ITAT deletes Addition u/s 69 on Amount Validly Explained as Professional Income [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) recently deleted addition under Section 69 on amount that had been validly explained as professional income.

The assessee Ramchandra Kanu Mendadkar was a practicing Advocate appearing in various Courts in and around Mumbai representing his clients in various streams of litigation for more than 35 years.

The assessee had maintained regular books of accounts which are audited under Section 44AB of the Income Tax Act. The assessee filed the return of income for assessment year 2019-20 declaring income of Rs. 41,26,500/-.

The assessee was traveling by Vistara Airlines from Mumbai to Delhi to attend two matters in Supreme Court listed. At the airport, the assessee was intercepted and was searched. During the search proceedings the Officer found currency notes of Rs. 16,00,000/- and the same was recorded in punchnama. The summons under Section 131(A) of the  Income Tax Act was issued to the assessee for recording statements in respect of seizure of cash of Rs. 16,00,000/-.

The assessee submitted that on instruction from his client Shri Biren Limbachiya and Shri Sagun Naik the assessee was to engage the senior counsel with the help of Advocate on records of the Supreme Court Mr. Sudhanshu Choudhari.

There was a requirement by above mentioned Advocate on record that the assessee shall pay a fees of Rs. 16,00,000/- in cash to him to engage the Senior Counsel to argue the cases of the assessee client.

The assessee further submitted that the amount of Rs. 16,00,000/- included fees of Rs. 10,00,000/- paid by his client Mr. Biren Limbachiya through various cheques from time to time and Rs. 6,00,000/- fees were paid by Shri Sagun Naik of which Rs. 25,000/- Is through cheque and Rs. 5,75,000/- by cash on various dates.

The assessee submitted before the authorities that all these transactions were properly recorded in his books of accounts regularly maintained which are subject to statutory audited under Section 44AB of the Income Tax Act.

It was further submitted that the amounts were received during the course of his profession and see relate to any undisclosed income. A notice under Section 143(2) of the Income Tax Act was issued and the assessee reiterated the submission made before the ADIT-Investigation to the Assessing Officer.

The CIT(A) upheld the addition stating that the statement of the assessee is dissatisfactory as in this digital world no one would transact such a huge amount in cash when the transaction of funds through banking channel is very easy Smooth and time saving.

In appeal before Tribunal, counsel for Assesse argued that the amount received from Shri Sagun Naik was properly recorded with supporting evidence, and Mr. Sagun Naik confirmed the payment. The amount received from Shri Biren Limbachiya was received through cheques and accurately accounted for.

The Assessee had withdrawn cash before traveling to Delhi, which can be verified through bank statements. Both amounts were included in the taxable income, so they should not be considered undisclosed income.

The counsel for the revenue on the other hand submitted that the assessee had carried the cash balance of Rs. 16,00,000/- which could not be reconciled with the cash withdrawals and receipt of professional fee in cash book and therefore the lower authorities are correct in treating the same undisclosed.

The tribunal Bench consisting of a Judicial Member Amit Shukla and an Accountant Member Padmavathy observed that the assessee had recorded the impugned amount in the books of account and had also offered the same to tax by including it as professional fees. Therefore the amount cannot be treated as unexplained and therefore the addition under Section 69A of the Income Tax Act was deleted.

In result, the appeal filed by assessee was allowed.

To Read the full text of the Order CLICK HERE

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