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Facts
The Assessing Officer made additions of Rs. 6,86,000/- under Section 69 (unexplained investment) and Rs. 5,94,000/- under Section 68 (cash credits) against the assessee. These additions stemmed from discrepancies in the assessee's books of account regarding transactions with Shri Amrinder Singh, specifically a loan given by the assessee and an unsecured loan shown as outstanding. The CIT(A) upheld these additions.
Held
The Tribunal found that the discrepancies arose from an erroneous recording of a Rs. 10,50,000/- payment to Shri Amrinder Singh as a cash withdrawal instead of a loan advanced through banking channels. Upon reconciliation, it was established that the assessee had indeed advanced money through banking channels, which was partly repaid, and no credit from Shri Amrinder Singh remained. The Tribunal concluded that the AO's additions were based on mathematical discrepancies without proper verification of the genuineness and source of the transactions, and thus deleted the additions.
Key Issues
Whether the additions made by the Assessing Officer under Section 69 and Section 68 of the Income Tax Act, 1961, on account of alleged unexplained investments and cash credits, were justified despite the assessee's reconciliation and documentary evidence of banking transactions.
Sections Cited
69, 68, 143(2), 145(3), 69A
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Income Tax Appellate Tribunal, CHANDIGRH BENCH, ‘SMC’ CHANDIGARH
Before: SHRI RAJPAL YADAV
PHYSICAL HEARING O R D E R The assessee is in appeal before the Tribunal against the order of Ld. CIT(Appeals) dated 12.03.2024 passed for assessment year 2017-18. The assessee has taken three grounds of appeal out of which Ground No. 3 is general ground which does not call for recording of any specific finding.
2. In Ground No. 1 and 2, assessee has challenged confirmation of addition amounting to Rs.6,86,000/- and A.Y.2017-18 2 Rs.5,94,000/- which were added by the AO with the help of Section 69 as well as 68 of the Income Tax Act.
The brief facts of the case are that assessee was running a business concern in the name and style of M/s B.G. Infrastructure. He has closed this business w.e.f.
01.04.2017. He has filed his return of income on 13.10.2017 declaring total income of Rs.5,05,270/-. The case of the assessee was selected for scrutiny assessment and a notice under Section 143(2) was issued on 21.09.2018 which was duly served upon the assessee. On scrutiny of the accounts, it revealed to the AO that assessee had two outstanding unsecured loans as on 31.03.2017 :
(i) Shri Amrinder Singh Rs.5,94,000/- (ii) Shri Preet Kamal Singh Rs.4,70,000/- 3.1 The AO has directed the assessee to submit bank statement, the copy of accounts of these creditors and other details. In response to the query of Assessing Officer, assessee has submitted the requisite details. On perusal of the bank statement as well as the copy of the accounts, ld. AO has observed that in the bank statement, a credit entry A.Y.2017-18 3 on 16.06.2016 for a sum of Rs.10,50,000/- is appearing against the name of Shri Amrinder Singh . In other words, the assessee has paid Rs.10,50,000/- to Shri Amrinder Singh, however, in the account statement of Shri Amrinder Singh maintained by the assessee in his books of account, a credit entry of Rs.5,94,000/- is discernible. In other words, a sum of Rs.5,94,000/- was due from assessee to Shri Amrinder Singh. The assessee is debtor of Shri Amrinder Singh to this extent. The AO has observed that on one hand, assessee has paid a sum of Rs.10,50,000/- on 16.06.2016 which is to be construed as a loan paid to Shri Amrinder Singh, however, at the end of the year, in the account statement of Shri Amrinder Singh maintained in the books of the assessee, this figure is not available. On the other hand, Shri Amrinder Singh is shown as a creditor of the assessee whereas situation should be other way around. According to the AO, the assessee failed to reconcile the accounts, therefore he made an addition of Rs.6,86,000/- as unexplained investment by the assessee by giving a loan to Shri Amrinder Singh. This addition is made with the help of Section 69. He further made an addition of Rs.5,94,000/- on the ground that assessee failed to explain source of credit A.Y.2017-18 4 appearing against the name of Shri Amrinder Singh. In this way, he has determined the taxable income of the assessee at Rs.17,85,270/- as against the declared income of Rs.5,05,270/-.
