ITAT: Manual Cash Book Entries Deemed Non-Incriminating Material For Section 153A IT Act

ITAT: Manual Cash Book Entries Deemed Non-Incriminating Material For Section 153A IT Act

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that the manual cash book includes entries concerning cash withdrawals and company expenses, which were accurately recorded and reconciled with the company's financial records. Additionally, it documented cash introductions, withdrawals, and expenses on behalf of the assessee.

The bench, comprising Anubhav Sharma (Judicial Member) and M. Balaganesh (Accountant Member), noted that the appellant disclosed Rs. 50 lakhs in the Income Declaration Scheme, 2016 (IDS) to offset the negative cash balance depicted in the manual cash book concerning the appellant's transactions. Consequently, there is no justification for any further addition in the appellant's hands, as they are entitled to telescoping benefits.

A search and seizure operation, conducted on May 29, 2018, also involved a simultaneous search of M/s. Lion Manpower Solutions Pvt. Ltd., where the appellant served as the director. It is acknowledged that no incriminating material was discovered during the search conducted at the appellant's premises. However, alleged incriminating material forming the basis of an addition in the contested assessment order was found at the search site of Lion Manpower. The original income tax returns for Assessment Years 2015–16 and 2016–17 were filed on September 30, 2015, and September 30, 2016, respectively. These returns were processed under Section 143(1), and the period for issuing a notice under Section 143(2) had lapsed. The assessment had been finalized before the search under Section 132 took place on May 29, 2018.

Following the search, assessment proceedings under Section 153A were commenced for both assessment years. These proceedings were concluded after incorporating additions under Section 69C based on a manual cash book purportedly containing cash expenses from unexplained sources discovered at the premises of Lion Manpower.

Upon further appeal, the Commissioner of Income Tax (Appeals) (CIT(A)) granted partial relief to the appellant. The CIT(A) revised the assessing officer's order, partially upholding the additions and categorizing them as benefits or perquisites obtained by the director from the company.

The assessee argued that the CIT(A) made an erroneous differentiation between the aforementioned propositions, based on the premise that although the incriminating material was not discovered at the assessee's premises, it was found at the related premises of the group. It was asserted that there is no provision for a joint assessment of related entities involved in a common search. The assessment of each individual arising from a common search, whether related or unrelated, must be independently conducted in accordance with the provisions of the Act.

The department maintained that there was insufficient evidence to prove that the office premises of the company and the office of the director were distinct entities.

The tribunal concluded that the manual cash book contained entries concerning cash withdrawals and expenses of the company, meticulously recorded and reconciled with its official books of account. It also documented cash introductions, withdrawals, and expenses on behalf of the appellant.

Therefore, since the CIT(A) had upheld the Assessing Officer's findings that no substantive addition was necessary in the company's hands based on this manual cash book, and as the cash transactions were traceable to known sources and were already finalized in the company's assessment, the same set of company records, including the manual cash book discovered at the company's premises, could not be deemed incriminating material under Section 153A for adding to the assessee's (as a searched person) income. This ruling applied as the assessments for the two assessment years were already concluded.