By TIOL News Service

NEW DELHI, DEC 23, 2015: THE issue is - Whether when assessee fails to explain use of cash disclosed for intervening period, such assessee is to be denied benefit of surrender made during search. YES is the answer.

Facts of the case

The assessee company is engaged in the business of trading of computer hardware/software and other information technology related items. For the AY 2009-10, the assessee company filed its return of income on 29.09.2009 declaring a total income of Rs. 37,95,500/-. The case was taken under scrutiny by issuing notice u/s 143(2). In a search operation conducted in the case of Sh. Vishan Singh and Mukesh Kumar Jadon at New Delhi Railway Station u/ 132, an amount of Rs. 45,00,000/- was found and seized. In the statement recorded by AO, admitted that he had also carried Rs. 25,00,000/- by Purshotam Express and delivered to Bhubaneshwar Officer on 07.08.2008. He further admitted that he had visited Chennai by Tamilnadu Express on 06.06.2008 to deliver cash of Rs. 8,00,000/- to driver Ravi Shankar of M/s SAP Chennai. Thereafter, vide letter dated 23.12.2010 the assessee was asked to explain as to why the amount of Rs. 78,00,000/- should not be treated as its unexplained cash and added to the income from undisclosed sources. The assessee company replied that the cash amounting to Rs. 8,00,000/- transferred to Chennai, Rs. 25,00,000/- transferred to Bhubaneshwar and Rs. 45,00,000/- seized by the I.T. Department was from the cash generated from the surrendered amount of Rs. 247.19 lakhs and hence the same cannot be treated as our income as it would taxing twice on same income. Out of the above amount AO allowed set off of Rs 8,00,000/- being cash Amount received on that date from Mr. Sandeep Gupta. However AO did not allow any set off for further Rs 70,00,000/- for the reason that amount of Rs 25,00,000/- transferred to Bhuveneshwar on 5.8.2008 and Rs 45,00,000/- on 22.8.2008 as there is no immediate sources of funds available on the dates before the dates of cash found / transferred. AO also did not accepted the arguments of the assessee that sources of these amounts of Rs 70,00,000/- is disclosure made by the assessee because AO was of the view that nobody would keep such a heavy cash with him idle for such a long time. Therefore AO, having found unsatisfactory the reply of the assessee, made addition of Rs. 70,00,000/- as undisclosed income vide order dated 31.12.2010. Being aggrieved by this assessment order, an appeal was preferred before CIT(A), who had dismissed the appeal. CIT(A) also held that assessee had not been able to explain the utilization of these cash during intervening period of surrender and amount utilized for the period of sixteen months i.e. date of disclosure and the dates of utilization shown by the assessee. Therefore CIT (A) also did not grant the benefit of the disclosure made by the assessee and confirmed the addition of Rs 70,00,000/- as undisclosed income of the assessee.

Having heard the matter, the Tribunal held that,

++ the only reason why the assessee is not granted benefit of the surrender made by the assessee is that assessee has failed to explain the use of the cash for the intervening period. Both the lower authorities further swayed by the reason that no prudent businessman will keep the cash idle for such a long time. In this case assessee has prepared a cash flow statement from the books of accounts of the assessee and shown that sources of the amount of Rs 25,00,000/- taken to Bhuveneshwar on 5.8.2008 and Rs 45,00,000/- cash seized on 22.8.208 are out of the amount available with the assessee on account of surrender made. As per the detailed breakup of the entries passed by the assessee on account of surrender shows that an amount of Rs 45,00,000/- Seized by Income tax department and Rs 25,00,000/- being cash sent to Bhuvenshwar shown as 'cash to BBS' as per page no 6 of the paper book. As per page 2 of the paper book, Cash flow statement shows that as on 6.8.2008 assessee was having the cash balance of Rs 1,50,85,236/- and out of which on 31.7.2008 an amount of Rs 6,14,597/- was spent on Infoage, on 5.8.2008 Rs 25,00,000/- utilized for sending for cash to Bhuvneshwar and on 22.8.2008 cash was seized by Income tax department of Rs 45,00,000/-. As per that statement assessee still has the balance of Rs 74,70,639/- as at 22.8.2008 which is taken in to the books of accounts. This cash flow statement is not controverted by the AO as well as CIT(A) when it was specifically submitted that same is made based on the entries made in the cash book immediately after the surrender of Rs 2,47,85,236/-. It is surprising that AO wants to tax the surrender amount as well as its application which definitely amounts to double addition in the hands of the assessee specially when the amounts are recorded in the books of accounts and there is no evidence that same is not available with the assessee. Regarding the intervening time period it is apparent that when the books of accounts shows the entries recorded there in and AO makes an assessment without disputing it the cash flow statement made by assessee from the same material cannot be rejected merely on surmises that no prudent person will keep the money for such a long time of sixteen months;

++ there is no evidence with the AO that this money is used by the assessee for some other purposes which are not recorded in the books of accounts. In absence of such a finding it can be safely presumed that the cash was available with the assessee on which it has already paid the taxes at the time of surrender. Further as alleged the assessee is not engaged in the business of accommodating entries but has surrendered the amount on account of accommodation entries. Assessee is in the business of the trading of computers/ software and other It related items. Therefore we do not agree with the argument that as assessee is engaged in the business of accommodating entries cash cannot be available with the assessee but is used in that business of providing accommodating entries. We also do not subscribe to the argument that that assessee could not have kept the cash for sixteen months idle as prudent businessman and therefore benefit of telescoping cannot be given. Our attention is drawn to the decision of Punjab and Haryana HC in case of CIT V Shri Premchand , the credit for telescoping/ benefit of surrender is given even after 10 years in absence of any evidence that assessee had acquired any assets or had used it to meet some expenses. In another decision cited before us the intervening period of 21 months was noted and still allowed the benefit of telescoping or credit of surrender to the assessee in absence of any adverse evidence of user of that amount for acquiring some assets or user of the same for any purposes. In the case of the assessee also there is no such evidence available with the AO. Merely on the basis of time period in absence of any contrary material assets/ cash available with the assessee in its books cannot be disbelieved. Therefore respectfully following the decision of Honorable Punjab and Haryana High court in case of CIT V Premchand as well the decisions rendered by the coordinate bench cited before us, we reject the contention of the revenue that because of elapse of such a long time, credit of surrender made by assessee cannot be granted for the amount used by assessee out of that disclosure/surrender. Therefore we reveres the order of CIT (A) and delete the addition of Rs 70,00,000/-. In the result, appeal of the assessee is allowed.

(See 2015-TIOL-2114-ITAT-DEL)