ITAT Delhi holds Section 69A addition invalid where cash belongs to company, not director

Background of the dispute

The Delhi Bench of the Income Tax Appellate Tribunal in the case of DCIT Vs Dolly Kumar examined whether unexplained money allegedly generated by a company through over-invoicing could be assessed in the hands of its director under Section 69A of the Income Tax Act 1961, merely because she was the key managerial person to whom the cash was stated to have been handed over.

The controversy arose out of a search action, subsequent reassessment proceedings, and competing assessments in the hands of both:

  • The company, M/s Cosmic Nutracos Solutions Private Limited, and
  • The individual director, Ms. Dolly Kumar.

While the Commissioner of Income Tax (Appeals) [CIT(A)] had sustained an addition of ₹1,38,99,420 in the hands of the company on account of over-invoicing and consequent generation of unaccounted cash, the same amount had also been added in the hands of Ms. Dolly Kumar under Section 69A, alleging that she was the owner of such unexplained money.

The ITAT was called upon to decide whether this dual approach was legally sustainable, and more particularly, whether the director could be treated as the “owner” of the cash for the limited purpose of Section 69A.

Chronology of events

Original return and search action

  1. The assessee, Ms. Dolly Kumar, filed her original return of income for Assessment Year 2022-23 on 07.11.2022, disclosing a total income of ₹11,99,75,650.
  2. A search and seizure operation under Section 132 was conducted at her premises on 20.09.2023.
  3. Pursuant to the search, a notice under Section 148 was issued on 14.08.2024.
  4. In response, the assessee filed a return on 30.11.2024, offering the same total income of ₹11,99,75,650, without any additional disclosure.

Reassessment and addition under Section 69A

In the reassessment completed under Section 147 on 23.04.2025, the Assessing Officer (AO) made a substantive addition of ₹1,38,99,420 under Section 69A.

  • The AO’s allegation:

    • The flagship company, M/s Cosmic Nutracos Solutions Private Limited, had systematically generated unaccounted cash through over-invoicing of purchases.
    • Vendors were allegedly returning cash to the group in respect of inflated invoices.
    • Excel sheets, digital records, and statements recorded under Section 132(4) were relied upon to assert that such cash was “handed over” to Ms. Dolly Kumar.

  • On this basis, the AO treated the assessee as the owner of unexplained money under Section 69A and added ₹1,38,99,420 in her individual assessment as unexplained money.

  • Penalty proceedings were simultaneously initiated under Section 271AAC.

Appeal before CIT(A) and findings

The assessee challenged the reassessment before the CIT(A). After examining the seized material, digital data and statements, the CIT(A) allowed the appeal of the assessee and deleted the Section 69A addition.

Key elements of the CIT(A)’s reasoning were as follows:

1. Unaccounted cash generation by the company established

The CIT(A) categorically recorded that:

  • M/s Cosmic Nutracos Solutions Private Limited had indeed engaged in over-invoicing of purchases.
  • This practice led to the generation of unaccounted cash.
  • In a separate appellate order dated 26.11.2025 relating to the company for AY 2022-23, an addition of ₹1,38,99,420 had been upheld in the hands of the company on this very ground.

Thus, the CIT(A) accepted the existence of undisclosed income, but attributed it squarely to the company.

2. Digital records showing cash “given to Ms. Dolly Kumar”

The CIT(A) acknowledged that:

  • Certain Excel sheets and other digital records referred to cash generated through over-invoicing being “given to Ms. Dolly Kumar/mam”.
  • These records were part of the company’s data and pertained to M/s Cosmic Nutracos Solutions Private Limited.

However, the CIT(A) treated these references in the context of her corporate role rather than as evidence of personal ownership of such cash.

3. Crucial distinction between “key decision maker” and “owner”

The CIT(A) undertook a detailed examination to distinguish between: