2018 (1) TMI 190 - AT - Income Tax

Undisclosed income in form of cash found during the course of search - retraction of the statement recorded u/s 132(4) - Held that - In light of legal proposition laid down Ravi Mathur & others 2016 (5) TMI 1304 - RAJASTHAN HIGH COURT there is clearly an inordinate delay in retraction and no justifiable explanation has been given by the assessee company for such delay. It is clearly an afterthought and loses its signifance. The statement recorded u/s 132(4) has great evidentiary value and there is no material which has been brought on record that such statement has been recorded and obtained forcefully/by coercion/undue influence. Further, the assessee has been consistent in his statements so recorded even during the post search proceedings when his statement was recorded under section 131. Hence, in light of above discussions, the retraction of the statement recorded u/s 132(4) cannot be accepted in the instant case. Thus the addition towards the undisclosed income in form of cash found during the course of search is confirmed in the hands of the assessee company. - Decided against assessee. Disallowance u/s 40A(3) - Held that - Where the amount has been offered to tax in the subsequent year, the same amount cannot be brought to tax in the impunged assessment year. Hence, the addition is deleted and ground of appeal is allowed in favour of the assessee. Addition u/s 40A(3) - Held that - The fact that the payments have been made for the purposes of the assessee s business have not been doubted by the AO. Regarding the business exigency of making payment in cash, it has been stated that first payment has been made after the banking hours for making labour payment, the second payment was necessitated on account of machine break down at site. Regarding the third payment, it has been stated that the said was paid to two labourers and payment to each is less than ₹ 20,000 and in this regard, we find that the ld CIT(A) has in similar circumstances allowed the payment in cash to the labourers not exceeding ₹ 20,000. In the entirety of facts and circumstances of the case, the disallowance made by the AO amounting to ₹ 82,200 is hereby deleted. In the result, ground of appeal is allowed.

Summary

Issues Involved:
1. Addition of ?1,21,43,210/- as unexplained income.
2. Addition of ?29,860/- as undisclosed income.
3. Disallowance of ?82,200/- under section 40A(3).

Issue-wise Detailed Analysis:

1. Addition of ?1,21,43,210/- as Unexplained Income:
The primary issue revolved around the addition of ?1,21,43,210/- found in cash during a search at the residence of Shri Bannalal Jat. The assessee argued that the cash belonged to Bannalal Jat in his individual capacity, verifiable from his bank withdrawals. However, the AO rejected this claim, citing several reasons:
- Incomplete and unverified books of accounts.
- Admission by Shri Bannalal Jat during search proceedings under section 132(4) that the cash was undisclosed income of the assessee company.
- Subsequent retraction without evidence was not permissible.

The CIT(A) upheld the AO's decision, emphasizing the sanctity of admissions made during search proceedings and the lack of concrete evidence to support the retraction. The Tribunal also concurred, noting:
- The consistent admission by Shri Bannalal Jat in multiple statements under section 132(4) and 131.
- The absence of any retraction or complaint during the 11 months between the search and the filing of the return.
- The presumption under section 292C that the cash found belonged to the person from whom it was seized unless proven otherwise.

The Tribunal confirmed the addition, citing the great evidentiary value of statements recorded under section 132(4) and the lack of timely and credible retraction.

2. Addition of ?29,860/- as Undisclosed Income:
The AO observed a discrepancy of ?29,860/- in the account statement of the assessee with M/s Nahar Filling Station. The assessee claimed this difference was adjusted in the subsequent year. The CIT(A) confirmed the addition, stating the adjustment in the subsequent year was irrelevant for the current assessment.

The Tribunal, however, accepted the assessee's explanation, noting that the amount was indeed offered for tax in the subsequent year. Citing the principle that the same income cannot be taxed twice, the Tribunal deleted the addition.

3. Disallowance of ?82,200/- under Section 40A(3):
The AO disallowed ?82,200/- based on cash payments exceeding ?20,000/-. The CIT(A) restricted the disallowance to three specific payments totaling ?82,200/-.

The Tribunal reviewed the circumstances of these payments:
- ?25,000/- paid after banking hours for urgent labor payment.
- ?28,000/- paid for machine repair due to breakdown at the site.
- ?29,200/- paid to two laborers, with individual payments below ?20,000/-.

Considering the business exigency and the nature of the payments, the Tribunal deleted the disallowance, noting that the payments were genuine and necessitated by business needs.

Conclusion:
The Tribunal partly allowed the appeal, confirming the addition of ?1,21,43,210/- as unexplained income but deleting the additions of ?29,860/- and ?82,200/-. The judgment underscored the importance of timely retraction of statements and the need for concrete evidence to support claims of retraction or business exigency in cash transactions.