2025 (7) TMI 1679 - AT - Income Tax

Addition on the basis of the seized documents as search - unaccounted income - assessee failed to provide credible evidence to explain the nature and source of unexplained income - appellant s contention that interest paid is a revenue expenditure and therefore it should have been allowed which is sourced out of receipts offered as additional business income in a normal state of affairs HELD THAT - As director of assessee company accepted that all the transactions are unexplained business receipts and he had shown the notional interests in these details thus the interest paid/payable needed to be ignored. Therefore addition to the extent of Rs. 1, 18, 00, 755/- made by the Ld. AO being unsustainable was rightly deleted. Therefore the grounds of appeal raised by revenue are dismissed.

Summary

ISSUES:

Whether unexplained cash receipts not recorded in the books of accounts can be added to the income of the assessee under Section 69A of the Income Tax Act, 1961.Whether interest payments reflected in seized documents can be treated as unaccounted income or allowable expenditure for the purpose of assessment.Whether the assessee's explanation and evidence regarding the source of certain cash receipts are credible and sufficient to exclude such amounts from addition.

RULINGS / HOLDINGS:

The addition of Rs. 1,86,13,356/- as unexplained cash receipts under Section 69A of the Act was upheld because the assessee "could not prove the source of the money" and the claims were "untenable and self-serving" in light of corroborative evidence.The interest payment of Rs. 1,18,00,755/- recorded in the seized excel sheets was correctly deleted from the addition since "interest payment is an expenditure, it cannot form part of unaccounted income," and the interest was "notional" and not actually incurred by the assessee.The assessee's surrender of Rs. 18 crores as additional income from sale of flats was accepted, and no separate addition was made for that amount as it was offered to tax and supported by evidence.

RATIONALE:

The Court applied the provisions of Section 69A of the Income Tax Act, 1961, which mandates addition of unexplained cash credits to the income of the assessee if the source is not satisfactorily explained.The Court relied on the corroborative statements of key persons and the genuineness of seized electronic records, including excel sheets and Google Drive contents, to establish the existence of unaccounted cash receipts.It was emphasized that interest payments recorded in the seized documents were "notional" and notional interest cannot be allowed as expenditure or treated as income, consistent with the principle that only actual expenditure can be deducted.The Court rejected partial acceptance of statements, holding that the director's admission that transactions were unexplained business receipts and interest was notional required ignoring the interest payment for assessment purposes.