2025 (4) TMI 1614 - AT - Income Tax

Revenue cannot adopt contradictory stands after accepting cash belongs to another entity in settlement proceedings under Section 245D

ITAT Chandigarh ruled in favor of the assessee regarding addition under Section 69A for cash found during search operations. The Revenue had accepted the ... Addition u/s 69A - cash found during search operations - search and seizure operation under Section 132 was carried out at the residential premises of the assessee - Disclosures made before the Hon'ble Income Tax Settlement Commission (ITSC) - HELD THAT:- The search operations were conducted simultaneously across group cases, and GTIPL had filed a petition before the Hon’ble Settlement Commission admitting undisclosed income, which allegedly included the cash in question. The record shows that the Hon'ble Settlement Commission duly considered the cash flow statement, the balance sheet, and other relevant documents before passing the settlement order. It is evident that the amount was duly accounted for by GTIPL in its financial statements placed before the Settlement Commission, and no objection was raised by the Revenue in this regard. Once the Revenue has accepted the ownership of the cash in the hands of GTIPL before the Settlement Commission, it is impermissible for the Revenue to take a contradictory stand in the present proceedings and allege that the said cash belonged to the assessee. It is a well-settled principle that the Revenue must maintain consistency in its approach and cannot adopt contradictory stands in different proceedings. Under the provisions of Section 245D settlement reached before the Hon'ble Settlement Commission is final and binding and cannot be reopened or challenged in any other proceedings. Therefore, once the amount of Rs. 7,00,000/- has been considered as part of the undisclosed income of GTIPL in the settlement proceedings, the same cannot be taxed again in the hands of the assessee.Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in these connected appeals are:Whether the addition of Rs. 4,75,000/- made under Section 69A of the Income-tax Act, 1961, on account of unexplained cash found during search operations, was justified in the hands of the assessee.Whether the cash found during search belonged to the assessee personally or to M/s Gulmohar Township India Pvt. Ltd. (GTIPL), a company where the assessee was a director.Whether the disclosures made before the Hon'ble Income Tax Settlement Commission (ITSC) by GTIPL, including the cash in question, were properly considered and whether such disclosures preclude the addition in the hands of the assessee.Whether the principle of double taxation applies, i.e., whether taxing the same cash amount in the hands of both the company and the assessee is impermissible.Whether the Revenue can take contradictory stands in different proceedings, specifically between the settlement proceedings before the ITSC and the assessment proceedings before the Assessing Officer (AO) and CIT(A).Whether the settlement order passed by the ITSC under Section 245D of the Income-tax Act is final and binding, thereby precluding reopening of the issue in assessment proceedings.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Justification of addition under Section 69A of the Act on unexplained cash found during searchRelevant legal framework and precedents: Section 69A of the Income-tax Act, 1961, empowers the AO to make an addition to income where any money, bullion, jewellery, or other valuable article or thing is found during search and the assessee fails to satisfactorily explain the nature and source of such money or property. The burden lies on the assessee to prove the legitimacy of the cash found.Court's interpretation and reasoning: The AO made an addition of Rs. 4,75,000/- (50% of Rs. 9,50,000/- cash found) to the assessee's income, rejecting the claim that the cash belonged to GTIPL. The AO reasoned that no specific disclosure of the cash found at the assessee's premises was made in the Statement of Facts (SOF) filed by GTIPL before the ITSC, thus the ownership was not substantiated.Key evidence and findings: The assessee's statement under Section 132(4) clearly attributed the cash to GTIPL. The cash was reflected in disclosures before the ITSC by GTIPL. The company's financials and settlement application included the amount. The assessee had no independent source for the cash. The company filed a refund claim for the seized cash, not the assessee.Application of law to facts: The Tribunal noted that the cash was accounted for in GTIPL's undisclosed income admitted before the ITSC. The AO's rejection was based on the absence of explicit mention in the SOF, but the Tribunal found that the cash was part of the company's financial disclosures and settlement.Treatment of competing arguments: The Revenue argued that the cash was not disclosed specifically in the SOF and thus belonged to the assessee. The assessee argued ownership by GTIPL, supported by settlement documents and financial statements. The Tribunal