SHAILENDRA RAMESHCHANDRA RATHI,PUNE vs. ACIT CIRCLE-6(1), MUMBAI, NARIMAN POINT

The assessee, being aggrieved by the partial confirmation, has come up in appeal before us, challenging the findings of the learned CIT(A) on the following grounds: (i) That the learned CIT(A) erred in confirming the addition of ₹11,14,117/– under section 69A of the Act out of ₹15,01,150/– being cash on hand found during the search; (ii) That the learned CIT(A) erred in refusing to grant credit of the cash balances of the assessee’s family members residing with him merely because his father and wife were not filing their returns of income; and (iii) That the appellant craves leave to add, alter or amend any of the grounds of appeal.

1. 3. Both these grounds arise from a common issue namely, the addition made under section 69A for the alleged unexplained cash and are therefore being adjudicated together for the sake of convenience.

The relevant facts, as briefly recounted, are that the assessee is an individual engaged in consultancy business and deriving income from house property and other sources. He filed his return of income for the relevant year on Shailendra Rameshchandra Rathi 31.07.2022 declaring total income of ₹31,75,280/–. On 23.09.2021, a search and seizure action under section 132 of the Income Tax Act, 1961 was conducted in the “Middleman / Businessmen Group” of cases, and the assessee’s premises were also covered. Consequent thereto, the case was centralised and selected for compulsory scrutiny after obtaining prior approval from the Principal Commissioner of Income Tax (Central)–3, Mumbai. Statutory notices under sections 143(2) and 142(1) were duly issued and complied with.

During the course of search, cash aggregating to ₹15,01,150/– was found from locker No. 6114 maintained with Axis Bank, Kothrud Branch, Pune, of which ₹10,00,000/– was seized. When called upon to explain the source, the assessee submitted that the cash represented the cumulative household savings and cash balances available with himself and his family members, including his wife, his father, his mother, his sister-in-law, and also the partnership firm M/s Allegiance Developers LLP. The assessee further explained that a small portion of the cash was out of customary gifts received by him and his family members over several years from friends and relatives on various family and religious occasions.

The assessee carried the matter in appeal before the learned CIT(A). Before him, the assessee reiterated his explanation and submitted a detailed reconciliation statement along with the cash books and returns of the family members. The chart furnished before the learned CIT(A) which is an integral part of the record demonstrated that the total cash available with the family members tallied with the amount found at the time of search. For ready reference, the chart as reproduced in the impugned order shall be incorporated below at the appropriate stage:

After considering the submissions, the learned CIT(A) accepted part of the explanation to the extent of ₹3,85,500/– being the cash belonging to Smt. Geetadevi Rathi (mother – ₹1,00,000/–), Smt. Jayshri Rathi (sister-in-law – ₹2,50,000/–) and M/s Allegiance Developers LLP (₹35,500/–). However, he declined to accept the explanation regarding cash balances belonging to the assessee’s father, Shri Rameshchandra Rathi (₹4,00,000/–) and his wife, Smt. Gunjan Rathi (₹3,67,589/–) on the sole ground that they were not filing returns of Shailendra Rameshchandra Rathi income. The learned CIT(A) also remained silent on the assessee’s submission that ₹3,46,528/– represented small gifts accumulated over time. Thus, the addition of ₹11,14,117/– came to be sustained.

Before us, the learned Authorised Representative of the assessee assailed the order of the learned CIT(A) as being factually erroneous and legally untenable. It was pointed out that both the father and the wife of the assessee were indeed filing their returns of income and that copies of such returns for A.Ys. 2021–22 and 2022–23, along with their balance sheets, cash books, and computations of income, had been produced before both the authorities. These clearly reflected the cash balances that were now being disbelieved. It was further contended that all the family members reside together in a common household, and that merely because the cash was found in one locker cannot lead to the inference that the entire amount belonged exclusively to the assessee. If any doubt persisted, the AO could have independently verified the explanation by summoning the father and wife, which was not done. Thus, the explanation remained unrebutted.

The learned Departmental Representative, on the other hand, relied on the orders of the lower authorities and submitted that the cash was found in the locker maintained in the name of the assessee and, therefore, the onus was on him to prove the source to the satisfaction of the AO, which according to him was not discharged.

We have carefully considered the rival submissions and perused the record. On a close scrutiny of the documents placed before us, we find that the learned CIT(A)’s conclusion that the father and wife of the assessee were not income-tax filers is factually incorrect. The paper book contains copies of their income-tax returns for A.Ys. 2021–22 and 2022–23 along with balance sheets, profit and loss accounts, and cash books reflecting cash in hand of ₹4,77,601/– in the case of the father and ₹3,67,589/– in the case of the wife as on the date of search. These figures correspond precisely to those mentioned by the assessee in his explanation before the lower authorities. It is, therefore, beyond doubt that the explanation was fully supported by contemporaneous records, and the denial of credit for such cash was based on a factual misconception.

The concept of “unexplained money” under section 69A presupposes an ownership and possession of the asset coupled with a failure to satisfactorily explain its source. Here, the possession was joint and the explanation was detailed, documented and consistent with human probability. In the absence of any cogent rebuttal by the Department, the burden stands discharged. We, therefore, direct deletion of the addition of ₹4,00,000/– representing the cash of the assessee’s father and ₹3,67,589/– representing the cash of his wife.

Coming to the balance amount of ₹3,46,528/– which was claimed to be out of accumulated gifts received over the Shailendra Rameshchandra Rathi years from friends and relatives, we find that both the authorities below have not recorded any adverse finding nor even adverted to this explanation. The assessee had stated that the gifts were small, customary and spread over time, a claim that accords with ordinary Indian family practice. In the absence of any material disproving it, and there being no dissatisfaction recorded as mandated by law, the addition on this count cannot survive. The discretion under section 69A has to be exercised judiciously, and such explanation, being natural and reasonable, ought to have been accepted.

Considering the totality of the circumstances, the nature of evidence adduced, and the absence of any contrary material, we find that the learned CIT(A) erred in sustaining the addition of ₹11,14,117/–. Each component of the sustained addition has been satisfactorily explained and supported by documentary evidence. Consequently, the entire addition sustained by the learned CIT(A) is hereby directed to be deleted in toto.

In the result, the appeal of the assessee is allowed.