2025 (8) TMI 1414 - AT - Income Tax

Addition under s.40A(3) deleted due to disclosed books; addition under s.69C read with s.115BBE upheld for seized entries

ITAT Chandigarh held that the addition under s.40A(3) was unjustified and deleted because the assessee's explanation, supported by books of account, had ... Addition u/s 40A(3) - cash payment of salary and wages - HELD THAT:- If the explanation coupled with books of account once it was made known to the Revenue, the Revenue has to accept the explanation alongwith books unless books of account are rejected as per Section 145. In the instant case since books of account are not rejected u/s 145 where all entries are less than Rs. 10,000/- per person, the addition made is unjustified. Addition u/s 69C r.w.s.115BBE - unexplained expenditure of the assessee - HELD THAT:- As we find that contention and submission of ld. AR are untenable. We conquer with the finding of ld. CIT(A) in the impugned order as noting of the seized document, there is no mention of cash being sent to the residence. Therefore, the contention of the assessee cannot be accepted that the said cash as noted in the seized record was meant to be sent at the first floor of his residence. It is a settled law and presumption in 292C of the Act that any document/money/bullion etc. found during search belongs to the assessee and the content are true. As per law onus is on the assessee to explain the contention with the evidence. But in present case, the submissions of the appellant are not convincing and are devoid of valid reasoning. Therefore, the addition made by the AO is upheld. ISSUES PRESENTED AND CONSIDERED 1. Whether additions under Section 40A(3) can be sustained where seized loose-sheet consolidated entries show lump-sum cash payments to employees but the regular books of account/cash book show split-up entries and no individual payment exceeds Rs. 10,000 and the books have not been rejected under Section 145. 2. Whether additions under Section 69C read with Section 115BBE (unexplained expenditure) can be sustained on the basis of seized documents which record cash notings (without specific narration) when the assessee contends the amounts relate to business transactions or cash held in books and the seized notings allegedly reflect intra-family or personal transfers. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustenance of addition under Section 40A(3) based on seized consolidated cash notings vs. regular books showing split-up payments below Rs. 10,000 Legal framework: Section 40A(3) disallows expenditure where payment to a person in respect of business expenditure exceeds Rs. 10,000 in cash; Rule 6DD of the IT Rules and Section 145/145(3) govern treatment of books of account and conditions for rejection of books; general principle that assessment by estimation under Section 144 is available only if books are rejected under Section 145(3). Precedent treatment: The Tribunal relied on authorities (including High Court and earlier Tribunal decisions) holding that where books of account are maintained and not rejected u/s 145, the Assessing Officer cannot make ad hoc/estimate additions contrary to books; reference to cases where part additions based on extraneous or seized documents were set aside when regular books showed consistent entries and were not rejected. Interpretation and reasoning: The Tribunal examined seized loose-sheet entries showing consolidated sums against employee names and compared these to the regular cash book/computation which contained detailed split-up entries demonstrating each disbursement below Rs. 10,000 per person. The AO relied on seized consolidated papers without rejecting the books of account or pointing out defects in them. The Tribunal held that where details supporting the nature and quantum of payments appear in the regular books and the books have not been rejected under Section 145, the entries in the regular books must prevail. The Tribunal concluded that Revenue failed to substantiate a violation of Section 40A(3) because there was no material showing a single cash payment in excess of Rs. 10,000 and no rejection of the books to permit estimation or addition inconsistent with books. Ratio vs. Obiter: Ratio - Where regular books of account, cash book and computation show split-up payments each below Rs. 10,000 and such books are not rejected under Section 145, an addition under Section 40A(3) based solely on seized consolidated notings is not sustainable. Obiter - Reliance on specific cited precedents for analogous factual matrices. Conclusion: The addition of Rs. 21,44,420 under Section 40A(3) was unjustified and deleted because the regular books of account showed payments below the statutory cash limit, and the books were not rejected under Section 145. Issue 2: Sustenance of addition under Section 69C read with Section 115BBE on basis of seized notings recording cash/outgoings with no narration Legal framework: Section 69C pertains to unexplained expenditure where the assessee cannot satisfactorily account for money found to have been expended; Section 115BBE prescribes taxation consequences for certain unexplained income; proviso and statutory presumptions under Section 292C relating to documents found during search create a rebuttable presumption that such documents belong to the searched person and their contents are true unless satisfactorily explained. Precedent treatment: The impugned order and the Tribunal's consideration recognize the statutory presumption under Section 292C placing the onus on the assessee to explain seized documents; the Tribunal accepted the CIT(A)'s reasoning which applied this presumption and sustained the addition where explanations were found unconvincing. Interpretation and reasoning: The seized documents contained notings of cash disbursements lacking narration or specific notation that the amounts were sent to the proprietor's residence or otherwise personal. The assessee's explanation (cash sent to proprietor/family or entries being yadast/memoranda) was not supported by cogent evidence. The Tribunal observed that where a seized document contains notings without mention of intended purpose and the statutory presumption under Section 292C operates, the onus lies on the assessee to provide convincing evidence to rebut the presumption. The Tribunal found the assessee's submissions devoid of valid reasoning and held that the AO's addition was based on a well-reasoned order after opportunity of being heard and thus appropriately sustained by the CIT(A). Ratio vs. Obiter: Ratio - Where seized documents contain notings of cash disbursements without narration and the assessee fails to rebut the statutory presumption under Section 292C with satisfactory evidence showing the amounts are explained (e.g., business payments recorded in books), additions under Section 69C read with Section 115BBE may be sustained. Obiter - Observations on adequacy of particular explanations such as intra-family transfers or yadast notings when unsupported by corroborative documentary evidence. Conclusion: The addition of Rs. 36,85,400 under Section 69C read with Section 115BBE was confirmed because seized records lacked specific narration, the statutory presumption attached to such records was not satisfactorily rebutted by the assessee, and the AO/CIT(A) gave a reasoned basis for treating the amounts as unexplained expenditure. Cross-references and final disposition Cross-reference to Issue 1: The deletion under Section 40A(3) rests on non-rejection of books under Section 145 and existence of detailed split-up entries in regular books; this reasoning does not negate the operation of Section 292C where seized documents independently indicate unexplained cash outflows (Issue 2). Final outcome as applied to issues: The Tribunal partly allowed the appeal - deletion of the Section 40A(3) addition (Rs. 21,44,420) and confirmation of the Section 69C/115BBE addition (Rs. 36,85,400) - on the bases stated above.