Addition under Section 69A Deleted for Cash Found During Search, Considering Cumulative Circumstances and Family Savings

Summary in Key Points:

Issue: Whether the addition made by the Assessing Officer (AO) under Section 69A of the Income-tax Act, 1961 for unexplained cash found during a search is justified when the assessee provides an explanation for the source of the cash.
Facts: During a search at the assessee’s residence, a substantial amount of cash was found. The assessee explained that part of the cash belonged to a company where their son was a director, and the remaining was from family savings and gifts from relatives. The AO accepted the explanation for a portion of the cash but made an addition for the remaining amount, treating it as unexplained.
Decision: The ITAT deleted the addition made by the AO, holding that the assessee’s explanation, when considered in its entirety and along with the cumulative circumstances, established the source of the cash.

Decision:

The ITAT ruled in favor of the assessee, deleting the addition made under Section 69A. The ITAT considered the following:

Explanation for Cash: The assessee provided an explanation for the cash found, attributing it to a company where their son was a director, family savings, and gifts from relatives.
Cumulative Circumstances: The ITAT examined the cumulative circumstances, including the assessee’s declaration of a sum of Rs. 10 lakhs in the company during the search and the fact that the family members were assessable to tax, indicating the possibility of savings.
Source of Cash Established: Based on the assessee’s explanation and the cumulative circumstances, the ITAT concluded that the source of the cash was established, and the addition made by the AO was unjustified.

Important Note: This case highlights the importance of considering the assessee’s explanation and the overall circumstances while making additions under Section 69A. The ITAT’s decision emphasizes that additions should not be made in isolation but should take into account all relevant factors and explanations provided by the assessee. This approach ensures a fair and reasonable assessment process, preventing arbitrary additions and upholding the principles of natural justice.

IN THE ITAT CHANDIGARH BENCH ‘B’

Avinash Singla

DCIT

Rajpal Yadav, VICE PRESIDENT
and KRINWANT SAHAY, ACCOUNTANT MEMBER

IT Appeal No. 597 (CHD) of 2022
[Assessment Year 2019-20]

JANUARY 8, 2025

Rohit Kapoor and Virsain Aggarwal, Advs. for the Appellant. Smt. Kusum Bansal, CIT DR for the Respondent.

ORDER

Raj Pal Yadav, Vice President. – The assessee is in appeal before the Tribunal against the order of the Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 17.06.2022 passed for assessment year 2019-20. Though the assessee has taken five grounds of appeal but his solitary grievance is that ld. CIT(A) has erred in confirming the addition of Rs.6 lacs which was added by the Assessing Officer on account of unexplained cash found at the residential premises during the course of search.

2. The brief facts of the case are that a search & seizure operation under Section 132(1) of the Income Tax Act was carried out on 25.04.2018 at the residential premises of the assessee alongwith various business premises of the group. The AO has issued notice and a return of income was filed on 31.12.2019 declaring total income of Rs.7,38,280/-. According to the AO, this return was filed under Section 139(4) of the Income Tax Act. The AO has issued notice under Section 143(2) on 07.02.2020. On scrutiny of the accounts it revealed that a cash of Rs.10,72,500/- was found at the residential premises of Shri Avinash Singla at the time of search. This factum was put to Shri Avinash Singla during the course of search vide Question No. 12-13 while recording his statement under Section 132(4) of the Income Tax Act. The Question No. 12 exhibits that how much cash is lying within his residential premises. In reply to it, it was submitted by the assessee that approximately Rs. 10.50 lacs is available. Similarly, when it was put to the assessee that whether this cash belongs to somebody else, then assessee has replied that this cash related to him, his business concern and may be of family members but exact break-up cannot be given at present. During the course of assessment proceedings, AO confronted the assessee to explain source of this cash. The assessee has submitted that Rs. Four Lacs was brought at home by his son Shri Nitish Singla who is the Director, Avinash Agro Pvt. Ltd. and rest of the amount is savings of the family as well as Rs.7 lacs received by him as a gift from his brother. He has filed documentary evidence in respect of this plea. The ld. AO has accepted the availability of Rs.4 lacs from M/s Avinash Agro Pvt. Ltd. but did not accept balance explanation and made the addition of Rs.6 lacs.

3. Appeal to the CIT(A) did not bring any relief to the assessee.

4. With the assistance of ld. Representative, we have gone through the record carefully. It is pertinent to note that during the course of search, assessee in the capacity of one of the Director has declared a sum of Rs.10 lacs in M/s Avinash Agro Pvt. Ltd. to cover up any irregularity in explanation of any unexplained item. This Rs.10 lacs has been assessed in the hands of M/s Avinash Agro Pvt. Ltd. which was framed under Section 143(3) of the Income Tax Act. The ld. Counsel for the assessee has drew our attention to page No. 47 to 50 of the Paper Book where this factum is available in the assessment order. He has also referred to page No. 38 to 46, ITR-V and Computation of Income in the case of M/s Avinash Agro Pvt. Ltd. and these documents, it has been disclosed that assessee has declared additional income of Rs.10 lacs. Therefore, we are of the view that if explanation is taken into consideration, based on cumulative circumstances, namely; (1) Rs.10 lacs was declared to cover up such type of issues in the case of M/s Avinash Agro Pvt. Ltd.; (b) Past savings of the family members, and (c) Gift received from the brothers, then it would be established that source of cash is available with the assessee. It is difficult to establish a cash available in the family with a mathematic precision. It is to be appreciated on the normal human behaviour available in the family and if all the family members are assessable to tax, then possibility of their savings and availability of Rs.10 lacs could never be denied. Therefore, learned Revenue Officers have erred in not appreciating the facts and circumstances in right perspective and confirming the addition of Rs.6 lacs. We allow this appeal and delete the addition of Rs.6 lacs.

5. In result, appeal is allowed.