The Delhi Bench of the ITAT in Deputy Commissioner of Income-tax v. Gardenia Shelters (P.) Ltd. [2026] 188 taxmann.com 1028 (Delhi – Trib.) accepted the assessee’s explanation for the purposes of section 69A of the Income tax Act, 1961 that cash found in the lockers of two employees belonged to the company and represented accounted business receipts.
During a search, cash amounting to Rs. 2,99,98,000/- was found in lockers maintained by two employees. The employees stated that the cash represented sale proceeds of leftover construction materials, such as bricks and sand. According to the assessee, these materials were sold in small quantities to local traders and scrap dealers, who generally made payments in cash.
The Assessing Officer treated the accumulated cash as unexplained money under section 69A. However, both the Commissioner (Appeals) and the Tribunal accepted the assessee’s explanation after finding that the cash receipts had been duly recorded in the regular books of account, reflected in the GST returns, and supported by confirmations from the purchasers. The Tribunal observed that the assessee had produced a complete documentary trail establishing the source of the cash, including:
- Sales invoices issued to independent purchasers;
- Ledger accounts recording the receipts from those purchasers;
- Cash book entries and cash summaries demonstrating the availability of cash during the relevant financial year;
- financial statements indicating reduction in stock corresponding to the sales; and
- Accounting entries whereby the sale proceeds were credited to the Profit and Loss Account and the cost of goods sold was appropriately recognised.
The Tribunal also took note of the audited financial statements reflecting the cash balance and the Board resolution authorising the use of the employees’ lockers for safekeeping of company cash.
According to the Tribunal, once the assessee had supported its explanation with contemporaneous documentary evidence, it had discharged the burden cast upon it under section 69A. Thereafter, the Assessing Officer could reject the explanation only by bringing positive evidence to establish that the transactions were bogus or that the documentary evidence was unreliable. Mere observations that the invoices were “self-made” or that certain figures did not reconcile, without any substantive investigation or contradiction, were held to be insufficient. Accordingly, the Tribunal held that the explanation offered by the assessee was satisfactory and deleted the addition of Rs. 2,99,98,000/- made under section 69A.
The assessee also explained why such a substantial amount of cash was kept in employees’ lockers instead of the company’s premises. It submitted that there was a genuine apprehension of attachment by the VAT authorities. To substantiate this contention, it produced the VAT assessment order and the recovery certificate relating to an outstanding demand of Rs. 27,78,766/-.
The financial records also supported the availability of the cash. The assessee had an opening cash balance of Rs. 70,29,232. During the year, cash sales amounted to Rs. 2,81,30,600, and GST of Rs. 14,06,530 was collected thereon. On these facts, the Tribunal observed that even after considering the seized cash of Rs. 2,99,98,000, the books still reflected an adequate closing cash balance, thereby supporting the assessee’s explanation regarding the source of the seized cash.
Audit and Corporate Governance Perspective
While the Tribunal’s decision is well supported by documentary evidence for the purposes of section 69A, it nevertheless raises important questions from an audit and corporate governance perspective. A Board resolution authorising company cash to be kept in lockers maintained by employees is an unusual arrangement. Whether such a practice is consistent with the directors’ responsibilities under section 134 of the Companies Act, 2013—particularly their duty to safeguard the company’s assets and to prevent and detect fraud and other irregularities—deserves careful consideration.
Ordinarily, employees are entrusted only with petty cash or limited imprest balances, while substantial cash holdings are expected to remain under the company’s direct custody and internal control mechanisms.
The ICAI’s Guidance Note on Audit of Cash and Bank Balances requires auditors to physically verify cash balances at year-end or on a surprise basis at locations where cash is maintained. The present case highlights a situation not ordinarily contemplated in audit procedures, namely, company cash being kept in lockers maintained by employees under Board authorisation.
A Meta Question
The decision reiterates an important principle that documentary evidence prevails over suspicion. Once an assessee establishes a complete accounting trail supported by books of account, GST records, inventory movement, purchaser confirmations and audited financial statements, an addition under section 69A cannot be sustained merely on conjecture.
At the same time, the judgment serves as a reminder meta question whether tax acceptability does necessarily imply sound corporate governance. Even where the source of cash is satisfactorily explained, the manner in which significant company funds are safeguarded remains an important governance issue. Auditors may therefore consider extending their audit enquiries and management representation procedures to specifically ascertain whether any company cash is held outside the company’s regular cash custody arrangements, including in lockers maintained by directors or employees under any Board authorisation. Such enquiries would strengthen audit documentation and reinforce the company’s internal control framework over one of its most vulnerable assets viz, cash. The Institute of Chartered Accountants of India (ICAI) may have to amend their guidance note on audit of cash and banks to frame appropriate audit procedures to verify cash held in employee lockers under any board authorisation. Auditors may have to seek a specific management representation confirming whether any company cash is held in any employee lockers.