Failure of AO to Prove Nexus b/w Post- Dated Cheque and Undisclosed Income: ITAT Upholds deletion of Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT) in Delhi upheld the deletion of an addition made by the Assessing Officer (AO) concerning alleged undisclosed income linked to post-dated cheques (PDCs) recovered during a search. The AO had failed to establish a clear nexus between the cheques and any unaccounted income of the assessee, leading to the dismissal of the Revenue’s appeal.

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The backdrop of the case is from a search conducted on the premises of the assessee, Ms. Swapna Mohan, where three PDCs amounting to Rs. 2.45 crores were discovered. These cheques were issued by companies linked to the Amrapali Group, including M/s Amrapali Sapphire Developers Pvt. Ltd. and Ultra Home Construction Pvt. Ltd. The AO claimed that these cheques were evidence of unaccounted investments made by the assessee in properties under the Amrapali Group, leading to an addition of Rs. 2.45 crores to her income as unexplained investments under Section 69 of the Income Tax Act.

Aggrieved, the assessee appealed before the Commissioner of Income Tax (Appeals) [ CIT (A) ]

The CIT(A) deleted the addition, noting that the AO’s claim was based purely on presumptions without corroborative evidence. The CIT(A) accepted the explanation provided by the assessee that the cheques were issued as security in connection with a financial arrangement between the Amrapali Group and PSK Finance Solutions, a company linked to the assessee’s family. The assessee argued that the PDCs did not represent any unaccounted investment, but were part of a legitimate business transaction, which the CIT(A) found credible.

Against this, the Revenue appealed before the ITAT

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After examining the case facts, the bench of Mr Kul Bharat and Mr Avdhesh Kumar Mishra concurred with the findings of the CIT(A). It ruled that the AO had failed to establish any direct link between the PDCs and any undisclosed income of the assessee. Furthermore, the Tribunal observed that no evidence was found during the search to indicate that the assessee had made unaccounted payments to the Amrapali Group. The mere possession of post-dated cheques was not sufficient to substantiate the AO’s allegations of unexplained investments, particularly in the absence of any supporting documentary evidence.

The ITAT also referenced the legal principle laid down by the Delhi High Court in the case of CIT vs. Girish Chaudhary, where it was held that post-dated cheques alone, without corroborative material, cannot form the basis for an addition. In light of this, the ITAT dismissed the Revenue's appeal, affirming that the addition made by the AO was based on mere conjecture and lacked legal merit.

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Thus, the ITAT upheld the deletion of the Rs. 2.45 crore addition.

To Read the full text of the Order CLICK HERE

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