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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: Shri D.T. Garasia & Shri G Manjunatha
per the order of ITAT, the total payment made for the property was found at Rs.18,32,835 (Rs.8,51,835 + Rs.9,81,000), did not consider payment of Rs.8,51,835 made by assessee’s husband on the ground that the said amount has been treated as unexplained investment in the hands of assessee’s husband for the block period. Insofar as remaining amount of Rs.9,81,000 the CIT(A) has allowed a sum of Rs.2,74,100 which was paid by cheque and rejected the balance amount of Rs.4,21,900 on the ground that the assessee has paid the amount in cash for which no source has been explained. The assessee claims that out of the total cost of acquisition of the property, a sum of Rs.8,51,835 has been paid by assessee’s husband for which a separate addition confirmed by the ITAT. The assessee further submitted that once addition has been made for the amount as unexplained investment, the source available in the form of investment for property has to be allowed as cost of acquisition in the hands of the assessee. Insofar as balance amount of Rs.4,24,900 is concerned, the assessee has paid cash out of cash balance available in her books of account which fact has been accepted by the ITAT in the block assessment.
Having heard both the sides and considered material on record, we find force in the argument of the assessee for the reason that the CIT(A) himself has discussed the fact that a sum of Rs.8,51,835 has been paid by assessee’s husband towards purchase of property for which a separate addition has been made in the hands of assessee’s husband for the block period which is evident from the fact that the same has been upheld by the ITAT in its order dated 23- 03-2007 in IT (SS) a No.699/Mum/2002). Once addition has been made towards unexplained investment in the hands of the assessee’s husband, the source available in the form of investment towards property cannot be denied as cost of acquisition. Insofar as balance amount of Rs.4,24,900 the assessee has paid cash for purchase of property out of cash balance available in the books of account which fact has not been disputed by the lower authorities. its order, disallowed the cost incurred by the assessee by holding that the additions made in the hands of the assessee during block period on protective basis has already been deleted, cannot again be claimed by the assessee now.
We do not find any merit in the findings of the CIT(A) for the reason that since substantive addition has been made in the hands of the assessee’s husband, addition made on protective basis in the hands of the assessee cannot be a ground for denying the sources available in the form of cash. Therefore, we are of the view that the issue needs to be examined by the AO in the light of the claims of the assessee that Rs.8,51,835 has been paid by the assessee’s husband for which a separate addition has been made for the block period and also availability of source for Rs.4,24,900, as per the order of the ITAT. Hence, we set aside the issue to the file of the AO and direct him to verify the cost of acquisition of the assessee and recompute the capital gain.
The next issue that came up for our consideration is addition towards unexplained cash credit u/s 68 of the I.T. Act, 1961. The AO made addition of Rs.6 lakhs as unexplained cash credit for the reason that the assessee has failed to prove the identity, genuineness of transaction and creditworthiness of the parties. The assessee claims that additions made by the AO towards unexplained cash credit u/s 68 amounts to double addition, because AO has computing capital gain for which the source has been explained by way of ‘payable towards cost of improvement’ shown for the property. Once the cost of improvement has been disallowed, the payable shown against cost of improvement automatically nullifies. Therefore, addition towards ‘payable for cost of improvement’ shown in the balance-sheet u/s 68 as unexplained cash credit amounts to double deduction, which is incorrect.
Having heard both the sides and considered material available on record, we find that the assessee has shown cost of improvement of Rs.6 lakhs towards property and shown the same as payable in the balance-sheet. The AO has disallowed cost of improvement shown by the assessee on the ground that the assessee has not filed any evidence to justify cost of improvement. Once cost of improvement has been disallowed while computing capital gain, the credit shown in the balance-sheet against cost of improvement automatically nullifies. Therefore, the AO was incorrect in making additions towards payables u/s 68 of the Income-tax Act, 1961. However, we set aside the issue to the file of the AO for verification of the fact with regard to the cost of improvement and payables shown by the assessee in the balance-sheet.
Hence, we direct the AO to verify the claim of the assessee and if the payable shown in the balance-sheet is on account of cost of improvement already sustained in the eyes of law and it should be deleted.
The next issue that came up for our consideration is addition of Rs.10,99,955 towards difference in capital account as per balance-sheet enclosed alongwith letter dated 16-06-2009 and balance-sheet enclosed alongwith letter dated 09-10-2009. During the course of assessment proceedings, the AO observed that there is a difference in capital account shown by the assessee in the balance-sheet as on 31-03-2007. Therefore, he asked the assessee to show cause as to why the difference shall not be added as unexplained credit u/s 68 of the Act. In response to show cause notice, the assessee submitted that difference in the capital account balance as pointed out by the AO is due to a clerical mistake of the accountant which has been rectified by filing a revised balance-sheet. Therefore, difference in capital account is not an item of credit found in the books of account to make addition u/s 68 of the Act. The AO, after considering the submissions of the assessee observed that the assessee has failed to explain the difference in capital account and balance-sheets. Though assessee claims that it is a clerical mistake committed by the accountant, the balance in capital account has been enhanced by Rs.10,99,955 increasing the liability side of the balance-sheet.
Therefore, it is evident from the fact that the assessee has increased capital has been treated as unexplained cash credit u/s 68 of the Act.
The Ld.AR for the assessee submitted that the Ld.AO was erred in making additions of Rs.10,99,955 u/s 68 of the Act, as unexplained cash credit towards difference in capital account, as the said difference cannot be considered as unexplained credit u/s 68 of the Act. The Ld.AR further submitted that the assessee did not maintain books of account and in the absence of books of account addition cannot be made towards credit found in the balance-sheet.
