High Court Limits Section 69A Addition to Actual Cash Seized

The assessee challenged an addition of Rs.80.42 lakh made under Section 69A of the Income Tax Act for AY 2017–18. The case arose after police intercepted a bus and seized Rs. 68.47 lakh in cash along with contraband from certain individuals, who claimed the money belonged to the assessee. The assessee contended that the funds were pooled from 17 persons for a proposed property purchase in Lucknow, supported by affidavits, bank statements, and a gold loan from Muthoot Finance Ltd. The Assessing Officer rejected the explanation, observing inconsistencies such as staggered cash withdrawals over months, lack of banking transactions, and failure to produce contributors. Treating the explanation as unsubstantiated, the AO added Rs. 80.42 lakh (claimed pooled amount) as unexplained income. The CIT(A) and ITAT upheld the addition.

Central Issue : Whether the addition under Section 69A can exceed the cash actually seized after rejecting the assessee’s explanation?

HC’s Decision: The Delhi High Court partly allowed the appeal and restricted the addition to Rs. 68.47 lakh. The Court upheld the concurrent factual findings that the assessee failed to discharge the initial burden of proving the source of cash. It was agreed that the explanation involving the pooling of funds from multiple persons lacked credibility and did not justify further verification by the AO. However, on the quantum of addition, the court found a clear inconsistency. Once the AO rejected the assessee’s explanation of having collected Rs. 80.42 lakh, he could not simultaneously rely on that very figure to make an addition. The court held that the AO cannot “accept one part of a rejected story and discard the other”. Since the only established fact was seizure of Rs 68.47 lakh—which the assessee admitted as his—the addition was restricted to that amount. The addition of Rs. 80.42 lakh was held to be perverse to that extent.

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