M/S SKI HIMALAYAS ROPEWAYS PVT. LTD.,PAONTA SAHIB vs. ACIT, CIRCLE , PARWANOO

This is an appeal filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals), Shimla, [in short the ‘Ld.CIT(A)’] dated 31.10.2019 pertaining to assessment year 2017-18, passed u/s 250(6) of the Income Tax Act, 1961 (in short ‘the Act’), wherein the assessee has challenged sustenance of addition of Rs.15,89,438/- u/s 69A of the Act.

Briefly, the facts of the case are that the assessee company is engaged in running of Passenger Ropeway Project at Solang in District Kullu. The assessee company filed its return of income declaring total income of Rs. 1,72,35,780/- after claiming deduction u/s 80IC of the Act, amounting to Rs.31,31,861/-. The return was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued and after considering the submissions filed by the assessee, an addition of Rs.15,89,438/- was made u/s 69A of the Act and the assessed income was determined at Rs.1,88,25,218/-.

On appeal, the addition so made by the AO has been confirmed by the Ld.CIT(A) and against the said findings of the Ld.CIT(A), the assessee is in appeal before us.

During the course of hearing, the Ld. AR taken through the assessment order and submitted that in this case, Sundernagar police intercepted a vehicle on 09.11.2016 and cash of Rs.76 lacs was found in the possession of driver Shri Avdesh Kumar and co-passenger Shri Jagmohan. The said cash was requisitioned and seized u/s 132A of the Act by the Income tax Department on 17.11.2016. It was submitted that the statement of these persons were thereafter recorded and they claimed that the cash belonged to Shri Amitabh Sharma, Director of M/s SKI Himalayas Ropeways Pvt. Ltd. and thereafter the statement of Shri Amitabh Sharma was recorded u/s 131(1A) of the Act, wherein he admitted that the cash belonged to the assessee company i.e. M/s SKI Himalayas Ropeways Pvt. Ltd. Thereafter during the post-requisition proceedings the assessee submitted that a sum of Rs.13,50,000/- pertains to cash received on sale of disposable material and a sum of Rs.43,75,000/- pertains to cash received from reference from hotels and various activities in Solang Valley and the remaining sum of Rs.18,75,000/- pertains to cash in hand and in support, copy of Daily Sale Book, Register for income from reference from hotels, income from reference from fun games and reference income from paragliding and cash receipt of disposable sale were submitted before the Investigation Wing. The submissions and documents so filed were summarily rejected by the Investigation Wing. The report of the Investigation Wing, contents of which find mention in the assessment order, were thereafter forwarded to the AO to make the addition of the entire amount of cash requisitioned of Rs.76 lacs u/s 69A of the Act after conducting independent enquiries.

It was further submitted by the ld AR that during the course of assessment proceedings, a show cause notice was issued to the assessee regarding the seized cash of Rs 76 lacs and in response, the assessee submitted that it had shown an amount of Rs.57,25,000/- as part of its non- operational income over and above the ropeway receipts and the balance amount of Rs.18,75,000/- was submitted as genuine receipts from sale of tickets. It was submitted by the Ld. AR that the AO partly accepted assessee’s submissions regarding the sum of Rs.57,25,000/- and no adverse inference was drawn. However, in respect of sum of Rs.18,75,000/-, the submissions of the assessee were not accepted. The reasoning adopted by the AO was that the basis findings of the Investigation Wing, the documents produced by the assessee regarding receipts from sale of tickets, were not reliable. The AO further held that keeping such huge cash is not normal in the case where the assessee is regularly maintaining bank accounts and bank was locally available. Considering the fact that the bank was closed on 09.11.2016, benefit of average receipt of ropeway from 1 st November 2016 to 15th November 2016 amounting to Rs.2,85,562/- was given to the assessee and the balance cash was treated as un-explained money amounting to Rs.15,89,438/- u/s 69A of the Act.