In support of his arguments, he relied upon certain judicial precedents including the decision of Hon’ble Madras High Court in the case of CIT vs Taj Borewells (2007) 291 ITR 232 (Mad). The Ld.DR, on the other hand, strongly supported the order of CIT(A).
We have heard both the parties and perused material available on record. The AO made addition of Rs.10,99,955 towards difference in capital account in the balance-sheets as per two balance-sheets filed by the assessee u/s 68 of the Act. According to the AO, assessee has inflated capital account balance to explain the sources in the asset side of the balance-sheet. The assessee claims that addition u/s 68 cannot be made towards difference in capital account balance, as section 68 mandates addition of sum found credited books of account, the AO was incorrect in making additions by invoking the provisions of section 68 of the Act.
We do not find any merit in the arguments of the assessee for the reason that the assessee did not maintain books of account and so section 68 will not be applicable, is not acceptable. It is incumbent upon every assessee doing business to maintain proper books of account. It may be of any form.
However, the assessee has not done so, so he cannot be allowed to take advantage of his own wrong. Burden lies on the assessee to show from where he has received the amount and what is the nature. Unless these facts are explained, he cannot claim deduction of the same amount from income-tax u/s 68 of the Act. Therefore, we are of the view that the assessee has failed to explain the difference in capital account as per two balance-sheets filed before the AO and also considering the fact that the assessee has inflated the capital account to explain the assets appearing in balance-sheet, the AO was right in treating difference in capital account as unexplained cash credit u/s 68 of the Act. This proposition is further strengthened by the latest decision of the Bombay High Court, in the case of ShriArunkumar J Muchhala vs CIT in Income- tax Appeal No.363 of 2015 judgement dated 24-08-2017 wherein the Hon’ble High Court categorically held that the assessee cannot take advantage of his Act. The Hon’ble Court further observed that the assessee has to explain each and every credit appearing in the books of account. The Court further considering the case laws relied upon by the assessee in the case of CIT vs Taj Borewells (supra) observed that the assessee has to explain about the nature and source of the credits in the books of account, and the amounts so credited in the bank passbook. The source of such amount has been discussed by the AO from the balance-sheet filed by the assessee. Apparently, it might have been prepared from the books of account. The relevant portion of the order of the Hon’ble High Court is extracted below:-
“11. The facts as emerged before the Assessing Officer appears to be not in dispute. The Appellant has not denied that he has received the said loan amount / cash deposits from those persons whose list has been given in the order of Assessing Officer. He has revealed those names from the Bank account of the Appellant. Now, Appellant intends to say that he has not maintained books of accounts and therefore, those amounts can not be considered. When Appellant is doing business, then it was incumbent on him to maintain proper books and/ or books of account. It may be in any form. Therefore, if he had not maintained it, then he can not be allowed to take advantage of his own wrong. Burden lies on him to show from where he has received the amount and what is its nature. Unless this fact is explained he cannot claim or have deduction of the said amount from the income tax. Sec. 68 of I. T. Act provides that where the assessee offers no explanation about the nature and source of the credits in the books of account, all the amounts
15 so credited or where the explanation offered by the assessee is not satisfactory in relation to the same then such credits may be charged to tax as income of the assessee for that particular previous year. It is to be noted here in this case that huge amounts have been credited in the account of the Appellant and he has not explained the nature of the same. The source of the said amount has been discovered by the Assessing Officer from Bank Pass Book. It is to be noted that when the source and nature has been held to have been explained, the said amount has been deleted by the appellate forums. Now the dispute has remained in respect of amount of Rs.9,00,000/- from M/s. PoojaCorporation, Rs.7,00,000/- from M/s. Pooja Enterprises, Rs.24,00,000/- from Shri. Ashok Mehta, Rs.18,00,000/- from Mr. Ajay Shah. No document was produced in respect of these transactions nor the amounts have been confirmed from those persons, who are shown to have lent them. The authorities below have therefore, rightly held that nature of the transaction has not been properly shown by the Appellant.
12. The ratio of the authorities relied by the learned Counsel appearing for Appellant is not applicable here. In those cases, either the entries were confirmed by the parties in whose name they were standing or books of accounts were showing the cash credits from undisclosed source. Here in this case, at no earlier point of time, a firm stand was taken by the Appellant that he has not maintained books of account. Whenever a direction was given to produce the same in any form, it was replied by the Appellant that he wants time to prepare. Many opportunities were given by the Assessing Officer for the production of relevant documents including books of account in the form of ledger, balance sheet, etc. However, such documents were never produced. Non-production of the document is different from not maintaining the Books of Account. The Appellant has raised the said point of 'hooks of accounts not maintained" for the first time before this Court. The facts in the case of Sudhir Kumar Sharma (supra) are 16 almost similar and therefore, the observations are binding. 13. When even after giving opportunities , The Appellant had failed to produce relevant documents and explain the nature and source of the amount received by him as narrated above; the order of the Assessment officer and the appellate authorities in respect of those amounts is justified. We do not find any substantial question of law raised by the Appellant in this appeal and therefore, we proceed to pass following order.”
In this view of the matter and also considering the facts of the present case, we are of the view that there is no merit in the argument of the assessee that addition cannot be made u/s 68 of the Act, in the absence of books of account. The AO has made addition towards difference in capital account which is apparently from the books of account of the assessee and hence, we uphold the additions made by the AO and dismiss grounds raised
by the assessee.