younger brother); (ii). Shri. Rahul Agarwal; (iii). Shri Ashok Kumar; and (iv). Shri. Ratam Singh, and found cash amounting to Rs. 1,10,73,400/- in one black colour polythene cover lying in the rear car boot. On being queried about the source of cash of Rs. 1,10,73,400/-, it was stated, viz. (i). that an amount of Rs. 10,73,400/- belonged to Shri. Kamlesh Kumar Jain (the assessee’s younger brother, i.e., one of the occupants of the car); and (ii). that an amount of Rs. 1,00,00,000/- belonged to Sri Mulchand Jain (assessee).

4. Thereafter, Sri. Mulchand Sejmal Jain (assessee) in his statement recorded u/s 131(1A) of the Act, dated 02/11/2022, admitted that the cash of Rs. 1 crore (supra) belonged to him. However, as both the aforesaid persons had failed to come forth with any satisfactory explanation regarding the source of the subject cash aggregating to Rs. 1,10,73,400/-, which was respectively owned by them, viz. (i). Sri. Kamlesh Kumar Jain: Rs. 10,73,400/-; and (ii). Sri. Mulchand Sejmal Jain (assessee): Rs. 1,00,00,000/-, the same was seized. Thereafter, the Principal Director of Income Tax (Investigation), Hyderabad, had executed authorization u/s 132A of the Act on the Inspector of Police, PS Shahinayatgunjon, on 10/02/2023, and the subject cash was seized by the Income tax department and remitted to the PD account.

5. During the course of the assessment proceedings, it was observed by the AO that both the assessee and his brother, viz. Shri. Kamlesh Kumar Jain were regularly being assessed to tax. As is discernible from the assessment order, Shri. Mulchand Sejmal Jain (assessee), in his statement recorded u/s 131(1A) of the Act, dated 02/11/2022, on being confronted with the statement of Shri. Kamlesh Kumar Jain that was recorded on the same date, wherein the latter had stated that cash of Rs. 1 crore out of Rs. 1,10,73,400/- (supra) belonged to the assessee, had confirmed the same.

6. On being queried about the source of the cash of Rs. 1 crore (supra), it was stated by the assessee that he was a sole proprietor of a concern, viz. M/s Mithilesh Polyplast India, Katedan, Hyderabad, which was engaged in the business of manufacturing plastic carry bags. Elaborating further, it was stated by him that he had two years back stopped the manufacturing activities and had shifted the machinery and material to the factory premises of his brother’s son, viz. Shri. Kushal Jain S/o. Late Shri. Naresh Kumar Jain at Katedan. It was further stated by him that he had thereafter slowly disposed of the leftover machinery and material and accumulated the money to purchase new machinery to start a modern manufacturing facility. It was stated by him that the subject amount of Rs. 1 crore (supra) was accumulated by him by disposing off the leftover machinery and material to start a modern manufacturing facility.

7. Thereafter, the AO issued another summon u/s 131(1A) of the Act, dated 09/11/2022 to the assessee, wherein he was called upon to submit documentary evidence to substantiate his aforesaid claim (as was earlier directed in the course of recording his statement on 02/11/2002). In compliance, the assessee filed with the AO, viz. (i). copies of his returns of income for AY 2018-19 to AY 2022-23; (ii). copy of statement of current bank account no. 001103000001385 with Mahaveer Co­operative Bank, Begum Bazar Branch for the period 01/04/2016 to 31/03/202719736 of M/s Mitesh Poly Plast (India); (iii). copy of statement of current bank account no. 917020079719736 with Axis Bank, Siddiambar Bazar Branch for the period 01/04/2017 to 31/03/2022 of M/s Mitesh Poly Plast (India); and (iv) copy of statement of saving bank account no. 30122010054874 with Canara Bank, Afzalgunj Branch for the period 01/04/2019 to 31/03/2022. Thereafter, the assessee also furnished the copies of the GST returns and financial statements for the AY 2018-19, AY 2019-20 & AY 2020-21. However, the AO observed that the assessee had failed to produce any documentary evidence to substantiate his claim of disposal of the leftover machinery and material and the accumulation of the cash therefrom. Also, it was observed by him that capital gains on the sale of machinery was not disclosed by the assessee in his income tax returns. Further, the AO observed that Shri. Kamlesh Kumar Jain (assessee’s brother), on being queried about the source of cash of Rs. 10,73,400/-, though stated that the same belonged to him and was sourced out of the sale proceeds of the previous 12-13 days of M/s Polypack Plastics, but had failed to substantiate the same based on any supporting material. The assessee, to substantiate the availability of cash in hand with him, had submitted before the AO that in his return of income for AY 2020-21 filed on 18/01/2021 vide acknowledgement no. 957799840301220, there was cash-in-hand of Rs. 81,31,817/- available with him on 31/03/2020, which, thus fortified his claim regarding accumulation of cash in hand over the years from his aforesaid sources, and partly explained the source of cash of Rs. 1 crore (supra).

