DEPUTY COMMISSINER OF INCOME TAX,CIRCLE-1, TRICHY vs. R. GEETHA, PUDUKOTTAI

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaidappeal by Revenue for Assessment Year (AY) 2016-17 arises out of the order of learned Commissioner of Income Tax (Appeals)-1, Trichy [CIT(A)] dated 20.07.2020 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 12.12.2018.The grounds taken by the revenue read as under: 1. The order of the ld.CIT(A) is not acceptable with respect to the deletion of additions made towards unexplained investment of Rs.3,16,46,929/- and deletion of unexplained credit in the name of Chendur Earth Movers to the tune of Rs.2,20,21,180/. The order of the CIT(A) is contrary to law and facts of the case.

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2 The ld. CIT(A) failed to note that the assessee had not discharged his onus of proving the identity, genuineness and credit worthiness of the debtors, creditors, etc. 3. The ld. CIT(A) failed to note that the amount shownas Rs.35,50,000/- shown as drawings of the appellant not accounted for by the firm in the reconciliation statement given before the CIT(A) did not appearing in the reconciliation statement given during the remand proceedings and that the reconciliation statement given by the assessee is only play of numbers and not genuine. 4. For these and such other grounds that may be adduced at the time of hearing it is prayed that the order of the CIT(A) may be reversed and that of the Assessing officer restored.

As evident, the revenue is aggrieved by relief provided by Ld. CIT(A) in the impugned order qua unexplained investment and unexplained credit. 2. The Registry has noted delay of 95 days in the appeal, the condonation of which has been sought by Ld. Sr. DR. Considering the fact that the impugned order was passed during lockdown situation arising out of Covid-19 Pandemic, we condone the delay and admit the appeal for adjudication on merits. 3. The Ld. Sr. DR, drawing attention to the grounds of appeal, assailed the relief granted to the assessee. The Ld. Sr. DR submitted that the assessee could not reconcile the differences and therefore, Ld. CIT(A) erred in granting relief to the assessee. However, Ld. AR placedon record reconciliation chart and submitted that the difference in balances were duly reconciled based on which the relief was granted by Ld. CIT(A) in the impugned order. Having heard rival submissions and after perusal of case records, our adjudication would be as under. Assessment Proceedings 4.1 The assessee being resident individual was assessed u/s. 143(3) of the Act on 12.12.2018. The assessee filed return of income at Rs.937.27 Lacs which was finally assessed at Rs.1677.80 Lacs after certain additions. As evident from grounds of appeal, two issues arise

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out of impugned order viz. (i) Addition of Unexplained Credit; (ii) Addition of unexplained investment. 4.2 Unexplained Credit The assessee reflected creditor of Rs.224.12 Lacs in the name of M/s Chendur Earth Movers (CEM) in the Balance Sheet as filed during the course of assessment proceedings. However, this amount was not reflected in the return of income. The assessee did not furnish proof and confirmation letter for having received such amount with supportive evidences. The assessee’s name did not figure in debtors list reflected by that entity. Accordingly, this amount was added to the income of the assessee. 4.3 Unexplained Investments On analysis of financial statements, it was noted that the assessee’s expenses / investments were more than the income and receipts. There was difference of Rs.316.46 Lacs as under: - Opening debtors 15873830 Taxes paid 33276906 Opening cash balance 202600 Closing Bank Balance 7577511 Opening bank balance 4781969 Closing Cash Balance 13393687 Current year income 93727964 Closing debtors 698040 Agricultural income 2274960 Purchase of 157077643 immovable property Borrowals from Husband 14767200 Purchase of car 5469125 Borrowal from father 9000000 Borrowals through TMB OD 24993292 Gift from mother-in-law 5000000 Gift from others 11500000 HDFC Car loan 3724168 Total 185845983 Total 217492912

Accordingly, the amount of Rs.316.46 Lacs was held to be unexplained investment and added to assessee’s income. Appellate Proceedings 5.1 The assessee assailed the additions during appellate proceedings which were subjected to remand proceedings. The remand report was

