Search & Seizure: ITAT Hyderabad Upholds Unexplained Cash and Gold Bullion Additions Despite Non-Mention of Sections 69 to 69D

Background and Overview

A significant ruling has emerged from the Income Tax Appellate Tribunal (ITAT), Hyderabad, in the case of Ashok Kumar Agarwal Vs ACIT, pertaining to Assessment Year 2020-21. The Tribunal delivered a split verdict — partly allowing the assessee's appeal — while addressing two critical legal questions: first, whether the failure of the Assessing Officer to invoke a specific provision under Sections 69 to 69D of the Income Tax Act, 1961 renders the addition legally infirm; and second, whether affidavits alone, unsupported by documentary evidence, can adequately explain the source of cash and gold bullion unearthed during a search operation under Section 132.

The outcome serves as an important reference point for practitioners and assessees involved in search and seizure proceedings, particularly regarding the evidentiary standard required to discharge the burden of explaining unexplained assets.

Facts of the Case

Search and Seizure Operation

A search and seizure operation under Section 132 of the Income Tax Act, 1961 was carried out on 04.06.2019 at the residential premises of the assessee. During the course of the search, the following assets were discovered:

  • Cash amounting to ₹1,00,00,000 (Rupees One Crore)
  • 12 gold bars weighing 1,200 grams, collectively valued at ₹39,84,000

When confronted about the origin of the cash, the assessee stated that it belonged to himself and three proprietary concerns operated by his family — namely, M/s. Ankit Industries, M/s. Ankit Marketing, and M/s. Brijwasi Industries. Cash book extracts for these three concerns were produced on the spot. However, as per the cash book records referred to in Question No. 13 of the statement recorded under Section 132(4) of the Act, the total cash balance available across these three concerns as on 04.06.2019 was only ₹6,73,805.

With respect to the 12 gold bars, the assessee was unable to furnish any purchase bills or supporting documents at the time of the search, and accordingly admitted additional income of ₹39,84,000 in respect of the gold bullion.

Shifting Stand During Assessment Proceedings

When the case was taken up for scrutiny assessment, the assessee abandoned his original explanation and put forth an entirely revised version:

  • He claimed that the cash of ₹1 crore actually belonged to 9 family members, inclusive of the three proprietary concerns originally mentioned.
  • Affidavits accompanied by PAN details of all 9 individuals were submitted to corroborate this claim.
  • Regarding the gold bars, the assessee now contended that they had been purchased during three earlier financial years (FY 2008-09, FY 2015-16, and FY 2016-17) and that entries for the same had been duly recorded in his books of accounts.

Assessment Order and CIT(A) Proceedings

Assessing Officer's Findings

The Assessing Officer (AO) rejected both explanations on the following grounds: