Delhi ITAT: Entries in a Manual Cash Book for Cash Withdrawals are Not Sufficient for Tax Additions

The Delhi Bench of Income Tax Appellate Tribunal ruled that the manual cash book that comprises entries pertinent to the cash withdrawals and expenses of the company, which were duly recorded and reconciled with its books of account, including with the cash introduced, withdrawn, and expenses on behalf of the taxpayer.

The bench of Anubhav Sharma (Judicial Member) and M. Balaganesh (Accountant Member) has learned that to offset the negative cash balance contemplated in the manual cash book qua the transactions of the petitioner, the petitioner disclosed Rs. 50 lacs in the Income Declaration Scheme, 2016 (IDS). Consequently, any addition could not be incurred in the hands of the appellant, as the appellant shall be entitled to telescoping advantages.

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On May 29, 2018, an investigation was performed including an investigation of M/s. Lion Manpower Solutions Pvt. Limited, of which the appellant was the director, and admittedly no incriminating material was encountered on the search premises of the appellant.

The alleged incriminating material based on which an addition was incurred in the impugned assessment order was discovered on the search premises of Lion Manpower.

The original income return for AYs 2015–16 and 2016–17 was filed dated September 30, 2015, and September 30, 2016, respectively, and was processed u/s 143(1), and the time limitation to issue notice under section 143(2) had lapsed. Before the search operation u/s 132 on May 29, 2018, the assessment was concluded.

Under Section 153A the assessment proceedings concerning the investigation were started for both the AYs, which were finished post additions u/s 69C based on a manual cash book alleged to include cash expenses from unexplained references seen on the premises of Lion Manpower.

On appeal, the CIT(A), authorized partial relief to the appellant and changed the order of the assessing officer by partially supporting the additions and regarding them as the benefit or perquisite received via the director from the company.

The taxpayer argued that CIT(A) had made a mistake in making an artificial distinction between the above-said proposition on the basis that even though the incriminating material was not revealed on the taxpayer’s premises, it was revealed on the premises of the pertinent premises of the group.

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It furnished that no concept of joint assessment of pertinent entities making a part of a common investigation is there. Each person’s assessment originating from a common search, related or unrelated, needs to be independently completed under the provisions of the Act.

The department ruled that no proof was there to attain that the office premises of the company and the office of the director were separate.

The tribunal ruled that the manual cash book comprises entries concerning the cash withdrawals and expenses of the company, which were duly recorded and reconciled with its books of account, and cash introduced, withdrawn, and expenses on behalf of the appellant.

Once CIT(A) has endorsed the AO’s findings that, established in this manual cash book of the company, there is no substantive addition needed to be incurred in the hands of the company, and as the cash inwards and outwards are discovered to be from learned sources and existing books, which have been deemed final in the companies assessment, the identical set of books of the company, along with the manual cash book encountered at the companies premises cannot regard to be incriminating material for Under Section 153A to make addition in the hands of the taxpayer as a searched person since the two AYs are of concluded assessments.