ITAT Grants Major Relief to Viraj Group, Rules Seized Cash Transactions Cannot Be Taxed Separately

The ITAT Pune has granted major relief to members of the Viraj Group by holding that alleged unaccounted cash transactions recorded in seized handwritten and digital cash books cannot be taxed separately in the hands of individual directors and group entities.

On April 20, 2023, the tax authorities carried out a search and seizure operation on the Viraj Group under Section 132 of the Income Tax Act, 1961. During the course of operation, they found handwritten cash books (HCB) and digital cash books (DCB) containing details of alleged cash receipts, money transactions, land deals, loans, and other entries. As a result, the case was reopened via notice dated March 29, 2024, issued under Section 148 of the Act. 

The tax authorities had noted that, “these seized documents record unaccounted daily cash transactions carried out by the entities of Viraj group. He observed that during the search it was found that record of cash inflow and outflow was maintained in handwritten Cash Book in Gujarati vernacular and similar records of cash transactions were maintained in a Tally software (in English) in external Hard Drive, under file names ‘V89′ and ‘CON’. These records relate to the entities namely, M/s. Viraj Estates Pvt. Ltd., M/s. Viraj Realty Pvt. Ltd., S/Shri Rajendra Rasiklal Shah, Vilas Rasiklal Shah, Karan Rajendra Shah, Viraj Vilas Shah.”

The aggrieved assessee filed a letter dated May 10, 2024, contesting the case reopening and requested the tax authorities to disclose reasons for satisfaction and a copy of the approval granted by the PCIT, Central, Nagpur. However, the tax authorities disposed of the said letter and made substantial additions to the income of Rajendra Rasiklal Shah (assessee) and other group entities, treating the entries as unaccounted income.

Thereafter, the assessee approached the ITAT Pune, challenging the validity of the reassessment proceedings and further argued that the documents seized during the search operation were not found on the premises owned by him; hence, the present proceedings should not be initiated against him. However, the Tribunal upheld the validity of the reassessment, the approvals granted under the Income Tax Act, and the use of material seized during the search. It also rejected objections relating to jurisdiction, third-party premises, and the evidentiary value of statements recorded during the search.

On the taxability of the alleged cash transactions, the Tribunal disagreed with both the tax authorities, who had taxed the entire receipts, and the CIT(A), who had estimated profit at 17% of the receipts. The Tribunal held that all entries in the seized cash books formed part of a common pool of rotating funds used across the Viraj Group.

Accordingly, the ITAT directed the tax authorities to prepare a single consolidated cash ledger and compute income using the “peak credit” method. The Tribunal ruled that the unified peak amount should be assessed only in the hands of Viraj Estates Private Limited, the flagship company of the group, and that no separate additions should be made in the hands of individual directors or other group entities. In conclusion, the tribunal dismissed the tax authorities’ appeal, while granting substantial relief to the assessees on the merits of the additions.