Mere Doubts On Cash Utilisation Insufficient For Section 69A Additions: ITAT Mumbai

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) on 23 January, held that that additions under Section 69A cannot be made merely on doubts about utilisation, if the source of cash withdrawals is from disclosed bank accounts. 

A Bench of Judicial Member Sandeep Gosain and Accountant Member Om Prakash Kant dismissed three appeals filed by the Revenue against FA Construction (the taxpayer) and upheld the orders of the Commissioner of Income-tax (Appeals) deleting additions for assessment years 2014-15. It also clarified that ad hoc disallowances of expenditure cannot be sustained when the taxpayer furnishes adequate documentary evidence.

The Bench held:

“Once the source of cash is established, no addition under section 69A can be sustained merely on the basis of doubt regarding its utilisation. If the Assessing Officer was of the view that any expenditure was not incurred wholly and exclusively for the purposes of business, or that vouchers were defective or unverifiable, the appropriate course would have been to examine such expenditure under the relevant provisions of the Act”

The dispute arose from reassessment orders in which the Assessing Officer had treated cash withdrawals aggregating to Rs. 35.87 crore as unexplained money under Section 69A and had further disallowed Rs. 12.09 crores for non-verification. The assessments were completed ex parte under Section 144 after the assessee failed to comply with statutory notices.

On appeal, the Commissioner (Appeals) upheld the reopening but deleted the additions after examining a remand report. The report had acknowledged that the assessee was engaged in civil construction contracts for government bodies at remote locations and had produced bank statements, cash books, utilisation summaries, vouchers and sample bills explaining the withdrawal without any adverse findings.

The core conflict was whether cash withdrawals from disclosed bank accounts could be treated as unexplained under Section 69A and whether ad hoc disallowances of expenditure were justified, despite the company furnishing detailed records and vouchers to support its claims.

The ITAT observed that Section 69A applies only where money is not recorded in books and the taxpayer fails to explain its source. Neither if these applied here, as the Assessing Officer himself accepted the cash came from disclosed bank accounts. The Tribunal emphasised that doubts about utilisation alone could not justify the invoking Section 69A, and any expenditure concerns should be examined under provisions governing business deductions.

Accordingly, it dismissed all appeals by the Revenue.