8. However, the AO did not find favour with the aforesaid explanation of the assessee and held the cash amounting to Rs. 1 crore as having been sourced from his unexplained money under Section 69A of the Act.

9. Aggrieved, the assessee assailed the assessment order before the CIT(A) but without success. The CIT(Appeals) upheld the addition made by the AO by observing that the assessee had not furnished satisfactory documentary evidence and that the explanation offered by him regarding the source of the cash amounting to Rs. 1 crore was not acceptable.

10. The assessee aggrieved with the CIT(A) order has carried the matter in appeal before us.

11. We have heard the Ld. Authorised Representatives of both parties, perused the orders of the authorities below and the material available on record.

12. Shri. S Rama Rao, Advocate, Ld. Authorised Representative (for short, “AR”) for the assessee at the threshold of hearing of the appeal, submitted that the same involves a delay of 22 days. Elaborating on the reasons leading to the delay in filing the appeal, the Ld. AR submitted that the same had crept in because the assessee at the relevant point of time was suffering from multiple medical problems, viz. prostate, hypertension, diabetics and cardiac issues, and had undergone a prostate operation on 20/05/2025. The Ld. AR to support his contention had drawn our attention to the application filed by the assessee seeking condonation of the delay involved in filing the appeal, supported by an “affidavit” and the medical prescriptions/certificates etc. The Ld. AR submitted that as the delay involved in filing the present appeal is not inordinate and is backed by justifiable reason, the same, in all fairness and interest of justice be condoned.

13. Per Contra, the Ld. Departmental Representative (for short, “DR”) objected to the seeking of condonation of the delay in filing of the present appeal by the assessee appellant.

14. We have given thoughtful consideration to the contentions advanced by the Ld. AR’s regarding the delay in filing the present appeal before us. In our view, as the delay in filing of the present appeal is not inordinate and is supported with bona fide reason, the same, thus, merits to be condoned. Accordingly, we condone the delay of 22 days involved in the present appeal filed by the assessee/appellant before us.

15. Coming to the merits of the case, we find that the controversy therein involved lies in a narrow compass, i.e., as to whether or not the explanation of the assessee regarding the source of the availability of cash in hand of Rs. 1 crore with him on 20.10.2022, merits acceptance.

16. Admittedly, the assessee had disclosed cash in hand of Rs. 81,31,817/- on 31.03.2020 in his return of income for AY 2020-21 filed on 30.12.2020 in ITR-4 (Sugam), wherein under the head “Financial particulars of the business as on 31st day of March”, the said amount was specifically disclosed at “Note E-22”, Page 11 (backside) of APB. In our view, the said disclosure having been made much prior to the date of seizure on 20.10.2022, carries significant evidentiary value. We find that the said cash balance was thereafter carried forward and, as per the financial statements, stood at Rs. 95,28,890/- (approx.) as on 31.03.2022, Page-4 of APB. We further find that the assessment in the case of the assessee for AY 2022-23 was framed by the AO, vide his order passed under Section 143(3) of the Act, dated 19.03.2024, i.e., subsequent to the date of cash seizure, and no adverse inference was drawn by him regarding the availability of such cash balance, Page Nos.  70-71 of APB. In our considered view, once the availability of cash in hand as disclosed in the returns of income filed before the date of cash seizure is accepted, the same constitutes a valid explanation for the source of cash found with the assessee, unless the Revenue brings on record cogent material to dislodge the veracity of such claim. In the present case, no such material is either discernible from the record nor filed before us in the course of hearing of the appeal. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of Anantharam Veerasinghaiah & Co. Vs. CIT (1980) 123 ITR 457 (SC), wherein it has been held that the availability of cash balance from earlier years may constitute a valid source for explaining cash found in a subsequent year, and such explanation deserves to be accepted in the absence of material to the contrary.

