Nagpur ITAT slams ‘Cryptic Order,’ Deletes ₹50 Lakh Addition- Entry in the name of director cannot be added in the hands of the company
The Income Tax Appellate Tribunal (ITAT), Nagpur Bench, has allowed the appeal of Shree Maya Real Estate Pvt. Ltd. for the Assessment Year 2019-20, deleting an addition of ₹50,00,000 made under Section 69A of the Income Tax Act. The Tribunal strongly criticized the Assessing Officer (AO) and the CIT(A) for making the addition based on a “non-speaking document” without conducting proper inquiry or establishing a clear nexus with the assessee.
The addition was made based on a seized document from a third party, M/s. Tirupati Developers, a buyer in a previous land transaction.
The Mystery of the ₹50 Lakh Cash Entry
The addition stemmed from a survey conducted at the premises of M/s. Tirupati Developers during the Financial Year 2018-19. Incriminating documents found during the survey allegedly showed a cash payment of ₹50 lakh.
The key facts and arguments against the addition were:
• Wrong Payee Name: The entry against the ₹50 lakh cash payment mentioned the name “Lashare Sir”, not “Shree Maya Real Estate Pvt. Ltd.”. The assessee’s name was explicitly mentioned in other cheque payment entries but not for the cash.
• “Dumb Document”: The seized material was classified as a “DUMB, non-speaking document” lacking any corroborative evidence to fasten liability on the assessee.
• Lack of Nexus: The AO failed to establish any connection between “Lashare Sir” and the assessee company, or why the company should be taxed for an entry against another name. The AO also made no inquiry as to whether “Lashare Sir” was related to the assessee.
• Lack of Cross-Examination: The assessee’s repeated demands for an opportunity to cross-examine were denied, which the assessee argued was a violation of the principles of Natural Justice.
• Transaction Timing: The cash entry was dated from January 18, 2019, to February 21, 2019. However, the property sale (the alleged source of the “on-money” consideration) was completed with the execution of sale deeds in March and May 2016. The assessee questioned the human probability of receiving cash “on-money” three years after the sale deed was executed.
The AO had concluded the ₹50 lakh cash was “on money” received against the sale of land and had escaped assessment, leading to the addition.
ITAT Verdict: Addition Unsustainable
The ITAT found the addition to be “unjustified and unsustainable”.
The Tribunal ruled that in the absence of a nexus between the seized documents and Shree Maya Real Estate Pvt. Ltd., the addition could not be sustained. The bench was highly critical of the tax authorities, observing that they had passed a “cryptic order in a perfunctory manner” and failed to “make any enquiry to come to a logical conclusion”.
The ITAT emphasized that since the assessee had categorically denied receiving the cash, the onus was on the AO to establish the receipt with “stronger, cogent and corroborative evidence”. The lack of any action against the named payee (“Lashare Sir”) or examination of M/s. Tirupati Developers further weakened the Revenue’s case.
Consequently, the ITAT set aside the impugned order of the CIT(A) and allowed the grounds of appeal related to the ₹50 lakh addition.
The copy of the order is as under:
