Delhi High Court Cuts ₹80.42 Lakh Addition To ₹68.47 Lakh, Says Taxpayers' Claim Was Relied On Despite Rejection

The Delhi High Court has reduced the addition to the taxpayers' income from Rs.80.42 lakh to Rs.68.47 lakh in a cash seizure case, holding that the Assessing Officer could not rely on the assessee's claim of having “borrowed/collected” Rs.80.42 lakh from 17 persons after rejecting that very explanation, terming such an approach “perverse” in the absence of any independent material.

A Division Bench of Justices Dinesh Mehta and Vinod Kumar partly allowed an appeal under Section 260A of the Income Tax Act, 1961, reducing the addition to the amount of cash actually recovered.

The case arose from a cash seizure of Rs. 68.47 lakh by police in Uttar Pradesh in 2017 from four individuals, who stated that the money belonged to the appellant.

The Income Tax Department initiated proceedings, and the Assessing Officer treated Rs. 80.42 lakh as unexplained income, based on the appellant's own claim that he had collected that amount from multiple persons for a proposed property transaction.

The appellant contended that the funds were pooled from 17 individuals, including family members, and supported this claim with affidavits and bank statements. He also relied on a gold loan to substantiate the source of funds.

However, the Assessing Officer rejected the explanation, holding that the claim lacked credibility and that the assessee failed to discharge the initial burden of proof.

The addition of Rs. 80.42 lakh was upheld by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT).

The High Court agreed with the authorities that the appellant had failed to satisfactorily explain the source of funds. It noted inconsistencies in the affidavits, a mismatch between bank withdrawals and the claimed amounts, and the improbability of multiple persons withdrawing cash over extended periods for a single transaction.

However, the Court found fault with the quantum of addition made.

It observed that once the Assessing Officer had rejected the appellant's version of having collected ₹80.42 lakh, it was not open to him to simultaneously rely on that very figure to make an addition.

“The Assessing Officer did not accept the assessee's plea and rejected his claim of having borrowed or collected Rs.80,42,100/- from seventeen persons. We fail to understand that when the Assessing Officer himself had rejected the stand of the appellant about the borrowing/collection of Rs.80,42,100/-, how he could take this figure of Rs.80,42,100/- and make addition of this amount to the income of the appellant,” the Court said.

It held that when the Assessing Officer himself had not accepted the claim of the appellant having collected Rs.80,42,100/- from seventeen persons, it was not justified for him to make an addition of Rs.80,42,100/-.

“Once the plea or stand of the assessee was rejected, it has to be rejected whole hog. The Assessing Officer cannot reject one side of the story and accept the other, when there is no other incriminating material,” it said.

The fact that a sum of Rs.68,47,000/- was recovered, the Court said, the Assessing Officer should have made an addition of Rs.68,47,000/- in the hands of the assessee.

“The addition of Rs.80,42,100/- to the income of the appellant is in itself contrary to Assessing Officer's own rejection of the appellant's claim. Thus this addition of Rs.80,42,100/- instead of seized amount of Rs. 68,47,000/- suffers from perversity,” the Court added.

As such, the Court partly allowed the appeal, reducing the addition from ₹80.42 lakh to ₹68.47 lakh, and directed the Assessing Officer to give effect to the order in accordance with law.

For Appellant: Senior Counsel Sonia Mathur with Advocates Rajendra Sahu, Shubhi Bhardwaj, Sushil Kumar Dubey, Sadeena Khan and Manasi Sridhar

For Respondent: Senior Standing Counsel Shlok Chandra with Junior Standing Counsels Naincy Jain, Madhavi Shukla and Advocate Udit Dad