2025 (6) TMI 289 - AT - Income Tax

ITAT Mumbai deletes Section 69A addition as cash receipt chain was traceable through documented transactions

ITAT Mumbai deleted addition u/s 69A regarding unexplained cash receipt. The tribunal found a clear chain of transaction where cash was transferred from ... Addition u/s 69A - cash alleged to have been received by the assessee as unexplained money - HELD THAT:- We find that cash was given by Mr. Rajiv Saxena to Ms. Nayna Pasta, who gave cash to Mr. Arun Ashar (the assessee), who gave it to the children of Mr. Pravin Ashar. This is the undisputed chain of transaction as emanating from the assessment order itself. Therefore, we do not find any merit in the impugned addition made u/s 69A of the Act and the same is directed to be deleted for both the assessment years under consideration.Appeals of the assessee are allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in the appeals pertain to the applicability of Section 69A of the Income Tax Act, 1961, which deals with unexplained money, bullion, jewellery, or other valuable articles. Specifically, the issues were:Whether the assessee can be treated as the owner of the cash amount received, which was not recorded in his books of account;Whether the explanation offered by the assessee regarding the nature and source of the cash is satisfactory;Whether the cash in question can be deemed as the income of the assessee under Section 69A;Whether the addition made by the Assessing Officer (AO) under Section 69A is justified on the facts and circumstances of the case;Whether the principles laid down by the Hon'ble Supreme Court and other judicial precedents apply to the facts of the case, particularly regarding ownership and satisfactory explanation under Section 69A.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Ownership of the 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 any money, bullion, jewellery, or other valuable article not recorded in the books of account and fails to satisfactorily explain the nature and source of such ownership, the value thereof may be deemed as income. The Supreme Court in D. N. Singh v. CIT (2023) 454 ITR 595 (SC) clarified the conditions for invoking Section 69A, emphasizing that ownership is a prerequisite before deeming such money or valuables as income.Court's Interpretation and Reasoning: The Tribunal examined the facts that the cash was received by Ms. Nayna Pasta from Mr. Rajiv Saxena, who delivered it on behalf of Mr. Pravin Ashar. Ms. Pasta, the sister of the assessee, admitted receiving the cash and passing it to the assessee, who further handed it over to the children of Mr. Pravin Ashar. Both Ms. Pasta and the assessee accepted the chain of transaction. The Tribunal noted that neither Ms. Pasta nor the assessee was found to be the owner of the cash under the legal meaning of ownership for Section 69A purposes.Key Evidence and Findings: The statements recorded under Section 132(4) of the Act confirmed the receipt and transfer of cash. The assessee offered an explanation that the money was linked to investments made by Mr. Pravin Ashar in a company incorporated in BVI, and the cash was part of a transaction involving transfer of shareholding and investment funds.Application of Law to Facts: Since ownership is a sine qua non for Section 69A to apply, and the assessee was merely a conduit passing on the cash to the rightful owner's family, the Tribunal held that the provisions of Section 69A did not apply. The cash was not unaccounted income of the assessee but belonged to another party, and the assessee had offered a satisfactory explanation.Treatment of Competing Arguments: The Revenue contended that the cash was unexplained and not recorded in the books, warranting addition under Section 69A. The Tribunal rejected this, relying on the Supreme Court's ruling that possession alone does not establish ownership and that the assessee's explanation was credible and accepted by the AO.Conclusion: The assessee was not the owner of the cash for the purposes of Section 69A, and the addition under this section was unwarranted.Issue 2: Satisfactory Explanation Regarding the Source and Nature of CashRelevant Legal Framework and Precedents: Under Section 69A, even if the assessee is found to be owner, the addition can only be made if the explanation regarding the source and nature of the money is not satisfactory. The Supreme Court in D. N. Singh (supra) and the Delhi High Court in Commissioner of Income Tax vs. Anoop Jain (2020) 424 ITR 115 (Delhi) have emphasized the importance of a satisfactory explanation and the burden on the Revenue to disprove it.Court's Interpretation and Reasoning: The Tribunal noted that the assessee had explained the cash transactions as linked to investments and shareholding