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furnished by Ld. AO on 07.05.2019 whereas 2nd remand report was furnished on 07.07.2020. 5.2 After perusal of financial statements, it transpired that the assessee was a partner on CEM with 10% profit-share and had a debit balance in the current account. The entry was explained by the assessee as under: Addition as non genuine sundry creditors: Rs. 2,24,12,180/- The learned Assessing officer has made an addition of Rs.2,24,12,180/- holding that the sundry creditor is not genuine and also on the ground that the name of the appellant is not reflected as debtor in the books of the relevant party M/s. Chendur EarthMovers during the relevant period under consideration. The appellant submits that theappellant is one of the partners of the firm M/s. Chendur Earth Movers. The balance ofM/s. Chendur earth Movers as per the books of the appellant were refiectedat Rs.2,24,12,180/- (credit balance) but in the books of M/s Chendur Earth Movers the balanceof the appellant is reflected at Rs.91,73,765.77(credit balance) this is due the fact thatduring the previous year relevant to the AY. 2016-17 contract receipts of Rs.3,12,50,000/- pertaining to M/s.Chendur Earth Movers were wrongly credited to theaccount of the appellant and subsequently rectified. Similarly profit for the year lesstaxes Rs.38,85,947/- in M/s. Chendur earth Movers were not entered in the books of the appellant and also a wrong entry of Rs.35,50,000/- made in the books of M/s. Chendur Earth Movers were rectified inthe subsequent years The contract amount of Rs.3,12,50,000/- has been added to the income of M/s. Chendur Earth Moversandbrought to tax in the assessment completed (copy submitted). It is submitted that therewas only some wrong entries made in both the books which has lead to the confusion.The transactions are genuine and hence it is prayed that the addition made on thisaccount may be directed to be deleted as the same has been taxed in the hands of thefirm.

5.3 The explanation of the assessee qua unexplained investment was as under: - Addition as un-explained investment: Rs. 3,16,46.929/- The learned Assessing officer has held that the appellant failed to prove theidentity, genuineness and credit worthiness of the debtors, creditors and also explain thesource of the investments made and has made an addition of Rs.3,16,46,929/- holdingthat the expenses/investments are more than the income and receipts. It is submittedthat the data considered by the learned Assessing officer is factually incorrect. TheLearned Assessing officer while preparing the cash flow statement has omitted toconsider the balance in Chendur Earth Movers. The balance as on 31.03.2015 was adebit balance of Rs.95,87,819/- and the balance as on 31.03.2016 was a credit balance of Rs.2,24,12,180/- the cash flow from this source is Rs.3,15,85,946/-. The profit for the year is taken as Rs.9,37,27,964/- as against the actual profit for the year of Rs.9,37,33,937/- before taking into account agricultural income and agricultural expenses. Furtherthere was a debit balance in Gokulam Chit amounting toRs.5,25,000/- as on 31.03.2015. This has not been considered in

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the Cash flowstatement worked out by the learned Assessing officer. So the flow statement as workedout by the assessing officer is not correct. The appellant pleads to submits here underthe cash flow statement reflecting the actual position and the source for the investmentsmade. Opening cash and bank balance Rs. 49,84, 569/- Add: profit as per profit and loss account Rs. 9,47, 90,275 Depreciation debited to profit and loss Rs. 10,36,393 account Gifts received during the year Rs. 1,65,00,000 Less: income tax and wealth tax Rs. 3,20,43,070 LIP and Mutual Funds Rs. 9,93,836 Drawings Rs. 2,40,000 Rs. 3,32,76,906 Rs. 8,40,34,331 Add: increase in Unsecured loans Rs. 2,37,67,200 Increase in Secured Loans Rs. 2,87,17,460 Amount withdrawn from Chendur Earth Rs. 3,20,00,000 Movers Amount withdrawn from Gokulam Chits Rs. 5,25,000 Reduction in sundry debtors Rs. 1,51,75,790 A1 Rs. 18,42,19,781 Less:addition to fixed Assets before A2 Rs. 16,32,48,583 depreciation Closing cash and bank balances Rs. 2,09,71,198 A2 = Addition to fixed assets which is explained by increase in capital As per para 6 of AO the addition to fixed assets is only Rs.1294.20 lakhs.

