2025 (2) TMI 392 - AT - Income Tax

ITAT sustains section 153A assessment and section 69A additions for unexplained cash from seized documents

Ashok Parshad Gupta Versus DCIT, Central Circle 20, New Delhi And (Vice-Versa)

The ITAT Delhi upheld assessment under section 153A despite limitation arguments, finding the search conducted on 1.12.2018 covered relevant assessment ... Assessment u/s 153A beyond the limitation period - HELD THAT:- In the given case, the search was conducted on 1.12.2018. The relevant searched assessment year is AY 2019-20. Therefore, the relevant AYs for the purpose of 4th Proviso would be, 7th year –AY 2013-14, 8th year –AY 2012-13 and 9th year - AY 2011-12. The argument of the Ld AR that the year under consideration is the only year falls within the ambit of 4th proviso of section 153A is not correct, also the escapement of income exceeding 50 lakhs covers the period of 7th year to 10th year, it has to be seen covering all the years from 7th to 10th year. The arguments of the Ld AR are not acceptable considering the facts on record. Document found during the search - We observe that the document found in the search contains the details of cheque transactions and even the assessee has submitted that this relates to Farm related details for which it was submitted that this is out of agriculture income. This shows that the cheque payments were not disputed and transactions described in the loose sheets were explained by the assessee, therefore, the loose sheets cannot be termed as dumb documents as submitted by the Ld AR relying on case of V.C.Shukla [1998 (3) TMI 675 - SUPREME COURT] and reliance of on the case of Sunil Kumar Sharma [2024 (2) TMI 116 - KARNATAKA HIGH COURT] Hence, the submissions of the Ld AR on the aspect of quality of the loose papers found during the search as dumb documents cannot be accepted. Addition u/s 69A - The onus is on the assessee to explain the nature of income as reflected in the loose sheets captioned as Farm Account which was seized. This was not properly explained by the assessee. The details found in sheets shows that the funds pertaining to Farm account without specifically mentioning the nature of transactions thereon. Hence the cash transactions reflected thereon become undisclosed income in the hands of the assessee for AY 2011-12. But it is pertinent to note that these amounts which are treated as undisclosed income of the assessee would be available as a cash source for explaining the future investments or outgoings. In view of the above discussion, the findings of the AO that the funds invested in the Farm House is not justified and the funds spent and involved in the Farm Account shows that the assessee has generated funds which can be considered as undisclosed money u/s 69A.Therefore, we hold that only the addition of undisclosed money earned by the assessee could be taxed in the facts and circumstances of the case as unexplained money u/s 69A. Treatment of cash found during the search - cash found during the search was the main item found in the locker along with the details of loan given to various parties - HELD THAT:- We observe that the assessee has declared the cash found during the search as additional income in his return of income and also submitted the information and source of the same. AO also acknowledged the same and it was submitted that the assessee was handling the cash for commission from various persons, however, the AO himself rejected the same and treated the cash found and transactions carried on by the assessee as business. Since the assessee himself declared the above cash as additional income and explained the nature of transactions, the fact is that the assessee whether maintained the cash for a fees or as treated by the AO as assessee’s own cash and meant for financial transactions, it clearly indicate that the cash found during the search is relating to the business carried by the assessee. Therefore, the addition can be made as income under the head income from business or profession and not under the head income from other sources. Hence it cannot be treated as income falling within the nature of section 68, 69 to 69D of the Act so as to apply the tax rate prescribed in section 115BBE. Addition based on the loose papers found during search operation - CIT(A) sustained the actual transaction of Rs. 86,00,000/- instead of Rs. 1,75,00,000/- As assessee has maintained transactions meticulously and mentioned the transaction amounts in lakhs. However, some entries found wherein it was mentioned in numbers as 20, 10 & 25 without there being clear information and also there is no details of the persons to whom such amounts were given. If it is in lakhs definitely, it would have formed part of the transactions. Therefore, we are inclined to accept the findings of the ld. CIT (A) and accordingly ground raised by the Revenue is dismissed. Coming to the ground raised by the assessee, after considering the nature of transactions and information available on record, we observe that these are financial transactions made by the assessee which corroborates with various information available on the material found during search, therefore, we are inclined to sustain the above addition. Accordingly, ground no.1(b) raised by the assessee is dismissed. Addition u/s 68 - addition of peak credit - HELD THAT:- Material available on record is a running account sheet maintained by the assessee for the purpose of deposit and removal of cash in the locker. Since it is a running account, the AO has taken only the total receipts which are mentioned on the left hand side and treated the same as undisclosed income u/s 68 - The approach of the AO cannot be accepted. The information found during the search has to be appreciated the way it is maintained, the transactions contained are receipts as well as payment and it carried the closing balance of the respective dates. Therefore, we are inclined to accept the findings