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Facts
A search and seizure operation was conducted on the assessee company. During the search, incriminating documents were found. The Assessing Officer (AO) made an addition of Rs. 1,85,13,356/- to the assessee's income as unexplained money. The CIT(A) partly allowed the appeal, deleting an addition of Rs. 1,18,00,755/-.
Held
The Tribunal held that the interest payment of Rs. 1,18,00,755/- could not be considered as unaccounted income or expenditure, as it was found to be notional. The Tribunal upheld the deletion of this amount by the CIT(A).
Key Issues
Whether the deletion of Rs. 1,18,00,755/- by the CIT(A) as notional interest, which was treated as unexplained income by the AO, is sustainable.
Sections Cited
250, 143(3), 132, 143(2), 142(1), 69A, 115BBE
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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI SHAMIM YAHYA & SHRI VIMAL KUMAR
O R D E R
PER VIMAL KUMAR, JUDICIAL MEMBER:
The appeal of Revenue is against order dated 12.07.2024 of Learned Commissioner of Income-Tax (Appeals)-26, New Delhi (hereinafter referred as “the Ld. CIT(A)”) under Section 250 of the Income Tax Act, 1961 ( hereinafter referred as “the Act”) arising out of order dated 17.03.2023 by Assistant Commissioner of Income Tax, Central Circle-16, New Delhi (hereinafter referred as “Ld. AO") under Section 143(3) of the Act for assessment year 2020-21.
Brief facts of case are that a search and seizure operation under Section 132 of the Act was conducted on 17.11.2021 and on subsequent dates on different business and residential premises of Pacific Group of Cases. The case of assessee was also covered and various incriminating papers/documents were found and seized during the course of search and seizure under consideration. Original return in this case was filed on 13.02.2021 declaring income of Rs.1,18,68,54,630/-. The case was selected under CASS for assessment year 2020-21. Subsequently, statutory notice under Section 143(2) of the Act dated 29.06.2021 was issued. Notices under Section 142(1) of the Act along with questionnaire were issued to assessee on 21.12.2021, 04.03.2022, 24.03.2022, 30.08.2022 and 06.03.2023 respectively. A show-cause-notice was issued to the assessee on 13.03.2023. In response to aforesaid notices and questionnaire, Shri Girish Gupta, CA and AR of the assessee attended the proceedings and filed necessary details from time to time. On completion of assessment proceeding, Ld. AO made addition of Rs.1,85,13,356 through order dated 17.03.2023.
Against order dated 17.03.2023, appellant/assessee preferred appeal before Ld. CIT(A) which was partly allowed vide order dated 12.07.2024.
Being aggrieved, appellant/revenue preferred present appeal.
Learned Authorized Representative for the Revenue submitted that Ld. CIT(A) erred in deleting the addition to the extent of Rs.1,18,00,755/-. Out of total addition of Rs.1,85,13,356/- without appreciating the fact that assessee failed to provide credible evidence to explain the nature and source of unexplained income.
Learned Authorised Representative for the respondent/assessee submitted that Ld. CIT(A) has fairly dealt with the matter.
From examination of record in light of aforesaid rival contentions, it is crystal clear that Ld. AO in paras 10 & 10.1 has observed as under:
“10. The reply of the assessee has been considered and examined. The argument of the assessee that opening balances should not be re-added and that once the receipts are added, the expenditure should be treated as application of funds is found to be acceptable. However, with respect to the other entries, it is found that these entries recorded in the excel sheets are records of actual cash received by PDCL, which have been duly noted by Shri Nitin Maheshwari. The peak of receipts, amounting to Rs.19,85,13,356/-, are of the nature of the unaccounted cash received by PDCL, which have not been shown in the books of accounts of PDCL. With respect to the source of the funds of Rs.19,85,13,356/-, the assessee was proved the source of amount of Rs.18,00,00,000/- as being funds received from sale of flats and the same amount has also been offered as additional income in its computation of income and paid the tax on the same too. Therefore, no separate addition is called for this amount. 10.1 With respect to the balance receipts, amounting to Rs.1,86,13,356/-, the assessee could not prove the source of the money. The claims made by the assessee with respect this amount is untenable and self-serving in the light of the evidences available on record, which have been corroborated by Sh. Nitin Maheshwari in his statement recorded on oath. Further, the fact that the cash receipts and repayments have been done is clear from the admission of the key persons, i.e. Mr.
