ITAT Reduces Cash Addition from ₹13 Lakh to ₹1.30 Lakh in Tax Case

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has significantly reduced a cash addition initially set at ₹13 lakh, determining that only ₹1.30 lakh could be sustained due to insufficient corroborative evidence. The ruling came in the case involving Metarolls Ispat Pvt. Ltd., a company engaged in manufacturing steel products, which filed its return of income on December 26, 2020, declaring a total income of ₹19,48,06,480.

During a comprehensive scrutiny of the return, the authorities seized certain loose sheets that featured notations labeled “6kg” and “7kg.” The Assessing Officer (AO) interpreted these entries as indicative of cash payments, suggesting that “1kg” equated to ₹1 lakh. This interpretation led the AO to propose an addition of ₹13 lakh as unexplained cash expenditure.

In the subsequent appeal, the Commissioner of Income Tax (Appeals) upheld the AO’s decision, stating that Metarolls Ispat did not provide a convincing explanation for the entries in question. The company, represented by legal counsel Rahul Kaul, along with Anand Partani and Darshan Gattani, argued that the seized documents lacked clarity and that the AO’s interpretation had no substantial basis.

ITAT’s Findings on Evidence and Interpretation

The ITAT Bench, consisting of Vice President R.K. Panda and Judicial Member Astha Chandra, assessed the case and found no material evidence to support the classification of “kg” as equivalent to lakhs of rupees. The Tribunal noted that one entry of ₹1.30 lakh was explicitly mentioned in the seized documents; however, the company failed to provide a satisfactory explanation for this amount.

The Tribunal concluded that the absence of corroborative material meant the addition of ₹13 lakh, as confirmed by the CIT(A), could not be upheld. Instead, they determined that the addition of ₹1.30 lakh was justified, effectively narrowing the claim from ₹13 lakh to a more substantiated figure.

The legal representatives for the department included Amol Khairnar and Ramnath P. Murkunde, who argued for the original assessment. The Tribunal’s decision underscores the necessity for clear evidence when making assessments related to cash transactions.

This ruling not only impacts Metarolls Ispat Pvt. Ltd. but also sets a precedent regarding the importance of corroborative evidence in tax assessments. The ITAT’s careful evaluation highlights the ongoing scrutiny of tax practices in India and the critical role of documentation in substantiating claims made by businesses.

For further updates and insights into tax regulations, readers can refer to additional resources and expert analyses available through various platforms.