In appeal, assessee has filed a detailed written submission which has been reproduced by the ld. First Appellate Authority but ld. CIT(A) did not concur with the submissions of the assessee.
Before us, assessee has placed on record copy of the submissions filed before the ld. CIT(A). He also placed on record copy of the audited accounts.
With the assistance of ld. Representative, I have gone through the record carefully. On an analysis of the complete record, I find that basically there is a discrepancy of recording the particular entries. With the help of bank statement and other documents, assessee has explained to the ld. CIT(A) that Rs.10,50,000/- was shown in the books of the assessee as cash withdrawal which in fact was a sum given to Shri Amrinder Singh. If this fact is corrected, then there will not be any discrepancy. The relevant part of the submissions made by the assessee reads as under : A.Y.2017-18 5 “Ground No. 2 & 3 The ground no. 2 and 3 are interlinked with each other so therefore we are discussed here both simultaneously. • Not justifying and erred in making of Addition of Rs. 12.80.000/- i.e Rs. 6,86,000/- on a/c of cash credit from unsecured loan and treated as unexplained investment u/s 69 of the income tax act. 1961 & Rs. 5.94.000/- on a/c of cash credit entries on explained income.
• Rs. 6,86,000/- on a/c of cash credit from unsecured loan and treated as unexplained investment u/s 69 of the income tax act. 1961. The Ld. Assessing Officer, as per its order dated 17.12.2019 has made an total addition of Rs. 12,80,000/- by rejecting the books of account and made Rs. 6,86,000/- on account of cash credit from the unsecured loan credited from customers and treated as unexplained investment u/s 69 of the income tax act, 1961 by the assesse by holding that:
The assessee was asked to submit information with regard the amount of Rs. 10,50,000/- not reflected on assets side of the balance sheet while filing his return of income. The assessee has not submitted any reply. Keeping in view these facts, the advances of Rs. 6,86,000/- not declared by the assessee while filing his return of income. Similarly the books of accounts of accounts" of the assessee are rejected. Addition of Rs. 6,86,000/- has been made u/s 69 of the IT Act, 1961 as unexplained investment and added to the income of the assessee."
The onus of proof was on assesse to proof that the unexplained income shown in the return of income under the disguise of business & profession with the proper supporting evidences. For the more clarifications the copy of bank account of Sh. Amarinder Singh with the all transactions made during the year under consideration is discussed below :-
DATE ENTRY DEBIT CREDIT 01.04. 2016 OPENING - - BALANCE 08.04.2016 HDFC Bank 2,00,000/- - 30.05.2016 HDFC Bank - 3,00,000/- 13.06.2016 HDFC Bank - 3,00,000/- 16.06.2016 HDFC Bank 10,50,000/- - 05.07.2016 HDFC Bank - 5,00,000/- 08.09.2016 HDFC Bank 12,00,000/- - 27.09.2016 HDFC Bank - 2,64,000/- 6,86,000/- 6,86,000/- CLOSING BALANCE 2250000 2250000 In this connection it is submitted that the assessee is an individual and engaged in the business under the name & style of M/s B.G infrastructures. However, It is submitted A.Y.2017-18 6 that the Ld. Assessing Officer has made addition of Rs. 6,86,000/- on account of unsecured loans considered it as unexplained investment u/s 69 of act. But actually Rs. 6,86,000/- is amount which outstanding balance stand in the books of Account Sh. Amarinder Singh and not used this amount for making the investment u/s 69 of the I.T. Act, 1961 as this amount is an Imprest balance which uses in business for paying the small expenses so no investment is made by the assesse. The assesse has wrongly shown the amount of Rs.6,86,000/- on liability side of the balance sheet being not aware about the income tax procedure of filing the assesse has himself submitted the wrong copy of account of his unsecured advance which is received from the Sh. Amarinder Singh through the different bank account :-
The copy of Bank Account maintained with HDFC Bank Pvt. Ltd, leela Bhawan, Patiala which is saving bank account having the a/c no is 01161000158192.