It is submitted that the above cash flow proves that the appellant had adequate funds to meet the expenses and also make investments. In view of the facts of the case as explained, it is prayed that the additions of Rs.3,16,46,929/- made in the assessment order may kindly be directed to be deleted.

5.4 The aforesaid submissions found favor with Ld. CIT(A). The Ld. CIT(A) noted that AO ignored the opening balances in the assessee’s personal capital account. The contract receipts of Rs.312.50 Lacs was wrongly credited by CEM to assessee’s account which was rectified later on. As a result, the balance of assessee with CEM would be Rs.220.71 Lacs as against Rs.224.12 Lacs as reflected by the assessee. It was further noted by Ld. CIT(A) that in double entry book-keeping, the expenses are reflected on the liability side and income / flow of funds are shown on the asset side of the Balance Sheet. In case assessee is not able to explain the inflow, the additions are made u/s 68, which clearly states that "any sum found credited" in the books, have to be proved to

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the satisfaction of the Assessing Officer. However, in the present case, Ld. AO has no doubts as to the Profit & Loss account of the assessee, neither on receipts, nor on the expenditure side. The additions have been made on improper understanding of Section 68 - 69C without appreciating the scheme of the Act, It is only where assessee found to be owner of investments, money and bullion or expenditure "Not Recorded" in the books could be added u/s 69, 69A & 69C respectively. In case of disclosed Balance Sheet, no such addition could be made on asset side. The Ld. AO has accepted the inflow of funds and the amount reflected as sundry creditors. (other than CEM). As regards investments, The Ld. AO had available with him the audited Balance Sheet of the assessee from-where it could be seen that no addition could be made for undisclosed investment from the audited Balance Sheets as investments in lands and other assets have duly been disclosed. 5.5. The reconciliation as given by the assessee was tabulated as under: - This reconciliation has been given, which is as under: (Rupees in lakhs) Capital 1288.94 As on 31.03.16 508.81 As on 31.03.15 ------------- Increase in Capital 780.13 165.00 Gifts received during the year -------------- 615.13 ------A1 --------------- Income declared for AY 2016-17 Total income 937.27 Tax 326.05 -------------- 611.22 A2 net of tax increase in capital -------------- Unreconciled difference A1 – A2=615.13 – 611.22 = 3.91

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On the basis of the same, it was concluded by Ld. CIT(A) that adequate funds were available with the assessee for investments. Further, the figures picked up by AO were from declared accounts and there was no case that any undisclosed asset has been found. Finally, the addition on account of unexplained investment was deleted. 5.6 Regarding unexplained credit of CEM, it was held that the same was merely due to mismatch in account but the same would not lead to conclusion of escapement of income. Finally, except retaining the addition to the extent of unreconciled amount of Rs.3.91 Lacs, the balance addition was deleted. 5.7 Aggrieved, as aforesaid the revenue is in further appeal before us. Our findings and Adjudication 6. So far as the addition of unexplained cash credit is concerned, we find that the same arises out of reconciliation difference in assessee’s capital account with CEM wherein the assessee is a partner. For the said reason, the assessee would not be figured as debtors in the books of that firm. We find that the assessee reflected balance of Rs.224.12 Lacs in the name of M/s CEM whereas this balance is Rs.91.73 Lacs in the books of the firm. The same has been reconciled by the assessee as under: - Particulars Amount Closing Balance as on 31/03/2016 in the books of the Firm in the 9173765 (Cr.) name of the Appellant Smt. R. Geetha Less: Contract receipts of the Firm (wrongly credited by the firm) 3,12,50,000 Less: Share of profit FY 2015-16 – Not accounted by the appellant in 48,97,450 her books of account Add: Share of Income Tax of the Firm – Not accounted by the 10,11,504 appellant in her books of accounts Add: Drawings of the Appellant not accounted in the books of the 35,50,000 Firm Capital Account Balance in the books of the Appellant as on 2,24,12,180 31/03/2016

