E KRISHNAPPA & COMPANY,BENGALURU vs. INCOME TAX OFFICER, WARD- 8(4), BANGALORE

The only issue that arises for consideration in this appeal is as to, whether the CIT(Appeals) was justified in sustaining an addition of Rs.9,30,000 for unexplained cash introduced in the cash book as against addition of Rs.12,95,000 made by the AO.

The assessee is a partnership firm engaged in the business of civil construction. In the course of assessment proceedings, the AO noticed that there were following cash introduction in the cash book of assessee:-

Before the CIT(Appeals), the assessee submitted that entry in the cash book would be made when self-cheques are issued on the date mentioned in the self-cheques, but ultimately cash is withdrawn from the bank at a later date and this is the reason why the AO was unable to corelate entries of cash withdrawal from the bank account with the entries of cash deposit in the cash account. The assessee gave the following details in this regard before the CIT(Appeals):-

The CIT(Appeals) called for a remand report from the AO and the AO in his remand report gave the following objections. He submitted that on 2.4.04, there is an entry of cash deposit in the cash account with a description of Canara Bank A/c 356 and cheque No. 008566. This cheque was presented for payment and cash withdrawn only on 13.04.04. Between the period 2.4.04 and 13.4.04, the assessee has shown cash payments in the cash book. According to the AO, if the cash was actually received only on 13.4.04, the assessee would not have been able to make payment of cash. In this regard, the assessee pointed out that if the cash payments in bank after 13.4.04 is considered, then balance available with assessee on 12.4.04 is only Rs.2,000. The AO thus pointed out that the stand taken by assessee is not acceptable and the source of cash for deposit in the bank account remains unexplained. The following is the extract of the AO’s remand report:-

On a consideration of the above, the CIT(Appeals) held that the assessee can get only the benefit of peak credit and therefore restricted the addition of Rs.9,30,000. The following were the conclusions of the CIT(Appeals):-

The ld. counsel for the assessee reiterated the stand of assessee taken before the CIT(Appeals). The ld. DR relied on the order of CIT(Appeals).

After considering the rival submissions, I am of the view that the assessee has failed to explain the source of funds in the bank account. As rightly observed by the CIT(Appeals), the monies shown as receipt in the cash book is on the date earlier to the date of withdrawal by cheques from the bank account. Between the period of entry in the cash book of receipt of cash and the entry of withdrawal of cash from the bank account in the bank statement, the assessee has shown payments. Therefore, the conclusion of the CIT(Appeals) in para 7 of his order is that the assessee was in possession of actual cash on the date shown in the cash book is established. Keeping in view this fact in mind, the CIT(Appeals) has allowed the alternative relief of taxing only the peak credit and not each and every deposit in the bank account. The CIT(Appeals) has drawn the availability of cash from the earlier withdrawals and given due credits before taxing the peak credit. I do not find any ground to interfere with the order of CIT(Appeals). Accordingly, I dismiss this appeal by the assessee.