2025 (2) TMI 1416 - AT - Income Tax

Seizure of cash and gold: declared business source negates additions, rejected demand and appeal dismissed

Where cash and gold seized during search were explained as proceeds of long standing retail business and the assessee declared and paid income in returns ... Addition u/s 69A r.w.s. 115BBE - assessee failed to submit the proof of purchase of gold and the source of unaccounted cash found for the relevant assessment year as stated by the assessee - basis of the requisition u/s 132A of the Act, the Assessing Officer issued notice u/s 153A for 6 assessment years i.e. assessment years 2015-16 to 2020-21 - cash and gold found and seized by the ED during the course of search at the premises of the assessee which was subsequently requisitioned by the Income Tax Department, on the ground that the assessee could not explain that the cash and gold bars were purchased from the income of the past years as claimed by the assessee in the returns of income filed in response to the notice u/s 153A - As submitted assessee doing the business for the last 6 to 7 years Assessment ought to be based upon taxing source of income OR application of income - HELD THAT:- In our opinion, once the AO upon satisfaction had issued notice u/s 153A for 6 years preceding the year in which the search and seizure was conducted he is not justified in rejecting the income declared in the said returns especially when the assessee had categorically stated in his statement recorded u/s 131 of the Act by the DDIT (Inv) Unit, Aurangabad that he was earning income from sale of vegetables, fruits, bakery products etc since last 6/7 years. It is also a matter of fact that the entire country was under lockdown for some period w.e.f. 25.03.2020 for 21 days which was subsequently extended on various occasions, the details of which are given at para 12 of this order. We find some force in the arguments of assessee that when most of the business establishments were closed during the pandemic i.e. from March, 2020 to July, 2020, it is highly improbable on the part of the assessee to earn such huge income during the period of lockdown and the closure of business establishments other than essential commodities. It is also a matter of fact that the gold bars so seized do not contain any serial number so as to say that all those bars were purchased from one person on a particular date. There is no clarity from the order of the AO that the gold bars so seized contain any serial number or identity so as to fasten the liability on the assessee that it was purchased during July, 2020. Since the assessee in the instant case has already offered the income in the returns in response to notice u/s 153A and paid the taxes, the same in our opinion, should not have been rejected by the Assessing Officer especially when he himself issued a notice u/s 153A separately for the 6 years preceding the assessment year 2021-22. Since the assessee in the instant case has categorically stated the source of such cash and the gold bars before the ED and before the DDIT (Inv) Unit that it is from his business activities for last 6/7 years, therefore, the question of applicability of the provisions of section 115BBE of the Act also in our opinion, does not arise. In our opinion, once the source of investment is established, the provisions of section 69A of the Act are not applicable since the assessee has offered an explanation. Additional income declared in the return for assessment year 2021-22 is concerned, once the assessee has declared higher income in the return filed in response to the notice u/s 153A, the same also in our opinion should not have been rejected by the Assessing Officer. Revenue appeal dismissed. Issues: (i) Whether the additions made under section 69A read with section 115BBE of the Income-tax Act, 1961 in respect of cash and gold found on search could be sustained where the assessee furnished statements claiming the assets were acquired from business income earned over preceding years and filed returns under section 153A; (ii) Whether the assets found during search should be taxed as unexplained investment (application of funds) in the year of search or treated as acquired from undisclosed income of earlier years (taxing the source) when the assessee offers a plausible explanation.Issue (i): Whether additions made u/s 69A r/w 115BBE in respect of cash and gold found on search can be sustained.Analysis: The assessee repeatedly recorded statements under oath identifying the source of cash and gold as unaccounted business income earned over several years and filed returns under section 153A declaring additional income for the preceding years; the Assessing Officer rejected those returns and taxed the assets in the year of search. The appellate authority and the Tribunal examined contemporaneous facts including lockdown restrictions during the relevant period, absence of evidence showing purchase during the year of search, the assessee's statements, and earlier acceptance of declared returns under section 153A. Coordinate decisions and legal principles on human probability and treatment of source versus application were considered.Conclusion: The additions made u/s 69A r/w 115BBE are not sustainable; the addition of Rs.4,34,60,000/- is deleted.Issue (ii): Whether the assets found should be taxed as application of funds in the year of search or treated as acquired from undisclosed income of earlier years (taxing the source).Analysis: The assessee offered yearwise additional income in returns filed under section 153A for the relevant preceding years and provided consistent sworn statements attributing cash and gold to that business income; factual circumstances (lockdown, absence of identifying marks on bars, AO's prior issuance of notices under section 153A) made acquisition in the year of search improbable. Tribunal authorities and cited precedents support acceptance of a plausible explanation of source, precluding treatment as unexplained investment under section 69A and consequent application of section 115BBE.Conclusion: The assets are held to have been acquired from undisclosed business income of earlier years and the additional income declared in the returns filed under section 153A / revised return is to be taxed as business income; taxing the source is directed and taxing the application in the year of search is disallowed.Final Conclusion: The appellate challenge by Revenue is dismissed, the additions under section 69A r/w section 115BBE are deleted, and the Assessing Officer is directed to assess the additional income offered in the returns filed under section 153A / revised return yearwise as declared by the assessee.Ratio Decidendi: Where an assessee offers a plausible, consistent, and contemporaneous explanation supported by sworn statements and declared returns under section 153A establishing that assets found on search were acquired from income earned in preceding years, section 69A (and consequential application of section 115BBE) does not apply and the assets should be taxed by taxing the source rather than treating them as unexplained investment in the year of search.