2025 (9) TMI 1237 - AT - Income Tax

Assessing Officer's finding of Rs 2.5 crore unexplained cash advances overturned due to lack of evidence and inconsistent positions

ACIT, CC-18, New Delhi Versus D.K. Gupta

ITAT held that the Assessing Officer's finding of unexplained cash advances was unsustainable. The MOU was casual and vitiated by non-performance, and the ... Unexplained advances - assessee had made such advances from the sources not disclosed to the Department - HELD THAT:- It is clear that the MOU has been drawn up in a casual manner and cannot be said to be a legally correct document. On one hand, the AO accepts that when the Second Party mentions about repayment of the loan, it is to be done by Companies, but on the other hand, the AO rejects the claim of the Assessee that the original loan by the First Party was through Companies. Thus, the stand of the AO is contradictory and cannot be accepted. It is seen that merely because the word 'Cash Loan' was used in the MOU, AO was drawn to the conclusion that Cash i.e. Currency must have been paid. While arriving at this conclusion, the AO failed not only to look at all the facts and circumstances, but also failed to properly study the MOU which shows that not only the MOU appeared to be a casual document, but also that specific performance had to be carried out by 15.08.11, which was not carried out and hence the MOU was vitiated. There is no justification for rejecting the explanation of the Assessee and concluding that Cash amounting to Rs. 2.5 Crores had been paid, without determining as to who had paid what amount to whom and on which date, that too, ignoring the entire facts and circumstances. Hence, there is no justification for concluding that Cash amount was paid by the Assessee or that the Assessee had advanced an amount in Cash from Undisclosed Sources. Revenue’s appeal stands dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Assessing Officer was justified in making an addition of Rs. 25 crores to income as unaccounted cash advances on the basis of an MOU alone recovered during search operations. 2. Whether the MOU dated 10.08.11 constituted sufficient evidence of an actual cash payment/advance by the assessee from undisclosed sources, when the document used terms such as 'payable', involved property owned by companies, and there was no seizure of cash or other corroborative evidence. 3. Whether the explanation offered by the assessee regarding family settlement, prior loans to a third party (Hyderabad Party), payments through bank accounts, and non-performance of the MOU satisfactorily rebutted the presumption of undisclosed cash transaction arising out of the MOU. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sufficiency of MOU as basis for addition of Rs. 25 crores as unaccounted cash Legal framework: An addition for unaccounted cash requires reliable evidence that cash was actually paid/advanced from undisclosed sources; documents recovered in search must be evaluated in context and corroborated by material evidence of payment or receipt. Precedent treatment: No specific judicial precedents are invoked in the impugned order; the Tribunal evaluates documentary and surrounding factual matrix for sufficiency. Interpretation and reasoning: The Tribunal found the MOU to be internally inconsistent and legally defective because the property said to be transferred belonged to two companies while the MOU was executed between individuals, undermining its legal efficacy as evidence of a valid property-for-cash transfer. The MOU used the term 'payable' rather than evidencing an actual cash payment or an enforceable cash-loan agreement with a ascertainable date of payment. The Assessing Officer relied on a selective reading of the MOU and failed to consider its full terms and lack of performance. Ratio vs. Obiter: Ratio - A seized MOU which is internally contradictory, not performed, not corroborated by contemporaneous payment evidence, and not legally capable of effecting the stated property transfer is insufficient basis alone to treat an alleged amount as undisclosed cash income of the assessee. Obiter - Comment that labeling a transaction as 'Cash Loan' in a document does not ipso facto prove actual cash payment. Conclusion: The Tribunal concluded there was no justification to treat the MOU alone as proof of a Rs. 25 crores cash advance from undisclosed sources; the addition based solely on that document was not sustainable. Issue 2 - Need for corroborative evidence (cash seizure, bank records, parties' capacity) to substantiate alleged cash advance Legal framework: Documentary evidence recovered during search must be corroborated by independent material (cash seizure, bank records, transfers, admission, or transfers of property) to sustain an addition; capacity of signatories and ownership of assets are relevant to legal effect of documents. Precedent treatment: The decision applies established evidentiary principles (not cited by name) requiring corroboration; no contrary precedent overruled. Interpretation and reasoning: The Tribunal observed absence of any seizure of cash from the premises of the alleged payor or payee, absence of bank or accounting entries proving a cash outflow of Rs. 25 crores by the assessee, and absence of any evidence of actual transfer of the property. The property in question was owned by companies, not the individual signatories, indicating that execution by the individuals could not legally effect transfer. The Assessing Officer did not produce corroborative evidence and adopted inconsistent positions regarding whether the original loan involved companies. Ratio vs. Obiter: Ratio - In the absence of corroborative evidence of payment and given clear defects in the documentary record (ownership and performance), an addition for alleged cash advances cannot be sustained. Obiter - The Tribunal criticises the Assessing Officer's inconsistent approach in accepting some aspects of the MOU while rejecting others without evidentiary support. Conclusion: The Tribunal held that lack of corroboration and defects in the MOU precluded a finding that Rs. 25 crores constituted undisclosed cash advanced by the assessee. Issue 3 - Sufficiency of assessee's explanation (family settlement, prior Hyderabad-party loans, banking transactions) to rebut inference of undisclosed cash Legal framework: The assessee bears the onus of explaining entries/transactions pointed out by the revenue; a plausible, specific, and corroborated explanation can discharge that burden and negate disallowance/addition if accepted on facts. Precedent treatment: The Tribunal applies the standard evaluative approach-explanation acceptable where supported by facts and where revenue fails to rebut with independent evidence. Interpretation and reasoning: The assessee explained that the MOU was a family settlement in relation to earlier loans to a Hyderabad Party, that 'cash' in real estate parlance could include amounts liquidated through bank channels, and that the alleged advances were actually routed through bank accounts and reflected in books of account of the concerned parties. The Tribunal noted that these explanations were offered during search proceedings and that the revenue failed to produce contrary evidence (e.g., seized cash, bank proof of a cash payment, or evidence of property transfer). Given these factors and the MOU's internal contradictions and non-performance, the Tribunal found the assessee's explanation satisfactorily rebutted the revenue's inference of undisclosed cash. Ratio vs. Obiter: Ratio - A credible, specific explanation supported by surrounding facts and not displaced by independent contrary evidence suffices to rebut an addition based on a seized document. Obiter - The Tribunal remarks that commercial terminology (e.g., 'cash') must be construed in context and not mechanically equated to physical currency absent corroboration. Conclusion: The Tribunal accepted the assessee's explanation and found no justification for the impugned addition; the CIT(A)'s deletion of the addition was upheld. Overall Conclusion The Tribunal found the Assessing Officer's addition of Rs. 25 crores to income unsustainable: the MOU was legally defective and internally contradictory, there was no evidence of actual cash payment or property transfer, and the assessee's explanation - including that the arrangement reflected family settlement/adjustment of prior loans and involved bank transactions - was not rebutted by corroborative material. The Tribunal therefore dismissed the revenue's appeal and upheld deletion of the addition.