Addition u/s 69 confirmed when assessee failed to establish link between cash withdrawn and cash found at the time of search
ABCAUS Case Law Citation:
ABCAUS 2753 (2019) (01) ITAT
Important Case Laws Cited/relied upon by the parties
Ms. Aishwarya K. Rai vs. DCIT (2007) 104 ITD 0166 (TM)
The instant case deals with the appeal filed against the order of the CIT(A) confirming the addition of Rs. 3 Crs and other disallowances in the hands of the assessee-company u/s 69 of the Income Tax Act, 1961 (the Act).
An individual who was travelling by air was searched u/s 132 of the Act at the Air Port and was found to be carrying Rs. 3 Crs in cash with him.
On questioning, he stated that it belonged to a company (the appellant) and subsequently, the entire cash was owned up by the appellant company as its unexplained money. Further, during the search proceedings at the business premises of the company, physical cash of approx. Rs. 1 crores was also found and this was also owned up by the company.
Even in the statement recorded during the course of search, the assessee explained that the sources of the cash found, was the amount of Rs. 2.37 Crs being the cash withdrawn from the bank account of the company and that the balance was the cash withdrawn from cash balances available in the books of account of the company.
When questioned, the M.D of the company, deposed that the cash balance with the company as per the books of account maintained in tally package was around Rs. 4 Crs. As regards the cash of Rs. 3 Crs found at the Air Port, it was deposed that the same was being carried by them to Arunachal Pradesh to meet the civil works payments and to make advance payments to the contractors for the works undertaken by the company.
When questioned about the purpose of carrying on the cash physically instead of transferring the same through banking channels, it was stated that the company was not having any bank account in Arunachal Pradesh and therefore, the cash was being carried physically.
The AO observed that the books of account of the company were maintained in Tally package and noticed that the entries were not updated as on the date of search and that the cash balance as per the books of account was approx Rs. 3 Crs. He also observed that during the course of search proceedings, it was noticed that a cash deposit of Rs. 1 Cr was made in the bank account of the company.
When confronted with these facts, the M.D. of the company submitted that there were some omissions and commissions in the books of account and that he was unable to explain the sources for the cash aggregating to approx Rs. 4 Crs. and he admitted an amount of Rs. 4 Crs as the undisclosed income of the company.
However, the company did not admit the unexplained cash in its return of income filed for the relevant assessment year.
The AO added the sum of Rs. 3 Crs protectively in the hands of the person carrying the cash at the Air Port and substantively in the hands of the company.
On appeal, the CIT(A) observed that at the time of search, the books of account were not updated and cash balances could not be drawn properly. He also observed that despite having huge cash balances as per the cash book, the assessee had drawn cash from the bank regularly and that too most of these withdrawals were self withdrawals and the assessee could not furnish the details of payments made from these withdrawals.
Observing that there was no live-link between the so called cash withdrawals from the bank and the cash found on the day of search, CIT(A) confirmed the substantive addition in the hands of the company as ‘unexplained money’ u/s 69A of the Act and deleted the protective addition in the hands of the individual assessee.
Aggrieved by the substantive addition, the company had filed the instant appeal before the ITAT.
It was submitted that its books of account may be directed to be verified and only if it was found that the assessee had cash withdrawals sufficient to explain the sources, the same might be accepted.
The Tribunal observed that during the assessment proceedings itself, the assessee company had tried to explain the sources as the cash withdrawals from the bank accounts.
It was noted that admittedly, the cash books was not updated on the day of search and the statements were also recorded, before the books of accounts were completed. Both, the AO and the CIT(A) had verified the cash balances available and found that there were huge cash withdrawals by the assessee by way of cheques.
The Tribunal further observed that the reason for not accepting the assessee’s contention by the authorities was that, the assessee had failed to explain as to why on a particular date the assessee had to withdraw cash by way of four cheques when it could have done by one cheque and that the assessee has also failed to establish the link between the cash withdrawn and the cash found at the time of search.
The Tribunal noted that since both the AO and the CIT(A) had verified the cash and bank statements and had come to the conclusion that the assessee could not explain the sources for the cash found at the time of search.
The Tribunal opined that even before the bench, the assessee could not establish the live link, there was no reason to interfere with the order of the CIT(A).