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Before: Shri A. Mohan Alankamony & Shri Duvvuru RL Reddy
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) 13, Chennai dated 23.01.2017 relevant to the assessment year 2010-11. The only effective ground raised in the appeal of the Revenue is that the ld. CIT(A) has erred in deleting the addition made under section 68 of the Income Tax Act, 1961 [“Act” in short].
It was the submissions of the ld. DR that the addition of credits in the creditors account – Shri A. Senthil Murugan to the extent of ₹.29,59,375/- was not explained property by the assessee. It was further submissions of the ld. DR that the addition due to the assessee as per the creditor Shri A. Senthil Murugan’s books of account to the extent of ₹.57,90,000/- was not explained properly by the assessee and pleaded that the order of the ld. CIT(A) should be reversed and restored that of the Assessing Officer.
Per contra, the ld. Counsel for the assessee has submitted that by considering the details furnished by the assessee and after obtaining remand report on that and after examining the rejoinder of the remand report filed by the assessee, the ld. CIT(A) rightly deleted the additions and prayed for its confirmation.
We have heard both sides, perused the materials available on record and gone through the orders of authorities below. In the assessment order, the Assessing Officer considered credit balance of Shri A. Senthil Murugan in the books of assessee appearing for Rs.27,59,375 as unexplained and brought to the same to tax under the provisions of section 68 of the Act. He has also considered the balance of the assessee in the books of Sri A. Senthil Murugan of Rs.57,90,000/- as unexplained and brought the same also to tax under the provisions of section 68 of the IT Act. The balance in the accounts were interchanged in the assessment order and the Assessing Officer in his remand report clarified that these balances were inter changed.
Accordingly, the correct balances are as below: "Balance due to the creditor Shri A. Senthil Murugan ₹.57,90,000 as per the assessee's books Add: Balance due to the assessee, as per the creditor ₹.29,59,375 Shri A.Senthil Murugan's books of account Total ₹.87,49,375 The Assessing Officer held that the above sum of ₹.87,49,375/- is unexplained credit on account of Shri A. Senthil Murugan.
4.1 On verification of the accounts of Shri A. Senthil Murugan in the books of the assessee, statement of account of the assessee in the books of Shri A. Senthil Murugan, rejoinder and reply to the remand report, the ld. CIT(A) extracted the account of Shri A.Senthil Murugan in the books of assessee and the same is reproduced as under:
Extract of A.G.S. Constructions Prop: A.Senthil Murugan in the books of the assessee for the period 01-04-2009 to 31-03-2010: Date Particulars Vch. Type Debit Credit 01.04.2009 Opening Balance 47,90,000 27.01.2010 SBI, CA 73460 Ch 93176 Payment 30,00,000 30.01.2010 SBI, CA 73460 Ch 93181 Payment 5,00,000 30.01.2010 SBI, CA 73460 Ch 002748 Receipt 5,00,000 04.02.2010 UBI, SB 23041-RTGS Receipt 20,00,000 11.03.2010 UBI, CC 50029-RTGS Receipt 20,00,000 Total 35,00,000 92,90,000 Closing Balance 57,90,000 Extract of Account of R. Mani in the Books of A.Senthilmurugan, A.G.S. Constructions for the period 01-04-2009 to 31-03-2010:
Date Particulars Vch. Type Debit Credit 01.04.2009 Opening Balance 55,00,000 03.04.2009 Indian Bank Ch 00424562 Payment 2,95,000 04.04.2009 Cash Receipt 4,400 27.01.2010 Indian Bank CA RTGS Receipt 30,00,000 04.02.2010 SBI CA Ch 002751 Payment 20,00,000 24.02.2010 SBI Payment 5,00,000 26.02.2010 Indian Bank Ch 00941118 Payment 5,00,000 04.03.2010 SBI HUL RTGS Payment 2,50,025 11.03.2010 SBI CA Ch 002763 Payment 20,00,000 Total 55,45,025 85,04,400 Closing Balance 29,59,375 4.2 The ld. CIT(A) observed that this entity is a proprietory concern of Mr. R. Mani. From the perusal of statement of Shri A. Senthil Murugan in the books of the account of the appellant indicates four credits for ₹.47,90,000/-, ₹.5,00,000/-, ₹.20,00,000/- and ₹.20,00,000/- totalling ₹.92,90,000/- and two debits totalling ₹.35,00,000/-, leaving the net balance of ₹.57,90,000/-. The Assessing Officer has considered the said closing balance of ₹.57,90,000/- as unexplained and considered the same for addition under section 68 of the Act.
