ITAT Delhi Restores ₹1.43 Crore Addition Over Alleged Cash Salary Payments

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has recently upheld an addition of ₹1.43 crore towards alleged unexplained cash salary payments. It held that the Commissioner of Income Tax (Appeals) deleted the addition without carrying out any inquiry or seeking a remand report despite the material relied upon by the Assessing Officer.

A bench of Judicial Member Madhumita Roy and Accountant Member Kriwant Sahay allowed the Revenue's appeal and dismissed the assessee's cross-objection.

The tribunal observed, “The addition made by the AO was not only on the basis of papers seized but also on the basis of the statement recorded during the search. One of the directors of the company had confessed the payment of salary in cash. The Ld. CIT(A) has ignored these relevant facts.”

The assessee is engaged in the business of construction and infrastructure activities. During a search, the Income Tax Department seized loose papers and other documents. According to the Assessing Officer, these showed cash payments towards salaries and other expenses.

Relying on the seized material and the statement of one of the company's directors recorded during the search, the Assessing Officer made an addition of ₹1.43 crore as unexplained salary expenditure.

The Commissioner of Income Tax (Appeals) later deleted the addition. The appellate authority relied on documents and submissions produced by the assessee during the appeal.

The tribunal found that no independent inquiry or verification had been carried out. It also noted that no remand report was sought from the Assessing Officer on the documents filed by the assessee during the appellate proceedings.

The tribunal observed, “Neither any further enquiry or verification has been made by the Ld. CIT(A) regarding allegation of cash payment for unexplained salaries nor the Ld. CIT(A) has sought any remand report from the AO on papers filed by the assessee during appellate proceedings.”

Observing that the Commissioner of Income Tax (Appeals) had ignored both the seized material and the director's statement while deleting the addition, the tribunal held that the order granting relief could not be sustained. It accordingly allowed the Revenue's appeal and dismissed the assessee's cross-objection.

For Revenue: Rajesh Mahajan, CIT-DR

For Assessee: Lalit Gupta, CA and Ms. Neha Gupta, CA