The copy of Bank Account maintained with Kotak Mahindra Bank Patiala which is saving bank account having the a/c no. 02630120000561. 3. The copy of Bank Account maintained with HDFC Bank Pvt Ltd. Leela Bhawan, Patiala which is current a/c no. 50200015819315. Further, all the above accounts are hereby enclosed for your ready reference, which clearly shows that all transactions made between these accounts i.e through banking channels only and no amount was received or paid in cash to the creditor. S. Amrinder Singh. Unexplained investments. 69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.
On perusal of above section, it is very clear that these were applicable where the assesse has failed to substantiate the source of deposit/credit entries whereas in this case the source of deposit/credit was fully explained and proved along with nature of source in hand. So, the section has no application at all.
In the light of these facts, it is very clear that the additions made by the assessing officer was merely on assumptions and presumptions without considering the factual position of the case so the addition so made should be deleted on this ground. Rs. 594000/- on a/c of cash credit entries on explained income :
The Ld. Assessing Officer, as per its order dated 17.12.2019 has made an addition of Rs. 5,94,000/- on a/c of cash credit entries made by the assesee by rejecting the books of account and treated it as unexplained credits u/s 68 of the income tax act, 1961. A.Y.2017-18 7 In this connection, it is submitted that the assesse is an individual and engaged in the business under the name & style of M/s B.G infrastructures. Further, in the balance sheet he has shown unsecured loan of Rs. 5,94,000/- from Sh. Amarinder Singh on the liability side which should not be reflected on the liability side of the balance. The assesse was asked to state as to why addition of Rs. 5,94,000/- may not be made as unexplained credit u/s 68 of the IT Act, 1961. In this connection, the appellant reply is as under: The copy of account statement of Sh. Amarinder Singh in assessee's books of accounts is as under:-
DATE ENTRY DEBIT CREDIT 01.04. 2016 OPENINGBALANCE - 2,30,000/- 08.04.2016 HDFC Bank - 2,00,000/- 30.05.2016 HDFC Bank 3,00,000/- - 13.06.2016 HDFC Bank - 3,00,000/- 05.07.2016 HDFC Bank - 5,00,000/- 08.09.2016 HDFC Bank 12,00,000/- - 27.09.2016 HDFC Bank -- 2,64,000/- 5,94,000/- CLOSING BALANCE The assesse has shown Rs. 5,94,000/- as outstanding balance in the books of account of the asessee as on 31.03.2017 the name of the creditor Sh. Amarinder Singh.
Further, the above copy of account was prepared without considering that on 16.06.2016, a sum of Rs. 10,50,000/- was paid to S. Amrinder Singh But erroneously it was shown as cash withdrawn instead of payment to loan creditor. If this sum of Rs. 10,50,000/- has shown as payment to creditor, a sum of Rs. 6,86,000/-( is receivable 050000/-+230000-594000) from Mr. Amrinder Singh. The correct copy of account should be as under:- The correct copy of account is as under:-
Sr.No. Date Particulars Debit Credit 1. 1.4.2016 Opening Balance 230000 2. 8.4.2016 HDFC Bank 200000 3. 30.5.2016 HDFC Bank 300000 4. 13.6.2016 HDFC Bank 300000 5. 16.6.2019 HDFC Bank 1050000 5. 5.7.2016 HDFC Bank 500000 6. 8.9.2016 HDFC Bank 1200000 7. 27.9.2016 HDFC Bank 264000 Closing balance AS on 686000DR 31.03.2017 On the above, it is very much clear that the said creditor has shown it as repaid and nothing is due from the assesse. This has happened because on 16.06.2016, a sum of A.Y.2017-18 8 Rs. 10,50,000/- was paid to S. Amrinder Singh But erroneously it was shown as cash withdrawn instead of payment to loan creditor. If this sum of Rs. 10,50,000/- has shown as payment to creditor, a sum of Rs. 6,86,000/- is receivable from Mr. Amrinder Singh. Further, the assesse has wrongly shown Rs. 5,94,000/- as outstanding credit balance in the books of account as on 31.03.2017 the name of the creditor Sh. Amarinder Singh which was shown in its balance sheet on liability side. It has resulted into, the appellant has wrong recorded this transaction in his books of account as cash withdrawn instead of payment to loan creditor. However the assessing officer has held that the books of accounts are unreliable Hence rejected the books of account u/s 145 of the income tax act, 1961. Moreover, this has happened due to the unaware about the accounting procedure. Because the asseese has not knowledge about the accounts and these were entirely dealt with by his staff. The assesse was not aware about the correct treatment and he bonafidely filed the ITR with incorrect figures accordingly.
