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Facts
The assessee filed two appeals against the CIT(A) order confirming additions made for AY 2018-19 and 2019-20. The additions were based on a statement recorded u/s 132(4) concerning an alleged unexplained credit entry and excess cash found during a search.
Held
The Tribunal held that the addition of Rs. 17,80,650/- based solely on a statement recorded during search, which was later retracted and lacked corroborative evidence, could not be sustained. Similarly, excess cash offered as business income could not be taxed under Section 115BBE.
Key Issues
Whether additions made solely on the basis of a retracted statement during a search are sustainable? Whether excess cash offered as business income can be taxed under Section 115BBE?
Sections Cited
132(4), 68, 69B, 115BBE
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Before: Dr. Mitha Lal Meena, Hon’ble, & Dr. S. Seethalakshmi, Hon’ble
ORDER Dr. Mitha Lal Meena, A.M.:
These two appeals are filed by the assessee against the separate order of the Commissioner of Income Tax, Appeal Udaipur-2 [hereinafter referred to as “the CIT(A)”] even dated 24.02.2025 for the assessment year 2018-19 and 2019-20 challenging therein confirmation of the additions based on statement recorded u/s 132(4) of the Income Tax Act, 1961. The issues are based on similar facts and therefore, these appeals were heard together and disposed off by this consolidated order for convenience and brevity.
1. The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 17,80,650/- u/s 68 of IT Act on account of alleged unexplained credit entry in the name of Shri Kayum Khan by not appreciating that it is only a provisional accounting entry reversed on the same date and thus no sum is credited in the books of accounts.
The Ld. CIT(A) has erred on facts and in law in confirming the above addition only on the basis of the statement of assessee recorded u/s 132(4) of the Act by not appreciating the documentary evidences filed during the course of assessment proceedings which proves that no sum is found credited in the books of account. Grounds of Appeal The Ld. CIT(A) has erred on facts and in law in upholding the finding of AO that excess cash of Rs.3,73,417/- found in search offered for tax in the return of income is unexplained money u/s 69B of the Act taxable u/s 115BBE of the Act by not accepting the explanation of assessee that source of such cash is from the business operations carried out by him duly incorporated in the books of accounts and therefore it is not unexplained money u/s 69B of the Act so as to attract section 115BBE of the Act.
Facts as per record are that the Assessing Officer (in short ‘the AO’) at Pg 7-9 of the order observed that the assessee has made investment in renovation of the house during the year under consideration. It has shown creditor of Rs.17,80,650/- in the name of Sh. Kayum Khan on 31.03.2018. In statement recorded in search, assessee in reply to Q. No.29 stated that no written agreement was made with Sh. Kayum Khan and he is not aware about his address. In reply to Q. No.24 assessee offered Rs.17,80,650/- as his undisclosed income and not objected to the same during post search investigation. However, in course of assessment proceedings, the assessee not finally allotted to Sh. Kayum Khan, reverse entry was passed in the books of accounts. The AO, however, held that during course of search assessee offered undisclosed income, the reverse entry passed in the books of accounts is afterthought. Accordingly, he made addition of Rs.17,80,650/- u/s 68 of the Act.
Having heard both the sides and perusal of the material on record, we find that the CIT (A) has confirmed the addition made on the basis of a statement recorded u/s 132(4) of the Act, during the search action by observing as under:
During the search the assessee accepted that he was not in the position to prove genuineness/address of creditor Kayum Khan and he had offered amount to Rs.17,80,650/- as his undisclosed income for the respective year i.e F.Y 2017-18. Even during the assessment proceedings the details with regard to contract/work given to Sh. Kayum Khan, his address and nature of transactions were not provided to the AO by the assessee. Hence, the credit entry remained unexplained even if the entry is reversed. Only because the entry is reversed, the credit entry cannot be treated as explained. Further, during the course of search proceedings, the Assessee had admitted vide reply to Q.No.24 that he was not in the position to prove genuineness/address of creditor Kayum Khan and he had offered amount of Rs.17,80,650/- as his undisclosed income for the respective year i.e F.Y 2017-18. The explanation furnished during the assessment proceedings is without any supporting evidence. These facts establish that the credit entry made in the books of accounts was not genuine. The surrender of income made by the assessee during search was voluntary as the assessee also made, surrender with regard to other issues also and has included such income in the return of income. Therefore, the surrender cannot be treated as made under coercion. However, the assessee has not included this income in the return of income without acceptable reason. In view of clear failure on the assessee to explain the true nature of transaction and providing complete details, addition made by the AO of Rs.17,80,650/- is justified and it is upheld.