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Thus, the assessee was successful in reconciling the two differences and the allegation of Ld. AO regarding unexplained cash credit would have no legs to stand. It is undisputed finding that contract receipts of Rs.312.50 Lacs pertaining to firm was wrongly credited in assessee’s account and the same has already been offered to tax by the firm. Therefore, this addition has rightly been deleted by Ld. CIT(A). 7. So far as the issue of unexplained investment is concerned, we find that the working of Ld. AO is based on abstract figures of the Balance Sheet. The Ld. AO failed to consider the correct balance in the account of CEM since opening balance of CEM as on 31.03.2014 was Rs.95.87 Lacs (Dr.) and closing balance was Rs.224.12 Lacs (Credit) resulting into inflow for the assessee to the extent of Rs.315.85 Lacs. The opening balance of Rs.5.25 Lacs held with Gokulam Chit was also not considered in the case flow statement. Therefore, the cash flow statement could not be held to be correct. As against this, the assessee furnished correct cash flow statement as under: - Opening cash and bank balance Rs. 49,84, 569/- Add: profit as per profit and loss account Rs. 9,47, 90,275 Depreciation debited to profit and loss Rs. 10,36,393 account Gifts received during the year Rs. 1,65,00,000 Less: income tax and wealth tax Rs. 3,20,43,070 LIP and Mutual Funds Rs. 9,93,836 Drawings Rs. 2,40,000 Rs. 3,32,76,906 Rs. 8,40,34,331 Add: increase in Unsecured loans Rs. 2,37,67,200 Increase in Secured Loans Rs. 2,87,17,460 Amount withdrawn from Chendur Earth Rs. 3,20,00,000 Movers Amount withdrawn from Gokulam Chits Rs. 5,25,000 Reduction in sundry debtors Rs. 1,51,75,790 A1 Rs. 18,42,19,781 Less:addition to fixed Assets before A2 Rs. 16,32,48,583 depreciation Closing cash and bank balances Rs. 2,09,71,198 A2 = Addition to fixed assets which is explained by increase in capital As per para 6 of AO the addition to fixed assets is only Rs.1294.20 lakhs.

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It could be seen that the assessee had adequate funds to meet the expenses and also to make investments. The same is further supported by the workings made by Ld. CIT(A) which has been extracted by us in preceding para 5.5. Therefore, the action of Ld. CIT(A) in deleting the addition could not be faulted with. 8. The Ld. Sr. DR has pleaded that the drawings of Rs.35.50 Lacs was not accounted for by the firm in the reconciliation statement given during the remand proceedings. However, we find that the same is also not factually correct. The assessee, in its reconciliation statement given to Ld. CIT(A), has reversed contract receipts of Rs.312.50 Lacs and added drawings of Rs.35.50 Lacs. The net difference is Rs.277 Lacs. In the statement given on 08.01.2020, the amount shown is Rs.275 Lacs and Rs.2 Lacs which totals to Rs.277 Lacs. Therefore, there is difference in presentation only but the net impact is the same. 9. Considering the facts and circumstances of the case, we find no reason to interfere in the impugned order. 10. The appeal stands dismissed. Order pronounced on 12th August, 2022.

Sd/- Sd/- (V. DURGA RAO) (MANOJ KUMAR AGGARWAL) �ाियक सद3 /JUDICIAL MEMBER लेखासद3 /ACCOUNTANT MEMBER चे,ई/ Chennai; िदनांक/ Dated : 12-08-2022 EDN आदेशकीWितिलिपअ7ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant2. ��यथ�/Respondent 3. आयकरआयु� (अपील)/CIT(A) 4. आयकरआयु�/CIT 5. िवभागीय�ितिनिध/DR6. गाड�फाईल/GF