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 filed in response to notice under search proceedings, the tribunal held that unexplained investment provisions do not apply and additions should not be made. The tribunal accepted that pandemic lockdowns made sudden large earnings implausible and noted absence of identifying marks on bullion to fix a purchase date. Consequently, the Assessing Officer's rejection of declared returns and invocation of special tax provisions was unwarranted and the revenue appeal was dismissed.

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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.

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