2025 (3) TMI 764 - HC - Income Tax

Assessment of seized cash as unaccounted income under Section 69A upheld when source explanation fails

Shri Gautham Chand Jain, Shri Sumermal Kantilal Jain Versus Assistant Commissioner of Income Tax Central Circle 1 (1), Chennai

The Madras HC upheld assessment of seized cash as unaccounted income under Section 69A. The appellant claimed commission income during search operations ... Assessing the seized cash as unaccounted cash u/s 69A - appellant stated under oath that it had earned commission income and duly complied with it and offered it as income from other sources - HELD THAT:- The very fact that the assessee’s did not even respond to the show cause notices issued to them would show that they were indifferent to the situation. However, the questions of law raised before this court remain as if the assessee’s have disclosed their source of income and that the declaration made during the search operation is sufficient to bring the case outside the purview of Section 69A r/w Section 115BBE. This court is unable to appreciate the issue as a pure question of law or arguments of the appellants. Even if an explanation is given, such explanation has to be satisfactory in the opinion of the Assessing Officer in terms of Section 69A of the Income Tax Act. In this case, there is no explanation. The money seized was not disclosed and hence it is an unexplained money. Mere declaration that it was received as commission without an explanation about the source with supporting material attracts Section 69A and the tax liability under Section 115BBE follows. See Shashi Garg [2018 (12) TMI 583 - DELHI HIGH COURT] wherein held burden to explain the source of cash deposit was on the appellant-assessee, who as per the finding has not been able to discharge this burden. The evidence on record is undisputed, and the inference and factual findings recorded we could observe are supported by cogent and weighty reasoning. Explanation of the appellant-assessee has been duly considered and not ignored. Decided against assessee. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:a) Whether the Income Tax Appellate Tribunal was correct in assessing the seized cash as unaccounted under Section 69A of the Income Tax Act, despite the appellants' sworn statements declaring the cash as commission income and offering it as income from other sources.b) Whether the Tribunal was right in assessing the seized cash as unaccounted under Section 69A, given the appellants' declaration of the income as commission income, which could be assessed as either income from other sources or business income.c) Whether the Tribunal was justified in levying tax on hypothetical income that had neither accrued, arisen, nor been received by the appellants, based solely on their statements.d) Whether the Tribunal was correct in assessing the entire cash seized as unaccounted under Section 69A, even though the cash was explainable with the cash in hand of other individuals residing in the searched premises.ISSUE-WISE DETAILED ANALYSISIssue a & b: Assessment of Seized Cash under Section 69ARelevant Legal Framework and Precedents: Section 69A of the Income Tax Act provides that if an assessee is found to be the owner of money not recorded in the books of account, and fails to satisfactorily explain the nature and source of the acquisition, such money may be deemed as the income of the assessee. Section 115BBE mandates a 60% tax on such income.Court's Interpretation and Reasoning: The Court emphasized that the appellants' mere declaration of the cash as commission income was insufficient without a satisfactory explanation of the source, as required by Section 69A. The appellants' failure to respond to show cause notices further indicated their indifference and lack of a satisfactory explanation.Key Evidence and Findings: The appellants declared the seized cash as commission income but provided no supporting evidence or explanation for its source, despite opportunities to do so.Application of Law to Facts: The Court applied Section 69A, noting the appellants' failure to provide a satisfactory explanation for the cash, thereby classifying it as unexplained money subject to taxation under Section 115BBE.Treatment of Competing Arguments: The appellants argued that their declaration was sufficient to satisfy the department, but the Court rejected this, citing the need for a satisfactory explanation beyond mere declarations.Conclusions: The Court concluded that the appellants' failure to provide a satisfactory explanation justified the assessment of the cash as unaccounted under Section 69A, leading to the application of Section 115BBE.Issue c: Taxation on Hypothetical IncomeRelevant Legal Framework and Precedents: The appellants contended that the tax was levied on hypothetical income. However, the Court referenced the Delhi High Court's decision in Shashi Garg v. Principal Commissioner of Income Tax, which affirmed the burden on the assessee to explain cash deposits.Court's Interpretation and Reasoning: The Court found the appellants' argument unpersuasive, noting that the burden to explain the source of income lies with the assessee, and their failure to do so results in the income being deemed unexplained.Key Evidence and Findings: The appellants' lack of response to the show cause notices and failure to provide a satisfactory explanation were pivotal in the Court's decision.Application of Law to Facts: The Court applied the principle that unexplained cash deposits can be taxed as income, rejecting the notion of hypothetical income.Treatment of Competing Arguments: The appellants' argument of hypothetical income was dismissed, with the Court emphasizing the need for a plausible explanation of income sources.Conclusions: The Court upheld the assessment of the cash as unexplained income, rejecting the argument of hypothetical income.Issue d: Explanation of Cash with Other ResidentsRelevant Legal Framework and Precedents: The appellants argued that the cash could be explained with the cash in hand of other residents. However, the Court focused on the appellants' responsibility to explain their own cash holdings.Court's Interpretation and Reasoning: The Court found no merit in the argument, as the appellants failed to provide evidence linking the seized cash to other residents' cash holdings.Key Evidence and Findings: The appellants did not provide any evidence to support their claim that the cash was explainable with other residents' cash.Application of Law to Facts: The Court applied Section 69A, emphasizing the appellants' failure to explain the source of the cash independently.Treatment of Competing Arguments: The argument regarding other residents' cash was dismissed due to lack of evidence.Conclusions: The Court concluded that the appellants' failure to provide a satisfactory explanation justified the assessment of the cash as unaccounted under Section 69A.SIGNIFICANT HOLDINGSThe Court held that the appellants' mere declaration of the cash as commission income was insufficient without a satisfactory explanation of the source, as required by Section 69A. The appellants' failure to respond to show cause notices indicated a lack of satisfactory explanation, justifying the assessment of the cash as unaccounted. The Court emphasized the burden on the assessee to explain cash deposits, rejecting the argument of hypothetical income. The Court dismissed the argument regarding other residents' cash due to lack of evidence. All substantial questions of law were answered against the appellants, leading to the dismissal of the appeals.