of the ld. CIT (A) that it is a running account and only peak credit has to be considered for addition. Accordingly, we are inclined to accept the findings of the CIT (A). Issue of cheques which was found in the possession of the assessee which are not encashed - Unless the cheques are encashed or acted upon, the transaction is not complete. The cheques are issued meant for transaction and if it is not acted upon then the relevant paper may be live but it has no transaction value until it is transacted. Mere guarantee for giving loan also has to be established by making proper investigation. As observed by the Ld CIT(A), the AO has not made any investigation further, therefore, the mere presence of blank cheque without there being any evidence to show that the assessee has earned any income or made capital transaction with the presence of above cheques, the same cannot be treated income of the assessee. Adjustment of cash found during the search with the tax demand raised after completion of the assessment - No doubt the cash was found during search and the assessee also declared the same as additional income in his return of income and it is a fact on record that the tax liability was determined only after completion of assessment on 25.09.2021. Ld. CIT (A) rejected the submissions of the assessee. However, in our considered view, the cash was lying with the Revenue from the date of search and the tax liability no doubt determined only after completion of the assessment, therefore, from that date of determination of the tax liability, the tax credit may be given to the assessee. Accordingly, we direct the Assessing Officer to determine the charging of interest u/s 234B after making the above adjustment on the date of determining the tax liability on completion of the assessment on 25.09.2021 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether the notice issued under Section 153A of the Income Tax Act was beyond the limitation period.The validity of additions made under Section 69 of the Act for unexplained investments and whether the loose papers found during the search can be considered as valid evidence.Whether the cash found during the search should be taxed as business income or under Section 69A as unexplained money.The applicability of Section 69A for certain financial transactions and the treatment of peak credit in the assessment of unexplained money.The adjustment of seized cash against tax liabilities and the calculation of interest under Section 234B.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Limitation of Notice under Section 153AThe legal framework involves the Fourth Proviso to Section 153A, which extends the limitation period for issuing notices in cases where income exceeding Rs. 50 lakhs has escaped assessment. The Court interpreted that the relevant assessment years include the 7th to 10th years preceding the search year. The Tribunal dismissed the assessee's argument that the notice was beyond the limitation period, affirming the AO's jurisdiction based on the aggregate income escaping assessment over multiple years.Issue 2: Additions under Section 69 for Unexplained InvestmentsThe Tribunal analyzed the legal precedents regarding the admissibility of loose papers as evidence. Citing Supreme Court rulings, it was argued that loose sheets do not constitute books of accounts and are insufficient for making additions under Section 69. However, the Court found that the documents contained sufficient details to substantiate the AO's findings of unexplained investments, dismissing the assessee's contention of the papers being 'dumb documents.'Issue 3: Taxation of Cash Found during SearchThe Tribunal considered whether the cash found during the search should be treated as business income or unexplained money under Section 69A. The Tribunal concluded that since the cash was related to the assessee's business activities, it should be taxed as business income rather than under Section 69A. The AO was directed to assess the income accordingly, not applying the higher tax rate under Section 115BBE.Issue 4: Treatment of Financial Transactions and Peak CreditThe Tribunal examined the financial transactions recorded in the loose sheets and the concept of peak credit. It was determined that the transactions were part of a running account, and only the peak credit should be considered for addition. The Tribunal accepted the CIT(A)'s determination of peak credit and dismissed the Revenue's appeal on this ground.Issue 5: Adjustment of Seized Cash against Tax LiabilitiesThe Tribunal addressed whether the seized cash should be adjusted against the tax liabilities determined post-assessment. It was concluded that while the tax liability was determined after the assessment, the credit for seized cash should be given from the date of determination of tax liability. The AO was directed to adjust the interest calculation accordingly.3. SIGNIFICANT HOLDINGSThe Tribunal upheld the AO's jurisdiction under Section 153A, affirming the applicability of the Fourth Proviso based on the aggregate income escaping assessment. It rejected the argument that loose papers were insufficient evidence for additions under Section 69, emphasizing the details contained in the documents. The Tribunal directed that cash found during the search should be taxed as business income, not under Section 69A, and accepted the CIT(A)'s peak credit determination for financial transactions. Additionally, it ruled that the seized cash should be credited against tax liabilities from the date of determination, impacting the interest calculation under Section 234B.The Tribunal's decision highlights the importance of detailed documentation in tax assessments and clarifies the treatment of unexplained income and assets under the Income Tax Act. The judgment provides guidance on the interpretation of provisions related to search and seizure, limitation periods, and the classification of income for tax purposes.