favored the assessee's position, emphasizing the consistency and acceptance of ownership by the Revenue during settlement proceedings.Conclusions: The addition under Section 69A was not sustainable as the cash was owned by GTIPL and accounted for in its settlement with the Revenue.Issue 2: Consideration of disclosures before the Hon'ble Settlement Commission and finality of settlement orderRelevant legal framework and precedents: Section 245D of the Income-tax Act provides that the settlement arrived at before the ITSC is final and binding on the parties and cannot be reopened or challenged in subsequent proceedings. The principle of consistency requires that the Revenue maintain the same stance in related proceedings.Court's interpretation and reasoning: The Tribunal observed that the Revenue had accepted the ownership of the cash by GTIPL before the ITSC. The settlement order considered the cash flow statement, balance sheet, and other documents evidencing the cash as part of GTIPL's undisclosed income. The Tribunal held that the Revenue cannot adopt a contradictory stand in the assessment proceedings.Key evidence and findings: The settlement order and the documents placed before the ITSC included the cash amount. No objection was raised by the Revenue regarding the inclusion of the cash in the company's undisclosed income. The Rule 9A report and cash flow statements submitted to the ITSC further corroborated the ownership and accounting of the cash by GTIPL.Application of law to facts: Given the finality of the settlement under Section 245D and the Revenue's acceptance of the cash as company income, the Tribunal concluded that reopening the issue to tax the same cash in the hands of the assessee was impermissible.Treatment of competing arguments: The Revenue contended that the settlement did not specifically mention the cash and thus the addition was justified. The assessee relied on the settlement order and related documents. The Tribunal gave precedence to the binding nature of the settlement and the principle of consistency.Conclusions: The settlement order is binding and precludes addition of the same cash in the hands of the assessee. The Revenue cannot take contradictory positions in different proceedings.Issue 3: Principle of double taxation and ownership of cashRelevant legal framework and precedents: The principle of double taxation prohibits taxing the same income or asset more than once in the hands of different taxpayers. The Income-tax Act does not permit double taxation of the same income or asset.Court's interpretation and reasoning: The Tribunal found that since GTIPL had admitted the cash as its undisclosed income and had assumed tax liability thereon, taxing the same amount in the hands of the assessee would amount to double taxation.Key evidence and findings: The company's net income included the cash, the settlement order considered the cash, and the refund claim for seized cash was filed by the company. The assessee had no independent source of the cash.Application of law to facts: The Tribunal applied the principle of avoiding double taxation and held that the addition in the hands of the assessee was not permissible.Treatment of competing arguments: The Revenue did not dispute the company's admission of income but argued on ownership. The Tribunal gave effect to the principle of double taxation and ownership as established in the settlement.Conclusions: Addition in the hands of the assessee would result in impermissible double taxation and was therefore deleted.3. SIGNIFICANT HOLDINGSThe Tribunal held:'Once the Revenue has accepted the ownership of the cash of Rs. 7,00,000/- in the hands of GTIPL before the Settlement Commission, it is impermissible for the Revenue to take a contradictory stand in the present proceedings and allege that the said cash belonged to the assessee. It is a well-settled principle that the Revenue must maintain consistency in its approach and cannot adopt contradictory stands in different proceedings. Furthermore, under the provisions of Section 245D of the Act, the settlement reached before the Hon'ble Settlement Commission is final and binding and cannot be reopened or challenged in any other proceedings.'Core principles established include:The finality and binding nature of settlement orders passed by the Income Tax Settlement Commission under Section 245D precludes reopening of issues in assessment proceedings.The Revenue must maintain consistency in its stance across different proceedings and cannot adopt contradictory positions regarding ownership of assets or income.The principle of double taxation prohibits taxing the same income or asset more than once in the hands of different taxpayers.Where cash found during search is admitted as undisclosed income of a company in settlement proceedings, addition in the hands of a director claiming the cash does not belong to him is unsustainable.Final determinations:The addition of Rs. 4,75,000/- under Section 69A in the hands of the assessee was deleted.The appeals filed by the assessee were allowed.