transfers involving Mr. Pravin Ashar and Mr. Rajiv Saxena. The AO had examined and accepted this explanation. The Tribunal found no evidence to contradict the assessee's explanation or to show that the assessee had benefited personally from the cash.Key Evidence and Findings: The chain of custody of the cash was admitted by all parties involved. The explanation tied the cash to legitimate business transactions involving foreign investments and share transfers. The Revenue failed to establish any illicit or unexplained source of the cash in the hands of the assessee.Application of Law to Facts: The explanation provided was found to be satisfactory and credible. The Revenue's failure to prove otherwise meant the addition under Section 69A could not be sustained.Treatment of Competing Arguments: The Revenue argued that the cash was unexplained and unaccounted for, but the Tribunal referred to the Anoop Jain case, which held that mere suspicion or inference of financial quid pro quo without evidence is insufficient to make additions under Section 69A.Conclusion: The assessee satisfactorily explained the source and nature of the cash, negating the applicability of Section 69A additions.Issue 3: Applicability of Judicial Precedents on Ownership and Unexplained MoneyRelevant Legal Framework and Precedents: The Tribunal extensively relied on the Supreme Court's decision in D. N. Singh v. CIT, which clarified the conditions for Section 69A, including the necessity of ownership and satisfactory explanation. It also referred to the principles in Chuharmal's case and J.S. Parkar v. V.B. Palekar, which held that possession alone does not equate to ownership and that the onus lies on the Revenue to establish ownership for additions under Section 69A.The Tribunal also cited the Delhi High Court's decision in Commissioner of Income Tax vs. Anoop Jain, which dealt with similar facts where the assessee was a conduit for funds and not the owner, and the Revenue's addition was set aside.Court's Interpretation and Reasoning: The Tribunal applied these precedents to the facts, noting that the assessee was not the owner but merely a conduit for the cash received and passed on. The principles that ownership must be established and that the explanation must be unsatisfactory for Section 69A to apply were strictly followed.Key Evidence and Findings: The Tribunal found that the evidence supported the assessee's claim of non-ownership and satisfactory explanation, consistent with judicial precedents.Application of Law to Facts: The precedents mandated that in absence of ownership and with a satisfactory explanation, additions under Section 69A cannot be made. The facts fit squarely within this framework.Treatment of Competing Arguments: The Revenue's reliance on mere possession and unexplained cash was countered by the Tribunal's adherence to the judicial principles emphasizing ownership and explanation.Conclusion: The judicial precedents decisively favored the assessee, leading to the deletion of the additions under Section 69A.3. SIGNIFICANT HOLDINGSThe Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt from the order:'8.1. In our considered opinion, if the entire cash transaction is understood in its true perspective, the provisions of Section 69A of the Act, do not apply.''8.3. Considering the facts of the case in totality, we find that cash was given by Mr. Rajiv Saxena to Ms. Nayna Pasta, who gave cash to Mr. Arun Ashar (the assessee), who gave it to the children of Mr. Pravin Ashar. This is the undisputed chain of transaction as emanating from the assessment order itself. Therefore, we do not find any merit in the impugned addition made u/s 69A of the Act and the same is directed to be deleted for both the assessment years under consideration.'The core principles established are:Section 69A requires that the assessee be the owner of unexplained money or valuables for the addition to be made;Possession alone does not establish ownership; the Revenue must prove ownership to invoke Section 69A;A satisfactory explanation regarding the nature and source of the money negates the applicability of Section 69A;Where the assessee acts merely as a conduit or intermediary, and the money belongs to another party, Section 69A additions are not justified;Judicial precedents must be strictly followed to ensure that additions under Section 69A are not made on mere suspicion or incomplete evidence.Final determinations on each issue:The assessee was not the owner of the cash in question;The explanation offered by the assessee regarding the source and nature of the cash was satisfactory and accepted by the AO;The addition made under Section 69A was not justified and was rightly deleted;The appeals were allowed, and the impugned additions were set aside for both assessment years.