Fully Verifiable Business Transactions: ITAT quashes Higher Income Tax Imposition u/s 115BBE [Read Order]

The assessee, Mahendra Singh Ratnawat, is an Individual who derives income from salary, the business of Royalty collection on behalf of the Rajasthan State Government and the sale of river sand and other sources. Regular books of accounts are maintained. A search and seizure action

was carried out by the Income Tax Department on Kiran Fine Jewellers Group, of which the assessee was one of the members.

The assessee filed his return of income for the AY 2018-19, declaring a total income of Rs.

5,01,28,300/- . During the course of the search, no incriminating document and other valuables were found and seized, except cash of Rs. 51,77,600/- found from the residence of the assessee.

Notice along with a questionnaire, was issued requiring the assessee to furnish information pertaining to the case relevant to the assessment year 2018-19. In compliance with the said notices, the assessee attended and furnished information. The AO examined the same

The assessment was completed under section at a total income of Rs. 6,80,39,580/- by making an addition of Rs. 51,77,660/- on account of cash found during the course of search and disallowance of interest amounting to Rs. 1,27,33,677/- .

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The assessee, being aggrieved with the order of the AO, preferred an appeal before the CIT (A), who in turn upheld the addition of Rs. 51,77,600/- cash found from the residence of the assessee and confirmed the disallowance of Rs 1,27,33,677/- out of interest expenses claimed by the assessee.

The assessee argued that the Cash of Rs. 51.77 lakh found during the search represents legitimate business receipts from River Sand (Bajri) operations. He contended that primary accounting records were maintained at the head office and collection point and cash was fully verifiable from the regular books of account and cash book. The assessee further argued that the interest expenditure of Rs. 1.27 crore was incurred on genuine business loans and advances, and part of it was already disallowed.

The assessee further placed reliance on M. Narayan and Bros. Vs ACIT in which the Hon’ble High Court held that a retraction made during the course of assessment proceedings was entertained and relief was granted on the merits of the explanation. In CIT Vs Sunil Aggarwal, the Court had held that since the assessee did not simply retract the statement made during the search and he also offered an explanation for the amount of Rs. 86 lakhs, this was verifiable from the books of account, the impugned addition of Rs. 86 lakhs was not justified

The two-member Bench of Gagan Goyal (Accountant Member) and Dr S. Seethalakshmi (Judicial Member) held that the search is completely verifiable from the audited books of accounts regularly maintained and deleted the addition. Also, the assessee on its own had disallowed a sum of Rs. 1,80,00,000/-, considering the same to be incurred for non-business purposes. Hence, held the disallowance of interest of Rs. 1,27,33,677/- is not sustainable.

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