ITAT Rajkot Deletes Addition for Alleged Unaccounted Cash Based on Third-Party Excel Sheet
1. Background and Central Dispute
The case of M/s RC Heights Pvt. Ltd. & RC Buildcon vs DCIT/ACIT before the Hon’ble ITAT Rajkot revolved around a crucial question:
Can the Revenue validly make an addition for alleged unaccounted cash receipts relying exclusively on a seized excel sheet found at a third-party premises, without any independent corroboration and without allowing cross-examination of the concerned person?
The assessee, a civil contractor engaged in construction work, had executed construction activities for a project known as “RK World Tower”, developed by a group concern. During a search operation conducted on this group, the Department seized an excel sheet titled “Rameshbhai-WT” from a third-party location.
This excel sheet contained entries described as payments to the assessee, split into:
- Banking transactions, and
- Alleged cash payments.
The banking entries in the excel file tallied with the figures duly recorded in the assessee’s books of account. However, the cash entries were not reflected in the regular books. On this basis, the Assessing Officer treated the entire cash component appearing in the excel sheet, amounting to Rs. 2.62 crore, as unaccounted income of the assessee.
2. Assessment Proceedings: AO’s Approach
2.1 Reliance on Third-Party Excel Sheet
The Assessing Officer concluded that the excel sheet represented a complete and reliable record of payments relating to the “RK World Tower” project. The AO’s reasoning was essentially:
- Since the bank entries in the excel sheet matched the assessee’s recorded transactions,
- The entire document, including the cash entries, must be considered authentic and reliable.
On that basis, the AO proceeded to treat the entire cash portion of Rs. 2.62 crore as undisclosed income of the assessee.
2.2 Treatment of Alleged Cash Receipts as Full Income
The AO further held that:
- The assessee had already debited all relevant construction expenses in the profit and loss account.
- Therefore, no further deduction or estimation of profit margin on alleged cash receipts was warranted.
- As a result, the gross cash receipts were brought to tax as income, rather than only the profit element.
2.3 Rejection of Assessee’s Objections
The assessee contended, inter alia, that:
- The excel sheet was an unauthenticated, unsigned, third-party document, essentially a “dump document”.
- It was not recovered from the assessee’s premises.
- The assessee was not permitted to cross-examine the person from whose premises the excel sheet was seized, despite a specific request.
The AO dismissed these arguments and retained the full addition, primarily relying on the matching of banking entries as validation of the entire document, including the alleged cash transactions.
3. First Appeal: CIT(A)’s Partial Relief and Its Limits
On appeal, the CIT(A) partially accepted the assessee’s position but still sustained a significant addition.
3.1 Rejection of Full-Turnover Taxation
The CIT(A) disagreed with the AO on taxing the entire cash receipts and held that:
- Only the profit element embedded in the alleged unaccounted cash receipts could be subject to tax,
- The gross cash inflow could not be treated as income in entirety.
3.2 Estimation of Profit at 12.5%
Despite recognizing that only profit should be taxed, the CIT(A):