ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-2(3), HYDERABAD vs. KAPIL CHITS (KOSTA) PRIVATE LIMITED, VIJAYAWADA

Brief facts of the case are that the assessee is a private Ltd company engaged in the business of conventional chits. Pursuant to the search and seizure operation under section 132 of the Income Tax Act, 1961 (for short “the Act”) conducted on 07/04/2017, assessee filed the return of income for the assessment year 2017-18 on 25/06/2019 declaring nil income. Assessment under section 143(3) read with section 153A of the Act was complete by order dated 30/12/2019 at Rs. 8,46,04,509/- by making an addition of Rs. 6.43 Crores by way of disallowance of noncompete fee, Rs. 3.01 Lakhs by making disallowance under section 14A of the Act read with Rule 8D of the Rules and Rs. 2,00,03,509/-towards the cash deposited during demonetisation period. When the assessee preferred appeal Ld. CIT(A) deleted all the additions and allowed the appeal.

Revenue preferred an appeal in Ld. CIT(A) in deleting the additions. By order dated 05/10/2021, this appeal was disposed of along with the batch of cases. According to the Revenue, ground No. 7 of the appeal, in relation to the addition made on account of unexplained investment amounting to Rs. 1.5 Crores missed the attention of the Bench and the said ground was not aggregated. At the request of Revenue in MA No. 11 /Hyd/ 2022 by order dated 04/04/2022 the order in the ITA was recalled insofar as the ground relating to the addition under section 69A of the Act is concerned. Hence, we heard this matter again, and now proceed to dispose of ground No. 7 hereunder.

Insofar as ground No. 7 is concerned it is the submission of Ld. DR that the Ld. CIT(A) deleted such an addition solely basing on the affidavit of the Branch Manager filed and the Ld. CIT(A) totally ignored the observations of the learned Assessing Officer to the effect that the assessee failed to file the confirmation letters from the concerned parties. According to the Ld. DR, the Ld. CIT(A) should have sought the supporting evidence from the assessee before proceeding to delete the same.

Per contra, it is the submission on behalf of the assessee that this 1.5 Crores addition related to the amount that was expected to be received by the assessee, but in fact not received, and therefore, the entry in the cash book was revised on the same day. He accordingly submits that cash was neither received by the assessee nor deposited in the bank, but it is only a matter of book entry in the cash register which was reversed on the same day. He submitted that no tax is attracted on book entries, without there being any transaction as such. He, therefore, while supporting the findings of the Ld. CIT(A), prayed to dismiss the appeal.

We have gone through the record in the light of the submissions made on either side. It’s not the case of the learned Assessing Officer that the assessee received any cash on the date so mentioned in the cash book are that the assessee deposited the same in the bank. According to the learned Assessing Officer because the assessee did not furnish the details of the person in respect of whom the entries in the cash book were made and also the assessee did not furnish the confirmation letters from the said persons.

Ld. CIT(A) dealt with this aspect in detail. Ld. CIT(A) particularly recorded that the averment made by the assessee that no subscription was received by the assessee on the date on which the entries in the cash book were made, goes undisputed and it is not the case of the learned Assessing Officer that any cash was received by the assessee. By looking at the entries in the cash book, the learned Assessing Officer questioned the assessee as to why the receipt entries were reversed on the same day and because the assessee could not furnish either the details or the confirmation letters, the learned Assessing Officer proceeded to add such amount to the income of the assessee. When no cash was received and this fact is not in dispute by the learned Assessing Officer, is not open for the learned Assessing Officer to make any addition merely basing on the entries in the cash book, that too when such entries were reversed on the same day. Ld. CIT(A) is perfectly justified in deleting such an amount which is added on this score. We do not find anything illegality or irregularity in such a finding of the Ld. CIT(A). Accordingly his findings are upheld and the ground No. 7 is found to be devoid of any merits, and consequently dismissed.