Unexplained cash and ad hoc expense disallowance: Tribunal remands cash addition for verification and deletes estimated murum expense cut

An addition for unexplained money under section 69A requires verification of the cash trail and the relevant books before it can be sustained; here, the Tribunal held that the cash position in the concerned branch offices needed fresh examination, so the matter was restored to the Assessing Officer for verification. An ad hoc disallowance of murum expenses was not justified where the assessee's turnover and expense ratio were broadly commensurate, the accounts were audited, no specific defect was found, and no realistic opportunity was given to produce all suppliers; the disallowance was deleted.

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Issues: (i) Whether the addition of Rs. 10 lakhs as unexplained money was sustainable; (ii) Whether the ad hoc disallowance of 10% of murum expenses was justified.

Issue (i): Whether the addition of Rs. 10 lakhs as unexplained money was sustainable.

Analysis: The cash seized from the assessee's employee was claimed to belong to the assessee company. The statement of the employee about the source and movement of cash changed over time, and the lower authorities relied on the inconsistency to uphold the addition under section 69A. However, the Tribunal found force in the assessee's plea that the cash trail and availability of cash in the relevant branch books required verification before a final finding could be recorded. In the circumstances, the proper course was to examine the cash book and the availability of cash at the concerned offices and then decide the matter on facts and law after giving due opportunity.

Conclusion: The addition was not finally sustained and the issue was restored to the Assessing Officer for fresh verification.

Issue (ii): Whether the ad hoc disallowance of 10% of murum expenses was justified.

Analysis: The Assessing Officer had issued notices to a large number of suppliers, but the assessee was not given a realistic opportunity to produce all of them within a very short time. The Tribunal also noted that the assessee's turnover and direct expense ratio were broadly commensurate, the books were audited, no specific defect in the book results was pointed out, and no past disallowance of this nature had been made in scrutiny assessments. In these circumstances, the estimate-based disallowance lacked justification.

Conclusion: The disallowance was deleted in favour of the assessee.

Final Conclusion: The appeal succeeded only in part, with one issue remanded for fresh adjudication and the other decided in favour of the assessee.

Ratio Decidendi: An unexplained-cash addition cannot be sustained without proper verification of the cash trail and books, and an ad hoc disallowance of expenditure is unjustified where the claim remains broadly commensurate with business turnover and no specific defect in the accounts is established.

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