4.3 Further, the ld. CIT(A) was of the opinion that in order to bring cash credit to tax under section 68 of the Income tax Act, each credit in the account is required to be considered and not merely the closing balance in the account. The principles of explanation of credit is required to be satisfied for each and every cash credit that appear in an account and it is not limited to the balance in the account. If balance is only required to be considered, then an assessee may nullify the credit balance arising out of a cash credit by debits in the account, rendering the taxing provision of section 68 meaningless.
4.4 Thus the test under section 68 of the Act is required to be applied in respect of all credits in the account. However the test is not required for any debit in the account as they do not represent a "credit". Accordingly, the observation of the ld. CIT(A) with regard to the credits are reproduced as under: (1) The first item of credit in the account is Rs.47,90,000/- entered on 01/04/2009, ostensibly accounting the credit balance as on 31/03/2009. The amount of Rs.47,90,000 is nothing but journal entry to incorporate the opening balance. This being a journal entry, cannot be termed as a cash credit requiring explanation as given in para supra. No part of the journal entry, incorporating the opening balance, has cash or bank either as debit or credit, this amount stands explained by way of balance as on 31/03/2009 in the books of account. If this balance appearing as on 31/03/2009 in the books of account is required to be subjected to the rigors of explanation under section 68, it is required to be tested for the credits appearing in the books of account in the respective years in which the credits have entered in the books of account. There is considerable force in the argument of the appellant that this credit is only the brought forward of closing balance as on 31/03/2009 as the opening balance as on 01/01/2009. Relying on the decisions of Commissioner of Income Tax Vs Usha Stud Agricultural Farms Ltd (ITA No;151/2008 dated 14-03-2008 Delhi High Court (301 ITR 384) and Commissioner of Income Tax Vs Prameshwar Bohra (ITA No:7/2003 dated 04-01-2007 Rajasthan High Court (301 ITR 404), the said sum of Rs.47,90,000/- cannot be considered for addition under section 68 of Income tax Act, 1961 and therefore this addition is deleted. (2) The credit of Rs.5,00,000/- on 30-01-2010 was received by means of Cheque No: 002748 from Current account No.73460 of Shri A.Senthil Murugan and it also appears in the Bank account of the assessee. The Appellant has produced copies of the relevant portion of the Bank Statement. Thus, not only the identity of the party is confirmed; the capacity of the party is also confirmed. The genuineness of the transaction is also confirmed. Therefore this credit of Rs.5,00,000 / - also stands explained as required under law and therefore can not be considered for addition under section 68 of Income tax Act, 1961. (3) The third and fourth credits of Rs.20,00,000/- each appearing on 04/02/2010 and 11/03/2010 in the books of appellant in the account of Shri A.Senthil Murugan is also appearing as debits in the books of Shri A.Senthil Murugan in the account of the appellant on the same dates. Thus, not only the identity of the party is confirmed; the capacity of the party is also confirmed by way of corresponding debit entry in the books of account of the creditor. The genuineness of the transaction is also confirmed as these are continuing transaction between appellant and Shri A.Senthil Murugan. Moreover these credits were not disputed by either party nor by the Assessing Officer even during the remand proceedings when the AO has examined the parties. Therefore these credits of Rs.20,00,000/- each also stands explained as required under law and therefore can not be considered for addition under section 68 of the Income tax Act, 1961. Accordingly the addition of Rs.57,90,000/- is deleted. The ground of appeal on this issue is allowed. (4) The AO has considered a sum of Rs.29,59,375/- as unexplained cash credit which in fact is the balance of the appellant appearing in the books of Shri A.Senthil Murugan. This amount is appearing in the books of the appellant. For an amount to be taxed under section 68 of the Income tax Act, 1961, the sum should be found credited in the books of the assessee maintained for the previous year. The balance of Rs.29,59,375/- is appearing in the account of appellant in the books of Shri A.Senthil Murugan, the creditor of the appellant as the closing balance as on 31/03/2010. The books of account of the creditor are not the books of account of the appellant. For the amount of credit to be taxed under section 68 of the Income tax Act, the credit should be appearing in the books of account of the appellant and not in the books of account of creditor. Therefore, the amount appearing in the books of account of the creditor cannot be taxed in the hands of the appellant under section 68. Thus the addition of the balance of Rs.29,59,375/- on this account is deleted. The ground of appeal on this issue is allowed.” 4.5 In accordance with the provisions of section 68 of the Act, the ld. CIT(A) has carefully examined each and every credit of Shri A. Senthil Murugan in the books of the accounts of the assessee, as reproduced hereinabove and the ld. DR could not controvert the above findings of the ld. CIT(A). We find no infirmity in the order passed by the ld. CIT(A) on both counts. Accordingly, the ground raised by the Revenue stands dismissed.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced on the 21st May, 2018 at Chennai.