The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has upheld an addition of ₹19.50 lakh as unexplained cash credits, holding that recording receipts as land advances in audited accounts did not, by itself, establish the source of the money.
The bench of Manu Kumar Giri (Judicial Member) and Inturi Rama Rao (Accountant Member) found that records seized during a search, read with statements recorded by the tax department, linked the receipts to unaccounted cash introduced into the assessee company. The company had not produced the names and addresses of the persons who allegedly paid the advances, confirmations or agreements relating to the proposed land transactions.
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The Bench rejected the company’s claim that the addition should be adjusted against additional income considered in the settlement proceedings of another group entity. It held that the company had not established a factual connection between that income and the disputed cash receipts.
The assessee had filed its income tax return declaring a loss of ₹23,057. A search and seizure operation under Section 132 of the Income Tax Act was conducted on October 16, 2019, in the cases of the N.K.V. Krishna Group, including the assessee.
The original assessment under Section 153A read with Section 143(3) was completed on September 28, 2021, accepting the returned loss.
Subsequently, the Principal Commissioner of Income Tax passed a revision order under Section 263 on March 21, 2024. The Principal Commissioner directed the Assessing Officer to examine cash credits of ₹19.50 lakh appearing in seized records and consider the applicability of Sections 68 and 69A read with Section 115BBE of the Act.
During the search, the department seized Tally data maintained by the group’s accounts manager, Saravana Kumar. According to the order, the records contained details of cash introduced into various group entities under heads including land advances, share application money and unsecured loans.
The Tribunal noted that a bank ledger extracted from the seized data showed cash receipts totalling ₹19.50 lakh on March 29, 2016, described as “Land Advance Received”.
During the proceedings following the revision order, the company submitted that the amount represented land advances recorded in its books and disclosed in its audited financial statements.
It also argued that substantial additional income had been considered in group settlement proceedings before the Interim Board of Settlement. This included ₹13 crore in the case of Golden Shelters Pvt. Ltd., which, according to the assessee, was sufficient to cover the disputed addition.
The Assessing Officer treated the ₹19.50 lakh as unexplained cash credit under Section 68. The Commissioner of Income Tax (Appeals) upheld the addition, following which the company approached the Tribunal.
The assessee also challenged the validity of the original search assessment and the consequential proceedings arising from the Section 263 revision order.
The Tribunal considered the assessee’s argument that the assessment for the relevant year was unabated and that an addition could not be made in the absence of incriminating material found during the search.
The Bench referred to the principle laid down by the Supreme Court in PCIT v. Abhisar Buildwell Pvt. Ltd. and said the question was whether the addition in the present case was supported by such material.
The Tribunal examined the combined search warrant, which named 137 assessees, including the company, and the corresponding panchanama recording the seizure of material. It observed that the existence of a warrant and panchanama alone was insufficient: the contents of the seized records and their connection with the disputed addition also had to be examined.
On the facts, the Tribunal found that Annexure III prepared from the seized records identified the assessee and showed ₹19.50 lakh for financial year 2015–16. The corresponding Tally entries described the cash receipts as land advances.
The Bench said those records, read with statements attributed to the accounts manager and N.K.V. Krishna, indicated that the amounts represented unaccounted cash introduced into group companies. The company had not furnished evidence rebutting that material or establishing the source of the receipts.
The Tribunal therefore held that the addition was supported by material found during the search and was not liable to be deleted merely because the assessment year was unabated.
On the merits of the Section 68 addition, the Tribunal distinguished between recording a receipt in the accounts and explaining where the money came from.
The Bench noted that the company had not supplied the identities and addresses of the alleged payers, confirmations, agreements relating to the proposed land transactions, or other documentary evidence establishing the source of the cash.
The fact that the receipts were entered in the books and disclosed in audited financial statements did not, by itself, discharge the assessee’s burden under Section 68, the Tribunal held. It accordingly upheld the ₹19.50 lakh addition.
The Tribunal also rejected the alternative request to telescope, or adjust, the addition against income considered in the settlement proceedings of another group company.
It noted that the ₹13 crore referred to by the assessee arose in the context of a disallowance of 10% of unaccounted expenses aggregating to ₹126.96 crore in the case of Golden Shelters Pvt. Ltd. The assessee had not shown that the specific ₹19.50 lakh receipts were included in that amount or otherwise dealt with in the settlement order in a way that entitled it to relief.
The Bench observed that the Commissioner of Income Tax (Appeals), after examining the Interim Board of Settlement’s order dated December 30, 2023, had noted that relief of ₹22.52 crore had been considered in respect of cash relating to various entities and investments reflected in the relevant annexures.
The Tribunal held that additional income offered or assessed in the hands of another group entity does not automatically entitle an assessee to telescoping. A factual nexus must be established between the income already considered and the unexplained credit for which adjustment is sought.
The assessee relied on the coordinate Bench decision in Achuyta Plantations Pvt. Ltd. v. ACIT. The Tribunal said it could not conclusively determine from the material available whether the relevant search warrant, panchanama, sworn statement and annexures had been placed before the Bench in that earlier case.
It clarified that it was not assuming those documents were absent in Achuyta Plantations. In the present appeals, however, the Revenue had placed the material before the Bench, which found a direct connection between the seized records and the disputed addition.
The Tribunal also held that the assessee had not established a sustainable basis for annulling the consequential assessment, particularly when there was no material showing that the Section 263 revision order had been set aside or had otherwise ceased to operate.
The Tribunal dismissed the lead company’s appeal and applied its findings to the three other appeals concerning the same assessment year. All four appeals were dismissed.
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