MEHER MIRACLES PVT LTD,MUMBAI vs. ACIT, CIRCLE 15(2)(2), MUMBAI

We heard the parties and perused the record.The AO noticed that the assessee has deposited cashto the tune of Rs. 13.21 lakhs into its bank account during demonetization period. The AO noticed that the assessee has not filed return of income and hence, the AO issued notice u/s.142(1) of the Act, asking the assessee to file the return of income.

During the course of assessment proceedings, the AO issued summons to the assessee and in response there to one of the Directors, Mrs. Gitanjali Sinha appeared. The AO recorded a statement from her. With regard tosources in making deposit, it was submitted that they were made out of cash withdrawn from the bank earlier. The AO took the view that the assessee-company has failed to give any satisfactory explanation about the nature and source of cash deposits and accordingly he assessed the cash deposit of Rs. 13.21 lakhs as un-explained income of the assessee u/s. 68 of the Act. The Ld.CIT(A) also confirmed the same.

The Ld.AR submitted that the assessee is a Private Limited company and it is maintaining regular Books of Account and the cash deposits were made out of cash available in the Books of Account. He further submitted that the Books of Account have been audited under the Companies Act and no adverse features have been noticed by the auditors. The Ld.AR also submitted that the assessee has filed copies of Balance Sheet and Profit & Loss Account, signed by the Directors, but the AO has observed that those financial statements were not audited and were not signed by the Chartered Accountant. Hence, the AO has presumed that those statements are not reliable. The Ld.AR submitted that the view so taken by the AO is factually incorrect. The assessee‟s Books of Account were duly audited and have been signed by the Chartered Accountant. The Ld.AR submitted that the mistake has happened in the reply given to the AO on 17-09-2019; wherein it was inadvertently mentioned as copies of un-audited Balance Sheet and Profit & Loss Account were furnished; whereas what was furnished was audited Balance Sheet and Profit & Loss Account only. Accordingly, the Ld.AR submitted that there is no reason to suspect the Books of Account and the impugned addition made out of the cash balance available in the Books of Account, is not justified.

The Ld D.R, on the contrary, supported the order passed by Ld CIT(A).

We heard rival contentions and perused the record. We notice that the assessee is a Private limited company and its accounts were audited. The copies of audited accounts are placed on record. We notice that the AO has observed that the financial statements were unsigned and undated and accordingly, he has refused to consider them. However, as submitted by the Ld.AR, the financial statements are very much dated, audited and signed by the directors as well as the auditor. Be that as it may, what is required to be examined is whether the claim of the assessee that the cash deposits were made out of cash balance available in the books of accounts is correct or not?. Hence, what is required to be examined is the books of accounts and not the financial statements. The assessee has furnished summary of cash book at page 142 of the paper book. A perusal of the same would show that the assessee has withdrawn from banks a sum of Rs.11,95,000/- in the month of April, 2016, Rs.70,500/-, Rs.45,000/- and Rs.55,000/- respectively in the months of June, 2016 and July, 2016 and October, 2016. Further, a sum of Rs.1,40,000/- was withdrawn in the month of November, 2016 before announcement of demonetization. The assessee has also furnished the details of disbursements made out of cash balance made month wise. Thus, we notice that the assessee has deposited impugned amount of cash out of the cash balance available with it only. When the deposits are made out of book balance, in our view, there is no necessity to disbelieve the sources, when the books of accounts and results declared therein are accepted. Accordingly, we are of the view that the tax authorities are not justified in making this addition. Accordingly, we set aside the order passed by the Ld.CIT(A) on this issue and direct the AO to delete the addition of Rs.13.21 lakhs made by him.

In the result, the appeal filed by the assessee is allowed.