2024 (4) TMI 745 - AT - Income Tax

Manual cash book found during search cannot be used for additions without invoking Section 153C properly

Bijender Singh Lohia Versus JCIT (OSD), Central Circle-26, New Delhi.

The ITAT Delhi allowed the assessee's appeal, ruling that a manual cash book found at the company's premises during search could not be considered ... Validity of exercise of jurisdiction u/s 153A and 153C - Addition based on manual cash book found at the premises of the Company - scope of incriminating material for the purpose of Section 153A of the Act to make addition in hands of assessee as a searched person - HELD THAT:- Manual cash book contained entries related to cash withdrawals and expenses of Company which were duly recorded and reconciled with its books of account, as also cash introduced, withdrawn and expenses on behalf of the appellant. Thus we are of the considered view that once CIT(A) has endorsed the findings of AO that based on this manual cash book, of the Company, no substantive addition is required to be made in the hands of Company and as the cash inwards and outwards are found to be from known sources and existing books, which have been considered final in the assessment of Company, then same set of books of the Company, including the manual cash book found at the premises of the Company, cannot be considered to be incriminating material for the purpose of Section 153A of the Act to make addition in hands of assessee as a searched person, as the two AYs before us are of concluded assessments. The corollary to aforesaid being that to consider the said seized document of transactions of appellant reflected in manual cash book in the hands of appellant, provisions of Section 153C should have been invoked at the first instance. Thus the change of head of the addition by Ld. CIT(A), has resulted in vitiating the exercise of jurisdiction u/s 153A of the Act and 153C of the Act. Additions u/s 69C against Cash Expenditure - Disclosure were made by appellant in IDS - Even otherwise, if Ld. CIT(A) has given benefit to the appellant of having cash in hand subsequent to the disclosure in IDS, then the source of impugned expenditures incurred by Mr Vasudevan, on behalf of the appellant should also be accepted. Restricting the benefit to opening balance in AY 2015- 16 has no basis except being based on presumption. Thus, there was no justification with CIT(A) to hold that the said expenditure by Mr. Vasudevan, were the benefit or perquisites given by the company to its director which is chargeable to tax u/s 2(24)(iv) of the Act. Admittedly, these expenditures were not even claimed as deduction in the hands of the company. The most excruciating fact is that Mr. Vasudevan could not have accounted the amount given by appellant to him as a receipt in the manual cash book as the dates reflected in the said cash book are prior to the date of declaration in IDS made by appellant. Hence, it could be safely concluded, to offset the negative cash balance reflected in manual Cash Book qua the transactions of appellant, the disclosure of Rs. 50 lacs was made by appellant in IDS. Hence, there is no scope for making any addition at all in the hands of the appellant as appellant would be entitled for telescoping benefit. Assessee appeal allowed. Issues Involved:1. Legality of assessment orders u/s 153A r.w.s. 143(3).2. Validity of additions made u/s 69C based on seized material from a related entity.3. Appropriateness of sustaining additions u/s 2(24)(iv) by the Ld. CIT(A).Summary:Issue 1: Legality of Assessment Orders u/s 153A r.w.s. 143(3)The appellant contended that the assessment orders passed u/s 153A r.w.s. 143(3) were illegal and arbitrary as no incriminating material was found during the search at the appellant's premises. The Tribunal noted that the manual cash book, which formed the basis of the additions, was seized from the premises of M/s. Lion Manpower Solutions Pvt. Ltd., where the appellant is a director. The Tribunal agreed with the appellant's reliance on the Supreme Court judgment in PCIT Vs Abhisar Buildwell Pvt. Ltd., asserting that no addition can be made in the absence of incriminating material found during the search on the appellant.Issue 2: Validity of Additions Made u/s 69C Based on Seized Material from a Related EntityThe Ld. AO made additions of Rs. 28,20,658/- and Rs. 9,25,074/- u/s 69C based on a manual cash book found at the premises of Lion Manpower. The Tribunal observed that the manual cash book contained entries related to cash transactions of the company and the appellant. The Tribunal held that the same set of books could not be considered incriminating material for the purpose of Section 153A for the appellant, as the assessments for the relevant years were concluded. The Tribunal emphasized that the provisions of Section 153C should have been invoked instead.Issue 3: Appropriateness of Sustaining Additions u/s 2(24)(iv) by the Ld. CIT(A)The Ld. CIT(A) partially sustained the additions by modifying them u/s 2(24)(iv), considering the expenses as benefits or perquisites obtained by the appellant from the company. The Tribunal found no justification for this modification, noting that the expenditures were personal expenses incurred by the company on behalf of the appellant and were not claimed as deductions by the company. The Tribunal also acknowledged the appellant's disclosure of Rs. 50 lacs in the Income Declaration Scheme, 2016, and concluded that the source of the impugned expenditures should be accepted. The Tribunal ruled that the appellant was entitled to the telescoping benefit and thus, no addition was warranted.Conclusion:The Tribunal allowed the appeals, concluding that the assessment orders u/s 153A r.w.s. 143(3) were not justified in the absence of incriminating material found during the search on the appellant. The additions made u/s 69C were invalid as they were based on material seized from a related entity, and the modifications made by the Ld. CIT(A) u/s 2(24)(iv) were unwarranted. The Tribunal pronounced the order in the open court on 16.04.2024.