Merits On perusal of above copy of account submitted by the assesse pertaining to issued by Amrinder Singh, a loan creditor shown in the audited balance sheet, there are two differences in the copy of account:
1 ADDITION ON ACCOUNT OF DIFFERENCE IN DEBIT OPENING BALANCE Opening balance as on 01/04/2016 (Copy of Balnce sheet and Itr attached) was not shown by the said creditor. However as per balance sheet of the previous year the sum of Rs. 2,30,000 was receivable from S. Amrinder Singh, loan creditor. But it is a debit balance i.e it was to be received from S. Amrinder Singh which was not actually received upto 31.03.2016 So it is a debit transaction and the source of this transaction is out of my bank account further Rs.2,30,000 is the opening balance hence pertain to the previous year so it has no application in the current year and no adverse view should be taken on the basis of this opening balance. It is settle law in various number of judgments which is as under :
1 ASSISTANT COMMISSIONER OF INCOME TAX vs. KERALA TRANSPORT CO. itat, cochin bench source (1994) 51 ITD 405 : (1994) 50 TTJ (Coch) 189. 2 COMMISSIONER OF INCOME TAX vs. K.M.N. NAIDU HIGH COURT OF MADRAS Source (1996) 221 ITR 451 (Mad) : (1996) 136 CTR (Mad) 341. 3 DEPUTY COMMISSIONER OF INCOME TAX vs. PRAHALAD RAI RATHI ITAT, JODHPUR BENCH ITANo. 282/Jd/2018; Asst. yr. 2015-16 Source (2023) 37 NYPTTJ 593 (Jd)
So in the light of these facts and circumstances, the amount of ?2,30,000 is concerned. It is very much clear that no addition can be made on the basis of this debit opening balance because it can never be termed as unexplained expenditure because neither the expenditure was claimed nor the source of this expenditure is questioned. This debit entry and all the the transactions were made through proper banking channel. A.Y.2017-18 9 The identity of the said person is beyond doubt. So no adverse view should be taken in the matter.
Legal As per definition of section 68. wherein it is stated :- Cash credits.
Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a)the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b)such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB)of section 10.
2. ADDITION ON ACCOUNT OF UNEXPLAINED CREDITS In respect of remaining difference of Rs.4,56,000/- is concerned. In this regard, my submission is as under :
1. 1. It is correct that the sum of Rs. 0,50,000/- was paid to Amrinder Singh from my current bank a/c no. 50200015819315'maintained with Bank in the name of BG infrastructure and it was wrongly shown as cash received from the bank and resultantly a credit of Rs.5,94,000/- was appearing in my balance sheet but in actual, it was not cash received but cash paid to S. Amrinder Singh.
2. It is settled law by various courts that where the books of accounts were rejected by application of 145(3) of the income tax act, 1961. The same books cannot be relied upon to make a basis for another addition. Hence when the books in total are unreliable as held by Id. assessing officer in para 4 of his order that in the view of these facts, the unsecured loan shown by the assesse on the liability side of the balance sheet amounting to Rs.5,94,000/- is considered as wrongly shown. The books of account of the assesse are rejected under section 145(3) of the income tax act, 1961. So it is very humble prayed that no addition should be made on the basis of just putting entries in the books of accounts to. It is a settled law that the bank account transactions has percedence over the transactions "recorded by the assessee because third-party transactions are more accurate evidence and it was admissible in the various courts that third-party evidence has more credence. Moreover, the learned assessing officer himself considered that the assessee wrongly shown. Rs.5,94,000/- A.Y.2017-18 10 the loan creditor Amrinder Singh in the Balance sheet dated 31 March 2017 by the assesse.