17. We are of the view that the rejection of the assessee’s explanation by the authorities below on the ground that the documentary evidence is “self-serving” is not sustainable, inasmuch as the disclosures in the returns of income and financial statements cannot be summarily disregarded in the absence of any contrary material. We find that the availability of cash in hand to the extent of Rs. 95.28 lakhs (approx.) stands duly substantiated from earlier years’ records, which had not been doubted by the department. We, thus, are of firm conviction that in the backdrop of the totality of the facts of the case, the explanation of the assessee regarding the source of cash in hand to the extent of Rs.95 lacs, can safely be accepted.

18. However, as regards the explanation of the assessee regarding the balance amount of Rs.5 lakhs (approx.), we find that though it is the claim of the Ld. AR that the same was sourced out of the income, and cash withdrawals of the assessee during the year under consideration, but we are of the view that as the said claim is not supported by any cogent documentary evidence, the same, in the absence of any verifiable material to substantiate the said claim, cannot be accepted.

19. We, thus, in terms of our aforesaid observations, are of the considered view that the availability of cash in hand with the assessee for explaining the seized amount can safely be accepted at Rs.95 (approx.), and thus, the addition in the hands of the assessee be restricted to Rs.5 lacs.

20. In the result, the appeal of the assessee is partly allowed in terms of our aforesaid observations.

ITA No. 1502/Hyd/2025
AY 2023-24

21. We shall now take up the assessee’s appeal in ITA No. 1502/Hyd/2025, wherein the impugned order has been assailed before us on the following grounds of appeal:

“1)         The order passed by the Learned Commissioner of Income Tax (Appeals) is erroneous both on facts and in law.

2) The Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.10,73,400/- seized during search, though the Appellant had duly explained the source of cash as accumulated funds duly available and reconcilable with his financial position.

3) The Learned Commissioner of Income Tax (Appeals) failed to appreciate the explanation and supporting documents filed by the Appellant and wrongly rejected them as self-serving, without bringing any adverse material on record.

4) The Learned Commissioner of Income Tax (Appeals) erred in sustaining the addition under section 69A and taxing the same under section 115BBE, though the explanation offered was proper and consistent with the Appellant’s disclosed sources.

5) Any other ground/grounds that may be urged at the time of hearing.”

22. Controversy involved in the present appeal based on the facts involved in ITA No. 1499/Hyd/2025 as culled out by us hereinabove, lies in a narrow compass, i.e., as to whether or not the explanation of the assessee regarding the source of cash of Rs. 10,73,400/- (out of cash seized of Rs. 1,10,73,400/-) merits acceptance.

23. As observed by us hereinabove, Shri. Kamlesh Kumar Jain (the assessee) had in his statement recorded u/s 131(1A) of the Act, dated 02/11/2022, admitted that cash amounting to Rs. 10,73,400/- (out of Rs. 1,10,73,400/-) belonged to him. The assesee on being queried about the source of the aforesaid amount, had claimed that the same was sourced out of the business sale proceeds of the previous 12-13 days of M/s. Polypack Plastics. Although the assessee had sought some time to file documentary evidence to support his aforesaid claim, but as is discernible from the assessment order, he failed to place on record the requisite details. The assessee to support his claim, had filed with the AO; (i). copies of Computation, statement of affairs and cash Book from AY 2020-21 to AY 2023-24; (ii). copies of acknowledgements of the returns of income filed during the AY 2020-21 to AY 2023-24; (iii). copies of the Income tax return form and the acknowledgment filed on 05-03­2021 vide acknowledgement no. 957799840301220 for AY 2020-21, wherein the cash in hand available as on 31.03.2020 was discharged at Rs.1,98,122/-.

24. However, the AO did not find favour with the aforesaid explanation of the assessee and held the cash amounting to Rs. 10,73,400/- as having been sourced from his unexplained money under Section 69A of the Act.

