PGS CONSTRUCTION,PURI vs. ITO, PURI WARD, PURI

This is an appeal filed by the assessee against the order of

the Commissioner of Income Tax(Appeals)-2, Bhubaneswar dated

24.8.2017 for the assessment year 2011-12.

requires no separate adjudication.

that the CIT(A) is not justified in confirming the addition of

Rs.15,50,000/- being differential amount of closing stock shown in

balance sheet and closing stock in profit and loss account.

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materials on record of the Tribunal. During the course of

assessment proceedings, the Assessing Officer noticed that the

assessee derives income from construction and sale of flat during

the year under consideration. The assessee has shown stock-in-

progress at Rs.16,09,000/- and finished goods at Rs.15,50,000/-

i.e.total inventory at Rs.31,59,000/- in the balance sheet of ITR

(Part-A -BS) as on 31.3.2011. However, closing stock has been

shown at Rs.16,09,000/- in the trading & P&L account for the

assessment year 2011-12 instead of Rs.31,59,000/-. It was in

this backdrop that the Assessing Officer opined that the closing

stock figure got undervalued by Rs.15,50,000/- in the trading and

profit and loss account, which resulted into decrease in gross

profit. Therefore, the income of Rs.15,50,000/- has escaped

assessment. When this fact was confronted to the assessee that

though land is shown as current asset in the balance sheet, as to

why same has not been reflected as closing stock in the trading

account. In reply, the assessee stated that the land valued at

Rs.15,50,000/- has been shown in the balance sheet as ‘ current

assets’ apart from closing stock of Rs.16,09,000/-, thus the land

was not part of closing stock. The Assessing Officer observed that

the land purchased and held by the assessee is a part of trading

P a g e 2 | 7 stock and is rightly reflected in the balance sheet as current

assets. He also observed that the assessee could not give

plausive explanation which led to an irresistible inference that the

land valued at Rs.15,50,000/- was not fixed assets for the

impugned assessment year. Since the land has not been reflected

in the trading account for the year ending 31.3.2011 as closing

stock, the same is assessed to the total income of the assessee.

Officer.

why the land was not reflected in the closing stock as at the year

end of 31.3.2011. Therefore, I confirm the orders of lower

authorities and dismiss this ground of appeal of the assessee.

confirmation of addition of Rs.13,08,377/- to the total income

towards negative balance in the cash book.

of the case. On this issue, the Assessing officer, on verification of

cash book, found that the cash balance of Rs.13,08,377/- has

been found negative, which should not have been done as per

accounting principle. Therefore, he disallowed the same. On

P a g e 3 | 7 appeal, the view of the Assessing Officer is confirmed by the

CIT(A).

wherein, it is stated as under:

“That Rs.13,08,377/- has been added back to income as unexplained cash investment by the AO because of negative cash balance in cash book of the petitioner, which is incorrect and unjustified. The negative cash balance arises due to several factors of which some are a) When cheques are issued over and above the factual bank balance, then negative cash balance is reflected in cash book, as cash & bank both are posted in cash book. b) When some money receipts are posted in batch in cash book and the expenditure vouchers are posted on daily basis. c) When accounts clerk does a mistake like posting error, there may be negative cash balance, as ‘ human to err’.

Thus recording of transactions does not mean and imply to happening of a transaction and in the present case the negative cash balance was temporary in nature and did not continue till the end of the financial year resulting to unexplained cash investments.”

Hence, a defect in maintenance of books of account should not be treated as unexplained cash investments and the addition of Rs.13,08,377/- may kindly be deleted.” 10. Replying to above, ld D.R. submitted that the mistake now

pointed out by the ld A.R. of the assessee is an afterthought.

Hence, orders of lower authorities be confirmed.

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the negative cash balance arises due to several factors as

submitted in the statements of facts and especially the mistake

committed by the clerk in maintenance of books of account. The

only reason given by the CIT(A) in upholding the action of the AO

is that the submission of the assessee is an afterthought. In my

considered opinion, the explanation of assessee could not be

brushed aside as there could be error in posting by the clerk. The

explanation given by the assessee was quite plausible and if that

was accepted in total then entire addition would have been

deleted. I find that AO has not examined the assessee's

explanation on proper prospective. Be that as it may, I am of the

considered view that the explanation of the assessee needs to be

verified at the level of the Assessing Officer. Hence, I set aside

the orders of lower authorities and remit this issue back to the file

of the AO for fresh adjudication in the light of explanation

furnished by the assessee after affording reasonable opportunity

of hearing to the assessee. This ground of appeal is allowed for

statistical purposes.

“ That the implication of section 40A(3) of the Income Tax Act, 1961 without considering the reasons and facts of the

P a g e 5 | 7 case is illegal and arbitrary and unjustified and therefore addition of Rs.3,39,382/- is liable to be deleted.” 13. The facts of the case are that the Assessing Officer noticed

that on various occasions the cash payments above Rs.20,000/- to

a person in a day in contravention of provisions of section 40A(3)

of the Act as under:

Date name of the party Amount 1.5.2010 S.N.S. Suppliers Rs.65,000/- 15.7.2010 Capital Fancy Light Rs.31,000/- 14.1.2011 Kishan Enterprises Rs.30,000/- 25.3.2011 Balaji Ply Houses Rs.2,12,982 Rs.3,39,382/-

As the assessee could not furnish plausible explanation regarding

payment made above Rs.20,000/- to a person in a day, the

Assessing Officer disallowed the same and added to the income of

the assessee, which was confirmed in first appeal.

xerox copy of debit vouchers in support of the payment of

Rs.20,000/- to different parties on different dates and submitted

that in each of the payments, the amount does not exceed

Rs.20,000/- and, therefore, there is no contravention of provisions

of section 40A(3) of the Act.

assessee.

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find that in none of the dates, the amount paid to different parties

exceed Rs.20,000/-, and, therefore, in my view no violation of

provisions of section 40A(3) is made. Under these circumstances

and facts of the present case, I am of the opinion that no addition

is called for and addition made by the AO and so sustained by the

ld CIT(A) is directed to be deleted. Thus, this ground of appeal of

the assessee is allowed.

statistical purposes.

Order pronounced on 23 /07/2019. Sd/- (Chandra Mohan Garg) JUDICIALMEMBER Cuttack; Dated 23/07/209 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : PGS Construction, AT: Badasankha, Grand Road, Puri

Sr. Pvt.secretary, ITAT, Cuttack

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