It is pertinent to note that the assesse has discontinued its business on 31st 3. March 2017 itself as evident from its return of income filed for this assessment year 2018-19 and no business income was reported and no balance sheet figure work given in ITR and the Id assessing officer did not take any adverse view. In the fact if he considered to the contrary, regarding continuation of the business, the relevant inversion is attached here with further in the year 2017-18 i.e. the next year the only source of income of the assessee is rental income and interest income and no income from business and profession was accrued to him so it is very much clear that the assets which remain at 31 March 2017 were not used by the assesse in any manner for any purpose. This fact is more clarified from the balance sheet as on 31st March 17. On perusal of balance sheet, the cash in hand was shown at Rs.1191,923.25 and the transaction which were wrongly recorded in the books of account on 16th of June 27,16 was for 10,50,000/-. So even if we reduce this balance from the cash available even then there remains a cash of Rs. 1,41,923.25. Hence, In the light of the fact that there is sufficient cash - available with the appellant and even if this wrong posted entry is deleted, even then there is sufficient cash available with the assessee and even if we apply peak theory, even then there is negative cash available with the appellant hence mere posting of transaction in the books of account which was already been rejected by invoking provision of section 145(3). So no adverse view should be taken in the matter and the addition so made by the land assessing office should be deleted keeping in view that there is no male attention on the part of the appellant to save the tax or to defraud the revenue. Hence, it is prayed that both the additions pertaining to single transaction of Rs. 10,50,000/- made with S. Amrinder Singh to be deleted.
Without prejudice to above, the appellant has contested the quantum of additions made in this case on the basis of the case proceeding.
In the light of these facts, it is very clear that the additions made by the assessing officer was merely on presumptions and assumptions and it was presumed in absence of any corroborative evidence so the addition so made to be deleted. From the above facts, it is evident that the basis on which the case was taken up under scrutiny was duly explained with documentary evidence, it is, therefore, requested that the impugned addition may kindly be deleted. Anymore information shall be submitted as per your kind directions. Thanking you, Yours Sincerely, CA SANJAY GOYAL (Counsel for the Appellant) A.Y.2017-18 11
7. I have duly considered the rival contentions and gone through the record. Both the additions i.e. under Section 69 and 68 of the Act are made by the ld. AO on account of some mis-match between the entries in the bank statement vis-à-vis books of account. In the above written submissions, assessee has reconciled this mis-match. A sum of Rs.10,50,000/- was given to Shri Amrinder Singh on 16.06.2016 as appearing in the bank statement, but in the books it was shown as cash withdrawal, this one error has led various discrepancies. It has shown advancement of loan by the assessee to Shri Amrinder Singh which has been added under Section 69A as well as credit balance of Shri Amrinder Singh in the books of the assessee which has been added as cash credit under Section 68 of the Act. If the reconciliation made by the assessee in the submissions and reproduced at page No. 7 and 8 of this order is perused, then it would reveal that no credit of Shri Amrinder Singh is available in the books of the assessee. The assessee has paid Rs.22,50,000/- i.e. Rs.10,50,000/- on 16.06.2016 and Rs.12,00,000/- on 08.09.2016. As against this, assessee A.Y.2017-18 12 has received back total sum of Rs.17,94,000/-. Out of this Rs.17,94,000/-, there is an opening debit balance of Rs.2,30,000/-. In other words, this amount was receivable by the assessee in the last year. Thus, the total debit balance against the name of Shri Amrinder Singh is Rs.6,86,000/-. Out of that, Rs.2,30,000/- is the opening debit balance which cannot be added in this year under Section 69 also. The assessee has demonstrated that this total loan amount was given through banking channel to Shri Amrinder Singh which has been partly repaid by him. There is no credit of Shri Amrinder Singh available in the books of the assessee. These facts are to be analyzed from the bank statements. The only debit balance of sum of Rs.4,56,000/- is concerned, it is a sum receivable by the assessee from Shri Amrinder Singh and this sum was paid through banking channel. The AO has not verified the genuineness of these sums paid by the assessee and their source. He has only made the additions on account of mathematical discrepancies.
Therefore, I am satisfied that no addition is required to be A.Y.2017-18 13 made in the present case. Accordingly, I allow the appeal of the assessee and delete the additions.
In the result, appeal of the assessee is allowed.