25. Aggrieved, the assessee assailed the assessment order before the CIT(A) but without success. The CIT(Appeals) upheld the action of the AO by observing that the assessee had not furnished satisfactory documentary evidence and that the explanation offered by him regarding the source of the cash amounting to Rs. 10,73,400/- was not acceptable.

26. The assessee aggrieved with the CIT(A) order has carried the matter in appeal before us.

27. We have heard the Ld. Authorised Representatives of both parties, perused the orders of the authorities below and the material available on record.

28. Shri. S Rama Rao, Advocate, Ld. Authorised Representative (for short, “AR”) for the assessee at the threshold of hearing of the appeal, submitted that the same involves a delay of 22 days. Elaborating on the reason leading to the delay in filing the appeal, the Ld. AR submitted that as the income-tax case of the assessee was being looked after by his elder brother, viz. Shri Mulchand Sejmal Jain (supra), who during the relevant period had undergone a surgery, therefore, there was a delay on the latter’s part to approach the chartered accountant and file the present appeal within the prescribed time period. The Ld. AR submitted that as the delay in filing the appeal was for bonafide reason and not on account of any lackadaisical approach of the assessee, therefore, the same, in all fairness and interest of justice, be condoned.

29. Per Contra, the Ld. Sr. DR objected to the seeking of condonation of the delay in filing the appeal by the assessee.

30. We have thoughtfully considered the respective contentions of the Ld. Authorised Representatives of both parties. In our view, as the delay in filing the present appeal had crept in for bonafide reason, therefore, we are of the view that the same merits to be condoned.

31. Coming to the merits of the case, we find that the assessee had disclosed cash in hand of Rs. 1,98,121/- as on 31.03.2020 in his return of income for AY 2020-21 filed on 30.12.2020 in ITR-4 (Sugam), wherein under the head “Financial particulars of the business as on 31st day of March”, the said amount was specifically disclosed at “Note E-22”, Page 8 (backside) of APB. In our view, the said disclosure having been made much prior to the date of seizure on 20.10.2022, carries significant evidentiary value. We find that the said cash balance was thereafter carried forward and, as per the financial statements, stood at Rs. 2,10,540/- as on 31.03.2022, Page Nos.10-11 of APB. We further find that the assessment in the case of the assessee for AY 2022-23 was framed by the AO, vide his order passed under Section 143(3) of the Act, dated 19.03.2024, i.e., subsequent to the date of cash seizure, and no adverse inference was drawn regarding the availability of cash balance of Rs. 2,10,540/- with him on 31.03.2022. In our considered view, once the availability of cash in hand as disclosed in the returns of income filed before the date of cash seizure is accepted, the same constitutes a valid explanation for the source of cash found with the assessee, unless the Revenue brings on record cogent material to dislodge the veracity of such claim. In the present case, neither any such material is discernible from the record nor filed before us in the course of hearing of the appeal. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of Anantharam Veerasinghaiah & Co. Vs. CIT (1980) 123 ITR 457 (SC), wherein it has been held that the availability of cash balance from earlier years may constitute a valid source for explaining cash found in a subsequent year, and such explanation deserves to be accepted in the absence of material to the contrary.

32. We, thus, based the reasoning adopted by us while disposing of the appeal in ITA No. 1499/Hyd/2025, are of the considered view that it can safely be concluded that a cash of Rs. 2 lakhs was available with the assessee to partly explain the source of cash amounting to Rs. 10,73,400/- seized on 20.10.2022.

33. As regards the balance amount of Rs. 8,73,400/-, we find that though it is the claim of the Ld. AR that the same was sourced out of the business receipts of the assessee made during the year under consideration, but we are of the view that as the said claim is not supported by any cogent documentary evidence, the same, thus, cannot be accepted.

34. We, thus, in terms of our aforesaid observations, are of the considered view that the availability of cash in hand with the assessee for explaining the seized amount can safely be accepted at Rs.2 lakhs and thus, the addition in the hands of the assessee be restricted to Rs.8,73,400/-.

35. In the result, the appeal of the assessee is partly allowed in terms of the aforesaid observations.

36. Resultantly, both the appeals are partly allowed in terms of our aforesaid observations.

Order pronounced in the open court on 17th April, 2026.