It was submitted by the Ld. AR that as can be seen from the assessment order and findings of the AO, the AO has not conducted any independent enquiries and solely basis the findings of the Investigation Wing, the addition had been confirmed by the AO. It was submitted that during the course of assessment proceedings, the assessee submitted copy of its cash book, bank books as well as bank statement as well as complete books of account and there is no adverse findings recorded by the AO regarding non- reporting of its cash receipts from sale of the tickets. It was accordingly, submitted that when the assessee’s cash book and its books of accounts were not rejected, there is no basis for making the addition u/s 69A of the Act. Drawing our reference to the findings of the Investigation Wing, the Ld. AR further submitted that the Investigation Wing in its report has stated that the ticket register produced by the assessee is manipulated and fictitious and fresh entries have been made to inflate sale proceeds of the ropeway business. In this regard, it was submitted by the Ld. AR that such a finding is not supported by any corroborative evidence on record and not a single entry has been pointed out either by the Investigation Wing or by the AO which supports such a finding so recorded by the Investigation Wing and which has been summarily accepted by the AO. It was accordingly, submitted that there is no basis for making the addition where all the receipts from sale of tickets have been duly accounted for in the books of account of the assessee.

Further our reference was drawn to the findings of the Ld.CIT(A) where he has stated that given that the assessee had offered Rs.57,25,000/- as ‘income from other sources’, no distinction can be made between the receipt offered for taxation and not offered for taxation out of the seized cash and no basis, whatsoever, is available for making only partial disclosure out of the total cash seized. It was submitted that the said findings of the CIT(A) cannot be accepted for the fact that the amount which has been offered by the assessee of Rs.57,25,000/- as ‘income from non-operational receipts’, the same have also been accounted for in the books of account and basis thereof, the assessee has submitted that the said receipts cannot again be brought to tax in its hands and no adverse inference has accordingly been drawn by the AO. It was submitted that on similar footing, the cash of Rs.18,75,000/- was from its operational receipts from sale of tickets and which has also been accounted for in its books of account and the AO should have accepted the assessee’s contention and which has not been accepted for the reasons best known to the assessee and has even not been appropriately appreciated by the ld CIT(A). It was accordingly, submitted that the addition so made and confirmed by the Ld.CIT(A) be directed to be deleted.

Per contra, the Ld. DR relied upon the findings of the lower authorities and our reference was drawn to the findings of the Ld.CIT(A) which are contained at para 5.1 of his order which read as under:

We have heard the rival contentions and purused the material available on record. The limited issue under consideration relates to taxability of Rs 15,89,438/- out of cash of Rs 76,00,000/- which was found in possession of two persons on 9.11.2016 by the Sundernagar police and subsequently requisitioned and seized by the Income tax Department u/s 132A on 17.11.2016. The Assessing officer has invoked the provisions of section 69A while bringing to tax the said sum of Rs 15,89,438/- in the hands of the assessee company and it would therefore be useful to refer to the provisions of section 69A of the Act which read as under:

The second condition for invoking provisions of section 69A is that cash so found is not recorded in the books of accounts, if any so maintained by the assessee for any source of income and the assessee offers no explanation about the nature and source of acquisition of the money, or the explanation offered by it is not satisfactory in the opinion of the Assessing Officer. In the instant case, the assessee is in the business of running of passenger ropeway project at Solang in district Kullu and has maintained its books of accounts and has reported cash in hand of Rs 81.64 lacs on 8.11.2016 in its books of accounts, a day prior to the date when the vehicle was intercepted and cash amounting to Rs 76 lacs was found and seized belonging to the assessee company. It has been contended by the assessee company that the said cash in hand of Rs 81.64 lacs includes cash of Rs 76 lacs which has been found and seized which comprises of a sum of Rs.13,50,000/- pertaining to cash received on sale of disposable material, a sum of Rs.43,75,000/- pertaining to cash received from reference from hotels and various activities in Solang Valley, and the remaining sum of Rs.18,75,000/- pertains to cash from sale of tickets. In other words, it has been contended by the assessee that all that cash which has been seized is duly recorded in its cash book which forms part of its books of accounts and nothing remaining unaccounted for in its books of accounts. The Assessing officer has partly accepted the assessee’s contention regarding sum of Rs 57,25,000/- and has not accepted the assessee’s contention regarding sum of Rs 18,75,000/- except for allowing credit for a sum of Rs 2,85,562/-.

