The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has recently, in an appeal filed before it, held that estimation of cash based on surmises and conjectures cannot be made in rectification order u/s 154.
The aforesaid observation was made by the Delhi ITAT, when an appeal was preferred before it by the assessee, as directed against the order of the CIT (Appeals), New Delhi, dated 31.01.2022, pertaining to the Assessment Year 2018-19.
The ground of the appeal as taken by the being that on the facts and circumstances of the case, the order passed by the CIT(A) sustaining additions aggregating to Rs.10,00,626/- under section 69A of the Income Tax Act made by the A.O., is bad both in the eyes of law and on facts, and further that on the facts and circumstances of the case, the CIT(A) has erred both on facts and in law in confirming the addition to the extent of Rs. 10,00,626/- u/s 69A of the Income Tax Act on account of cash found during the course of search and seizure operation as unexplained money by ad-hoc estimation of expenses incurred, the brief facts of the case pertaining to the issue were that an assessment order was passed in the case of the assessee, under section 143 (3) read with section 153A of the Income-tax Act, 1961.
Thereafter, the AO passed a rectification order u/s 154 of the Income Tax Act, in which, inter alia, the issue of addition on account of unaccounted cash found was dealt with. And aggrieved by the same, the assessee appealed before the CIT (A) challenging the addition made on account of jewelry as well as cash of Rs.19,82,276/- u/s 69A of the Income Tax Act.
The CIT (A) noted that before him, it was stated that provisional receipt of Rs.31,29,300/- was duly substantiated from the documents seized during the course of search, and further that the assessee has stated that the AO has erred in determining the cash-in-hand due to various mistaken reasons such as taking deemed expenses at 50% of gross turnover under section 44ADA ,as expenses actually incurred by the appellant by ignoring non- cash expenses i.e. depreciation and expenses incurred on accrual basis, which defeated the intend of the legislature.
It was also stated by the assessee that the nature of expenses incurred of Rs -60,000/- was not specified in assessment order of the AO, and further that the AO had wrongly taken the cash deposited in the bank account of Rs 4,00,00Q/-, while such cash was deposited in bank account after the date of search, and therefore cannot be considered for the purpose of determining cash available in hand on the date of search i.e., 06.02,2018.
With the assessee further stating that the AO had failed to understand the provisions of section 44AD which deals with presumptive taxation, thereby giving an option to the assessee to declare his profits and gains from profession on deeming basis, the assessee’s submission in this regard was noted by the CIT (A) , who observed that there were some merits in the assessee’s submissions.
He thus held that the AO had not given any detail of reducing Rs.60,000/- while calculating the cash available in the hands of the appellant, thereby deleting the reduction of Rs.60,000/- and that Rs.4,00,000/- which was deposited into the Bank ale after the date of search is also deleted.
He further held that the claim of the appellant in respect of non-cash expenses can be ruled out, but that as the appellant has not provided the details of such expenses, keeping in mind that there would have been some non-cash expenses also, one third of expenses calculated by AO i.e., Rs.5,21,650/- (one third of Rs.15,64,650) be allowed.
Thus, he restricted the addition on account of unexplained cash u/s 69A of the Income Tax Act, 1961, found during the course of search and seizure operation is to Rs.10,00,626/- (30,86,926 – 20,86,300), and it is being aggrieved by the said order, that the assessee has preferred the instant appeal before the Delhi ITAT.
Hearing the opposing contentions of either sides as presented by Shri Divyansh Jain, Advocate, the AR on behalf of the assessee and by Ms. Princy Singla, the Senior DR, on the Revenue’s behalf and thereby perusing the materials available on record, the Delhi ITAT observed:
“We have heard both the parties and perused the records. The only grievance raised by the assessee before us is that addition of Rs.10,00,626/- sustained u/s 69A of the Act by the authorities below is not correct in law. At the outset, we note that AO has already passed an order u/s 143(3) of the Act wherein no such addition was made. Subsequently, order u/s 154 was passed wherein the impugned addition was made. Relevant portions of original assessment order as well as rectification order u/s 154 have already been reproduced herein above. Section 154 enables the AO to rectify a mistake apparent on record. A reading of the assessment order and the order u/s 154 nowhere speaks of any mistake which has occurred in the assessment order. The order passed by the AO is as if he is sitting into the shoes of ld. CIT and passing an order u/s 263 of the Act, which is not actually correct.”
“How these additions of cash have been done u/s 154 claiming that there was a mistake apparent from record in the original order, is not borne out anywhere in the records. Apart from the above, we note that assessee has filed return under presumptive taxation regime of section 44ADA in which books of accounts were not required. Assessee’s submissions in explanation of cash-in-hand are sufficiently cogent. The estimate of cash by the ld. CIT (A) was also not done on correct basis. Ld. CIT (A) himself stated that claim of the assessee in respect of non-cash expenses cannot be ruled out”, the ITAT Bench added.
“However, the assessee has not provided details of such expenses. This is a strange observation and ld. CIT (A) has on ad hoc basis held that on some non-cash expenses, 1/3rd of the expenses calculated by AO in this regard i.e., Rs.5,21,650/- (1/3rd of Rs.15,64,650/-) is allowed.”, the ITAT Panel comprising of Astha Chandra, the Judicial Member, along with Shamim Yahya, the Accounted Member, further noted.
Thus, allowing the assessee’s appeal, the Delhi ITAT held:
“In our considered opinion, this is solely on the basis of surmises and conjectures. The estimate of cash under the presumptive regime by the AO as well as ld. CIT (A) is flawed. The same is based on surmises and conjectures and the same is not sustainable on merits also. So, to conclude, this estimate of cash in order passed u/s 154 is jurisdictionally not permissible and secondly, on merits also, we note that the addition is based on surmises and conjectures which cannot be sustained. Accordingly, we direct that the addition of Rs.10,00,626/- in this regard be deleted. In the result, the appeal filed by the assessee stands allowed.”
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