2025 (8) TMI 1115 - HC - Income Tax

Deletion of addition under section 68 for demonetisation cash deposits sustained; dispute factual, not maintainable under section 260A

Pr. Commissioner of Income Tax (Central), Gurugram Versus Pancham Realcon Pvt. Ltd.

Pr. Commissioner of Income Tax (Central), Gurugram Versus Pancham Realcon Pvt. Ltd. - 2025:DHC:6835 - DB ISSUES PRESENTED AND CONSIDERED 1. Whether cash deposits made during the post-demonetization period amounting to Rs. 2,80,00,000/- that were treated as unexplained cash credit under Section 68 of the Income Tax Act were satisfactorily explained by the assessee. 2. Whether documents seized/impounded from the premises of the holding company (showing a low closing cash balance as on 08.11.2016) could, as a matter of law and fact, displace the assessee's contemporaneous books and bank withdrawals and justify addition under Section 68. 3. Whether an appellate forum (CIT(A)/ITAT) is precluded, in an appeal under Section 260A, from affirming factual findings of the lower appellate authority where those findings are supported by material on record, and whether the High Court can reappraise such factual findings in the present petition. 4. (Ancillary) Whether condonation of delay and exemption from filing rules should be allowed in respect of re-filing the appeal and related applications. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sufficiency of explanation for cash deposits treated as unexplained cash credit under Section 68 Legal framework: Section 68 places the onus on the assessee to satisfactorily explain the nature and source of any unexplained cash credit; if explanation is not satisfactory, the credit may be added to income. Precedent treatment: The Tribunal and the Commissioner (Appeals) relied on earlier decisions of coordinate benches (referred to generally) that treat consistent, contemporaneous books, bank withdrawals and audited ITRs as permissible evidence to explain cash movements. Interpretation and reasoning: The Tribunal and CIT(A) examined detailed month-wise cash charts, main cash book, site cash books, bank statements, and audited/ITR-filed closing balances for two complete financial years (2015-16 and 2016-17). The appellate authorities found a consistent pattern of high opening and maintained cash balances, substantial cash withdrawals from banks in prior months, routine cash expenses, negligible cash sales and similar patterns across years. Time gaps between withdrawals and deposits were held to be a regular business feature. The CIT(A) specifically accepted that the opening cash balances as per earlier filed ITRs (pre-demonetization) corroborated the maintained high cash levels and that withdrawals reflected in bank statements could not be manipulated. The Court observed that these findings are supported by the record and amount to cogent reasons negating the AO's adverse conclusion. Ratio vs. Obiter: Ratio - where contemporaneous books, corroborated by bank statements and earlier filed audited ITRs, demonstrate a regular business pattern of cash withdrawals/deposits and high cash balances, the assessee can satisfactorily explain alleged unexplained cash deposits for purposes of Section 68. Obiter - observations on the business prudence of maintaining cash balances and the characterization of generalized AO remarks as improper commentary. Conclusions: The addition under Section 68 could not be sustained because the assessee provided a satisfactory and contemporaneously corroborated explanation for the cash deposits; the appellate authorities' acceptance of that explanation was reasonable and not perverse. Issue 2 - Evidentiary weight of documents seized from holding company premises vs. assessee's books Legal framework: Evidence seized under Section 132A/133A may be relevant but must be considered alongside the assessee's own books, bank records and explanations. A disclosure or surrender by a related corporate flagship does not automatically translate into acceptance of tax liability by other group entities without material linking same to the assessee. Precedent treatment: The CIT(A) and ITAT treated the seized documents as only one piece of evidence; coordinate bench jurisprudence was cited (generally) for the principle that a disclosure by one group company does not ipso facto implicate another. Interpretation and reasoning: The Tribunal/CIT(A) found that the AO erred by relying on site cashbooks or selective impounded documents while ignoring the assessee's main cash book and bank withdrawals which showed a different picture. The appellate authorities held that the surrender/disclosure by the flagship company pertained to a different issue and did not establish tax evasion by the assessee. The Court endorsed this approach, holding that the AO's reliance on the impounded documents alone was misplaced in face of contemporaneous corroborative records of the assessee. Ratio vs. Obiter: Ratio - seized documents are relevant but cannot displace the assessee's corroborated books and bank records unless direct and cogent linkage or manipulation is shown. Obiter - remarks on the non-rationality of treating a co-group disclosure as conclusive proof against the assessee. Conclusions: The impounded documents did not, on the record, justify treating the deposits as unexplained; the appellate findings that the seized documents did not contradict the assessee's corroborated books were upheld. Issue 3 - Scope of High Court review under Section 260A in relation to factual findings of appellate authorities Legal framework: An appeal under Section 260A is limited in scope; the High Court cannot ordinarily re-appraise pure questions of fact or overturn findings that are supported by material on record unless they are perverse or suffer from legal infirmity. Precedent treatment: The Court followed the well-established principle that appellate fact-finding is not to be disturbed on a writ/appeal if there is plausible basis in the record; coordinate and tribunal decisions endorsing such restraint were applied. Interpretation and reasoning: The Court examined whether the CIT(A) and ITAT findings were perverse or devoid of supporting material. Finding that the CIT(A) had given cogent reasons based on comparative cash charts, main cash book, bank withdrawals and earlier filed audited ITRs pre-dating demonetization, the Court concluded that the issue was one of fact and that the appellate conclusions were reasonably open on the evidence. The Revenue failed to produce material not considered by the CIT(A) or ITAT that would render their findings perverse. Ratio vs. Obiter: Ratio - High Court under Section 260A will not re-appraise or overturn concurrent factual findings of appellate authorities that are supported by material on record; interference is limited to cases where findings are perverse or legally unsustainable. Obiter - commentary that generalized allegations by AO without marshaling facts are improper and cannot replace evidentiary analysis. Conclusions: No substantial question of law arose for the High Court's determination; the appeal under Section 260A was dismissed as the appellate factual findings were not perverse and were supported by the record. Issue 4 - Condonation of delay and exemption applications Legal framework: Procedural applications for condonation of delay and exemption are to be considered on reasons stated. Interpretation and reasoning: The Court found the reasons in the application sufficient and condoned the delay of 456 days for re-filing the appeal and allowed exemption subject to just exceptions. Ratio vs. Obiter: Ratio - procedural discretion exercised to condone delay where reasons suffice. Obiter - none significant. Conclusions: Delay of 456 days in re-filing was condoned and exemption was allowed; both applications disposed.