From the record, it is evident that without considering the material placed on record, the Ld. CIT(A) has confirmed the above addition merely (Assessment Year 2018-19 & 2019-20) based on the statement of assessee recorded u/s 132(4) of the Act without appreciating the documentary evidences filed during the course of assessment proceedings in proof that no such sum is found credited in the books of account.
The limited issue arises in the present appeal for our consideration is that whether there was any transfer of money/ amount for execution of work in the books of the assessee.
It is seen that the assessee vide letter dt. 26.02.2021 (APB, Pg. 26) to the AO has explained that the accountant of the firm on the basis of quotation has debited the account of building construction and credited the account of Kayum Khan on 31.03.2018 but as the work was not allotted to him, reverse entry was passed. The AR argued that this fact was also explained to CIT(A) (APB, Pgs. 8-11). The explanation of assessee is not controverted by either of the lower authorities by bringing on record any evidence that any work was carried out by Kayum Khan. The assessee in his statement in reply to Q. No.29 (copy enclosed) when questioned about this entry recorded in the books of accounts stated that construction of the house was carried out by Kayum Khan contractor as per the oral agreement and since he was not having his address, for the time being he is not in a position to prove this liability and therefore, Before the lower authorities, it was specifically pointed out that no construction or renovation was carried out on the residential house in the last 10 years and this fact was also not disproved by them. In our view, merely based on the statement, addition cannot be sustained.
In case of Pullangode Rubber Produce Company Ltd. Vs. State of Kerala and Another (1973) 91 ITR 0018 (SC), the Hon’ble Apex Court has observed that Admission is an extremely important piece of evidence, but it can't be said that it is conclusive. It is open to the assessee who made admission to show that it is incorrect, and the assessee should be given proper opportunity to show the correct state of affairs.
The Hon’ble Kolkata High Court in the case of PCIT vs. Golden Goenka Fincorp Ltd. (2023) 292 Taxman 159 (Calcutta) (HC) has observed that Where AO solely based on statement of assessee's director recorded during search operation treated share application money received by assessee company as undisclosed income and made addition u/s 68, since said statement was retracted during search operation and there was no cash trail or any other corroborative evidence or investigation brought on record by AO, impugned additions were to be deleted. recorded during search operation and retracted after search and that neither of the lower authorities have brought on record, any other corroborative evidence by way of enquiries/investigation.
Accordingly, we hold that the impugned additions Rs.17,80,650/- is not justified and hence, same is as such deleted.
Since, the 1st ground of appeal of the assesee is allowed and hence the 2nd ground regarding chargeability at higher tax rate u/s 115BBE is rendered infructous.
Grounds of Appeal ITA NO. 647/JPR/2025
13. The assessee challenged the Ld. CIT(A) decision in upholding the finding of AO that excess cash of Rs.3,73,417/- found in search offered for tax in the return of income was unexplained money u/s 69B of the Act, taxable u/s 115BBE of the Act by not accepting the explanation of assessee that source of such cash is from the business operations carried out by him, duly incorporated in the books of accounts and therefore it is not unexplained money u/s 69B of the Act so as to attract section 115BBE of the Act.
13.1 From perusal of impugned order and record we find that the Ld. CIT(A) while upholding the liveability of tax on excess cash u/s 115BBE of the Act activity either during the search proceeding or during the assessment proceedings and that because assessee is engaged in some business activity, all unaccounted asset found during search cannot be considered as earned from business activity.
13.2 The Ld. AR Argued that the assessee has offered for tax the excess stock and excess cash by crediting the capital account and debiting the stock & cash account in its books of accounts (APB, Pgs. 17-19). It is noted that the same was separately disclosed in computing the income from business and thereafter return was filed declaring gross total income of Rs.27,25,629/- which has been accepted by the AO at Pg 9 of the assessment order. In our view, when AO itself has accepted the excess stock and excess cash declared by the assessee as business income, section 115BBE cannot be invoked.
13.3 It is noted that even the Ld. CIT(A) at Pg 7 & 8, Para 4.3 of the impugned order while dealing with the excess stock of Rs.6,62,508/- offered for tax as business income has held that surrendered made on account of excess stock has to be brought to tax under the head business income by replying on the decision of Hon'ble Rajasthan High Court in case of PCIT Vs. Bajrangan Traders. Meaning thereby that section 115BBE would not be applicable in the given set tax as business income cannot be brought under the ambit of section 115BBE of the Act.
We, therefore, direct the AO to tax the excess cash declared by the assessee as business income, under the normal provisions of the Act.
In the result both these appeals of the assessee are allowed.
Order pronounced on 11/09/2025 under Rule 34(4) of Income Tax (Appellate Tribunal) Rules, 1963.