RELIABLE SPACES P.LTD,MUMBAI vs. DCIT CIR 10(3), MUMBAI

The present appeal has been preferred by the assessee against the order dated 18.02.2015 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2008-09.

The grounds raised by the assessee are as under:

We would like to deal with the ground No.2 as raised by the assessee on merit against the confirmation of addition of Rs.56,19,155/- by Ld. CIT(A) as made by the AO on account of unexplained cash credit being peak negative cash balance found during the course of survey.

The facts in brief are that the assessee filed the return of income on 29.09.2008 declaring income of Rs.1,96,33,826/- which was processed under section 143(1) of the Act accepting the income returned. A survey was conducted under section 133A of the Act on 10.01.2012 at the premises of the assessee and on the basis of some informations/materials impounded during the course of survey the case of the assessee was 4 M/s. Reliable Spaces Pvt. Ltd. reopened for A.Y. 2008-09 by issuing notice under section 148 of the Act dated 25.03.2013. The case was reopened on the ground that in the paper impounded and soft copy of the accounts of the books showed negative cash balance from April 2007 to November 2007, the peak of which was Rs.56,19,155/-. According to the AO, the source of the said amount is not disclosed and thus the facts noticed at the time of survey constituted sufficient material to form a belief that the assessee has not disclosed fully and truly all material facts as to the assessment of income and therefore Rs.56,19,155/- has escaped assessment. The assessee is engaged in the business of manufacturing and exports of readymade garments and also derived income by way of rentals. During the year, the turnover of the assessee was Rs.32,56,64,199/- and the rental income was Rs.1,45,00,000/-. Accordingly, the AO issued show cause notice dated 22.11.2013 asking the assessee to explain the reasons along with evidences, the negative cash balances and as to why the same should not be added to the income of the assessee. The said show cause was replied by the assessee by submitting that there was no negative cash balances in the books of accounts as the assessee has cash sales amounting to Rs.69,29,954/- from April 2007 to March 2007 which were duly accounted for in the books of accounts which were finally audited by the auditors of the company on the basis of which the return of income was filed for the impugned assessment year and the AO also found the books of accounts in order. The assessee, however, admitted that at the time of survey the negative cash was there in the books of accounts as the sales made in cash section was taken by the accountant on the last

The Ld. CIT(A) dismissed the appeal of the assessee after considering the explanation/reply of the assessee by observing that the separate bill book in which cash sales amounting to Rs.69,29,954/- was recorded for F.Y. 2007-08 was not brought to the notice of the AO either at the time of survey or immediately after the survey and also that no documentary evidences were furnished before the first appellate authority. According to the Ld. CIT(A) the indigenous sales of Rs.1,20,84,704/- comprising local sales of Rs.51,54,750/- and sale of fabrics in cash Rs.69,29,954/- were not doubted by the AO whereas the total sales including export were Rs. 32,56,64,199/-. According to the Ld. CIT(A) the entire cash sales was accounted for on the last day of the accounting year and he came to the conclusion that there was negative cash balance on the date of survey from April 2007 and March 2008. Finally,

The Ld. A.R. vehemently submitted before us that authorities below have not properly appreciated the facts of the case that assessee’s cash sales to the tune of Rs.69,29,954/- made from April 2007 to March 2008 were duly recorded in the books of accounts and accounted for on the respective dates in the final books of accounts of the assessee which were duly audited by the company auditors and tax auditors and were found in order by the AO and there was no adverse comment on the maintenance of books of accounts by the tax auditors and company law auditors. The Ld. A.R. submitted that during the course of reassessment proceedings the books of accounts were examined by the AO which were found to be in order and no negative cash balances were found and the same were accepted by the AO. The Ld. A.R. submitted that when the books of accounts were accepted the AO, then the AO should not be allowed to question the negative cash balance based on the incomplete books of accounts of the assessee which were finally completed and audited by the company auditor in which no discrepancy or negative cash balance was found. The Ld. A.R. drew our attention to page No.73 of the paper book wherein a monthwise tally of cash balance was drawn up and submitted that there was no negative cash balance in the books of 7 M/s. Reliable Spaces Pvt. Ltd. accounts of the assessee as noted by the AO. The Ld. Counsel submitted that if the addition of Rs.56,19,155/- is sustained that would result into double taxation of the same amount as the assessee has duly incorporated in the books of accounts the cash sales and offered the same to tax while filing the income tax return. The Ld. A.R. submitted that the order of Ld. CIT(A) was also based on wrong assumption of facts and therefore needs to be reversed and the AO should be directed to delete the addition as there is no provision under the Act to assess the same income twice. The Ld. A.R. finally prayed that since there is no unexplained cash in the books of accounts of the assessee the same should be deleted. Alternatively the issue may be restored to the file of the AO to re-examine the facts and decide the same accordingly.

The Ld. D.R., on the other hand, relied heavily on the orders of AO and Ld. CIT(A) and submitted that at the time of survey the material gathered and seized showed that assessee has negative cash balance though the Ld. D.R. candidly admitted that cash sales of Rs.69,29,954/- was made through a separate bill book which was not considered on the various dates on which the cash sale was made. The Ld. D.R. further submitted that the AO has clearly brought out the negative balance of the cash monthwise and therefore submitted that the order of Ld. CIT(A) should be affirmed as the negative cash balance was not explained. On the issue of non rejection of books of account by the AO the ld DR submitted that these discrepancies were noticed in the documents seized at the time of survey.

We have heard the rival submissions of both the parties and perused the material on record including the impugned order. The undisputed facts are that the books of accounts of the assessee were audited by the tax auditor and company law auditor and were found to be in order with no adverse reporting on the maintenance of accounts or defects in the books of accounts. We, further, note that these books of accounts were also place before the authorities during the course of assessment proceedings and there was no defect found or pointed out by the AO in the said books of accounts. Moreover, the books of accounts were not rejected by the AO at the time of making this addition of Rs.56,19,155/- on account of peak negative balance which according to the AO remained unexplained. A survey team found some documents in the form of computer prints out/soft copy and found that assessee has negative cash balances during the months commencing from April 2007 to November 2007 the peak whereof was Rs.56,19,155/- in the month of September 2007. The authorities below has not considered the cash sales of the assessee to the tune of Rs.69,29,954/- during the year on the various dates which were duly accounted for in the books of accounts of the assessee. The only basis of addition by the AO was the discovery of papers during the survey which reflected negative cash balances from April 2007 to November 2007 which culminated to Rs.56,19,155/- as peak negative cash balance. We have also gone through the cash book of the assessee which is filed from page No.81 to 159 which shows a closing balance of Rs.13,613.25 on 31.03.2008. We have gone through each and every day of the cash book and observed that there was no 9 M/s. Reliable Spaces Pvt. Ltd. negative cash balance in the said cash book. We observe from the relevant records as placed before us that the assessee’s books of accounts were audited and were found to be in order and when present before the AO during the course of assessments proceedings no defect was pointed out. The AO has only added negative cash balance as found in the documents/soft copy in the course of survey but failed to point out any defect in the audited books of accounts in which the assessee has duly accounted for the sale of Rs.69,29,954/-. The assessee has also filed a summary of cash balance which is extracted below:

In the result, appeal of the assessee is allowed.