ITAT Mumbai upholds deletion of ₹35.87 crore addition on cash withdrawals

The Mumbai Bench of the Income Tax Appellate Tribunal has dismissed three appeals filed by the Revenue against F A Construction for the assessment years 2014–15 to 2016–17, affirming the relief granted by the Commissioner of Income Tax (Appeals) on both unexplained cash withdrawals and ad hoc disallowance of expenses.

Background

The assessee-firm, engaged in civil construction, had filed its return declaring income of about ₹12.88 crore for AY 2014–15. The assessment was later reopened under Section 147, based on information that the assessee had withdrawn substantial cash aggregating to ₹35.87 crore from its bank accounts. In reassessment proceedings completed under Section 144, the Assessing Officer treated the entire cash withdrawal as unexplained money under Section 69A, on the ground that the assessee failed to substantiate its utilisation for business purposes. The officer also made an ad hoc disallowance of 5% of total expenditure, amounting to ₹12.09 crore, citing unverifiable expenses. On appeal, the CIT(A) upheld the validity of reopening but deleted both additions on merits, noting that during remand proceedings the assessee had produced voluminous documentary evidence explaining cash utilisation.

Tribunal’s findings

The Tribunal agreed with the first appellate authority, observing that the cash withdrawals were made from disclosed bank accounts and duly recorded in the books of account. It noted that during remand proceedings, the Assessing Officer examined bank statements, cash books, site-wise petty cash books, utilisation summaries, vouchers, creditors’ ledgers and running account bills related to government projects, but did not point out any adverse material or discrepancy. The Bench held that Section 69A applies only where money is found to be unrecorded and unexplained as to source. Once the source is established, the provision cannot be invoked merely because the Assessing Officer harbours doubts about utilisation. If at all, such issues must be examined under the relevant provisions governing business expenditure. With respect to the 5% ad hoc disallowance, the Tribunal noted that the Assessing Officer had not rejected the books of account nor identified any specific non-genuine or excessive expenditure. It reiterated that ad hoc disallowances, without concrete defects, are impermissible in law.

Accordingly, the Tribunal found no infirmity in the CIT(A)’s order and dismissed all three Revenue appeals, granting relief to the assessee across all the assessment years involved.