Sudarshan Bansal, and Sh. Nitin Maheshwari who has recorded these transactions. The genuineness of the contents of the contents of the Google Drive has been established as certain portions of the same have already been accepted by the assessee to be true. The recording of details pertaining to AJ for example, the reduction of two zeros in the amount, identification of the relevant persons by Nitin Maheshwari in his statement, corresponding entries being made in one excel sheet as well as in the cash book all show, etc. all prove that the total cash of Rs.1,88,13,356/- there are indeed the funds of PDCL and the same have not been offered to taxation by the assessee in its return of income. Accordingly, the addition of Rs.1,88,13,356/- is made to the income of the assessee as unexplained money u/s 69A of the Act, as this amount remains unexplained and are out-of-books of receipts in cash. The tax is payable @ 60% + surcharge u/s 115BBE of I.T.Act.”
Ld. CIT(A) in para 9.2.3 stated as under: “9.2.3 I have perused the working made by the AO and also gone through the working made by the appellant. I find that both the working are on the basis of the same seized documents and have been made as per their respective perceptions. The appellant before me has pointed out certain errors/mistakes in the working by the AO. I have looked into these errors pointed out by the appellant in the working made by the AO which are as under: 1.While computing the unaccounted income considering the seized documents, the A.O has also included the interest payment of Rs.1,18,00,755/- (Para 6 of the assessment order). The A.O has considered the interest payment of Rs.1,18,00,755/- as unaccounted income of the appellant. Since, interest payment is an expenditure, it cannot form part of unaccounted income. Further, since the excel sheet found during search is a single running documents, interest payment cannot be considered as income of the appellant and thus cannot form part of peak receipts. While calculating the unaccounted income, the figure of interest paid of Rs.1,18,00,755/- ought to have been reduced. The appellant has surrendered the gross receipts of Rs.18 crores as income during the relevant assessment year considering the seized excel sheets. Thus, after considering the mistake in the computation of gross unaccounted receipts the amount of Rs.1,18,00,755/- needs to be reduced from the total unaccounted income computed by the AO.
2. The appellant’s contention that interest paid is a revenue expenditure and therefore it should have been allowed which is sourced out of receipts of Rs.18 corres offered as additional business income, in a normal state of affairs is also considered. However, from the assessment order itself it is evident that the director of the appellant Sh. Sudarshan Kumar Bansal had stated that the interest mentioned in the sheets are notional and Sh. Nitin Maheshwari, the person maintaining the details of cash transaction, has just noted what was conveyed to him and it was hided from him since Sh. Bansal didn’t want Nitin to have any idea about the funds of the Group. Thus, the claim of the appellant that the interest expenditure should be allowed out of the total receipts is not found acceptable. In view of the above, the interest paid or payable cannot be considered as income of the assessee and also since the director of the appellant company has accepted that all the transactions are unexplained business receipts and he had shown the notional interests in these sheets, thus the interest paid/payable needs to be ignored. The statement of Sh. Bansal should not be considered partially correct and partially incorrect, but it should be either accepted or rejected completely. The interest payment of Rs.1,18,0,755/- shown in the seized documents cannot be allowed as expenditure either as no interest expenditure was incurred by the appellant as submitted by it. Therefore, the addition to the extent of Rs.1,18,00,755/- made by holding that this was unaccounted receipt of the appellant is not found sustainable, hence deleted, accordingly, the grounds of appeal raised by the appellant are partly allowed.”
From above, it is apparent on record that the director of assessee company accepted that all the transactions are unexplained business receipts and he had shown the notional interests in these details, thus, the interest paid/payable needed to be ignored. Therefore, addition to the extent of Rs.1,18,00,755/- made by the Ld. AO being unsustainable was rightly deleted. Therefore, the grounds of appeal nos. 1 to 5, being de void of merit, are dismissed.
10. In the result, the appeal of appellant/revenue is dismissed.
Order pronounced in the open court on 16th July, 2025.