While accepting assessee’s contention regarding sum of Rs 57,25,000/-, the Assessing officer has stated that since the assessee has offered this amount as part of its non- operational income, no adverse inference is drawn. From perusal of submissions filed by the assessee before the Assessing officer placed at APB Pages 5-6, it is noted that the assessee has reported a sum of Rs 57,25,000/- as part of its non-operational income in its balance sheet and has produced cash receipts and registers accounting for such non-operational receipts having entries prior to 8.11.2016 which forms part of its books of accounts even before the Investigation Wing. Therefore, it can be seen that cash so found and seized amounting to Rs 57,25,000/- has been duly recorded in its books of accounts in its cash book on one hand and following the double entry system of accounting, has been credited to non-operational revenues and has been offered to tax and basis thereof, no adverse inference has been drawn by the Assessing officer. In other words, the explanation of the assessee company that cash so found and seized amounting to Rs 57,25,000/- forms part of cash in hand as on 8.11.2016 amounting to Rs 84.16 lacs has not been disputed rather the same has been accepted by the Assessing officer.

On parity of reasoning, where a substantial part of the cash seized of Rs 57,25,000/- representing non-operational receipts has been accepted as cash in hand prior to date of seizure, when it comes to remaining cash of Rs 18,75,000/- representing operational receipts, reasoning adopted by the Assessing officer that keeping such huge cash of Rs 18,75,000/- is not normal where the bank is locally available cannot be accepted.

Further, the Assessing officer has stated that documents produced by the assessee regarding receipts from sale of tickets cannot be accepted and has referred to and relied upon the report of the Investigation wing for reaching such a conclusive finding. Where we look at the report of the Investigation Wing, it states that the ticket register produced by the assessee is manipulated and fictitious and fresh entries have been made to inflate the sale proceeds of the ropeway, though without highlighting which all entries falls under such category and basis of arriving at such a conclusion, and at the same time, it has asked the Assessing officer to conduct independent enquiries. During the course of assessment proceedings, the assessee has produced its books of accounts before the Assessing officer for necessary verification as evident from submissions of the assessee dated 27.11.2018 placed at APB page 10 and we find that there is no finding recorded by the Assessing officer regarding any fictitious sale entries recorded by the assessee in its books of accounts. Therefore, the findings recorded by the Assessing officer that documents so produced in support of sale receipts from tickets sales are not reliable cannot be accepted in absence of any findings recorded either by the Investigation wing or any independent findings recorded by the Assessing officer himself. In light of the same, we are of the considered view that the onus which has been cast on the Assessing officer to record a categorical finding that the cash so found has not be recorded in the assessee’s books of accounts has not been satisfied in the instant case and therefore, the second condition for invoking the provisions of section 69A cannot be held to be fulfilled in the instant case.

Further, we find that the Assessing officer, considering the fact that the bank was closed on 09.11.2016, had given benefit of average receipt of ropeway from 1 st November 2016 to 15 th November 2016 amounting to Rs.2,85,562/- to the assessee company without appreciating the fact that Sundernagar police intercepted the vehicle carrying the cash on 09.11.2016 and the said cash was requisitioned and seized u/s 132A of the Act by the Income tax Department subsequently on 17.11.2016. Therefore, the position of average receipt of ropeway prior to 8.11.2016 has to be seen and not subsequent to 8.11.2016. In any case, there is no reasonable and justifiable basis for restricting the credit for just one day merely on the basis of finding that there are regular cash deposits in the bank account from 1.11.2016 to 8.11.2016 more so in light of the fact that the assessee has shown cash in hand of Rs 81.64 lacs as on 8.11.2016 in its books of accounts and which are represented by corresponding revenues which have been accepted and brought to tax and even deduction u/s 80IC has been allowed by the Assessing officer.

In light of aforesaid discussions and in the entirety of facts and circumstances of the case, the addition of Rs 15,89,438/- so made by the Assessing officer invoking provisions of section 69A and confirmed by the ld CIT(A) is hereby set-aside and directed to be deleted.

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