Manual Cash Book Contains Entries Related To Cash Withdrawals, Income Tax Additions Not Sustainable: ITAT

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the manual cash book contained entries related to cash withdrawals and expenses of the company, which were duly recorded and reconciled with its books of account, as well as cash introduced, withdrawn, and expenses on behalf of the assessee.

The bench of Anubhav Sharma (Judicial Member) and M. Balaganesh (Accountant Member) has observed that to offset the negative cash balance reflected in the manual cash book qua the transactions of the appellant, the disclosure of Rs. 50 lacs was made by the appellant in the Income Declaration Scheme, 2016 (IDS). Hence, there is no scope for making any addition at all in the hands of the appellant, as the appellant would be entitled to telescoping benefits.

A search and seizure operation was conducted on May 29, 2018, along with a parallel search of M/s. Lion Manpower Solutions Pvt. Limited, of which the appellant was the director, and admittedly no incriminating material was found on the search premises of the appellant. The alleged incriminating material on the basis of which an addition was made in the impugned assessment order was found on the search premises of Lion Manpower. The original return of income for AYs 2015–16 and 2016–17 was filed on September 30, 2015, and September 30, 2016, respectively, and was processed under Section 143(1), and the time limit to issue notice under Section 143(2) had expired. The assessment was concluded before the conduct of the search under Section 132 on May 29, 2018.

Pursuant to the search, the assessment proceedings under Section 153A were initiated for both the AYs, which were completed after making additions under Section 69C on the basis of a manual cash book alleged to contain cash expenses from unexplained sources found on the premises of Lion Manpower.

On further appeal, the CIT(A), however, allowed partial relief to the appellant and modified the order of the assessing officer by partially sustaining the additions and considering them as the benefit or perquisite obtained by the director from the company.

The assessee contended that CIT (A) erred in making an artificial distinction between the aforesaid proposition on the ground that even though the incriminating material was not found on the premises of the assessee, it was found on the premises of related premises of the group. It was submitted that there is no concept of joint assessment of related entities forming part of a common search. The assessment of each person emanating from a common search, related or unrelated, has to be independently completed in accordance with the provisions of the Act.

The department held that there was no evidence to establish that the office premises of the company and the office of the director were separate.

The tribunal held that the manual cash book contained entries related to cash withdrawals and expenses of the company, which were duly recorded and reconciled with its books of account, as well as cash introduced, withdrawn, and expenses on behalf of the appellant. Thus, once CIT(A) has endorsed the findings of AO that based on this manual cash book of the company, no substantive addition is required to be made in the hands of the company, and as the cash inwards and outwards are found to be from known sources and existing books, which have been considered final in the assessment of the company, then the same set of books of the company, including the manual cash book found at the premises of the company, cannot be considered to be incriminating material for the purpose of Section 153A to make addition in the hands of the assessee as a searched person, as the two AYs are of concluded assessments.

Counsel For Appellant: Gaurav Jain

Counsel For Respondent: Sunita Verma

Case Title: Bijender Singh Lohia Versus JCIT (OSD)

Case No.: ITAs No. 1528 & 1529/Del/2022

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