SHASHI KUMAR MEHTA,SONIPAT vs. ITO WARD 4, SONIPAT

During the assessment proceedings, the Assessing Officer noticed that the assessee has shown business income amounting to Rs. 4,545/- in his ITR filed for the AY 2017-18 on a huge turnover amounting to Rs. 6 crore including Rs. 81 lakhs cash deposited during the demonetization period and the assessee has not got his accounts audited. Assessee has shown himself as sundry creditor at Rs. 17,71,879/- in his books of account furnished during assessment proceedings.

The Assessing Officer further noticed that the assessee has deposited in bank cash of Rs. 81 lakhs and on the other hand he has cash in hand for Rs. 80,82,763/-. The Assessing Officer further observed that assessee has CC limit account (cash credit account) and interest amounting to Rs.6,56,639/- has been paid but assessee has not shown any interest expense debited in his P& L account furnished for the year under consideration. Assessee has not followed section 40A(3) of the Act.

The assessee explained that the assessee has agriculture land from which the income of Rs.2,00,000/- has been shown in computation of Page 3 of 7 income furnished earlier. The balance outstanding in the name of Shashi Kumar Mehta pertains to agriculture products sold by Shashi Kumar Mehta, individual, to Mange Ram Kewal Kishan,firm. The assessee filed the copy of account in the name of Shashi Kumar Mehta, Farmer a/c.

The Assessing Officer held that as the firm was dissolved on 31.03.2015, the assessee cannot be the sundry creditor of his proprietorship concern and added the amount of Rs. 17,71,879/- considering the same as bogus/unexplained sundry creditors u/s 68 of the Act.

Aggrieved, the assessee went in appeal before the ld. CIT(A) who confirmed the addition made by the Assessing Officer.

Now the assessee is in appeal before us.

Before us, the ld. counsel for the assessee vehemently stated that it was due to inadvertent error, the creditor was shown in his own name instead of crediting the same to the capital account of the assessee at the time of conversion of partnership firm into proprietorship concern.

Per contra, the ld. DR relied upon the orders of the ld. CIT(A).

We have heard the rival submissions and have perused the relevant material on record. At the very outset, we find the explanation of the assessee to be plausible and satisfactory. We, therefore, are of the considered view that the addition on account of sundry creditor made by the Assessing Officer and confirmed by the ld. CIT(A) needs to be deleted. We order accordingly. Ground 3 on this count is allowed.

Regarding the addition of Rs. 80,82,783/- made by the Assessing Officer on account of cash deposited in the bank account, we find that the assessee has attempted to prove the entire source of cash deposit during demonetization as cash in hand required to provide advance to the farmers in his Katcha Arahtia business of commission agent. Although the assessee, prima facie, appears to have discharged its onus of explaining source of cash deposit, it’s contentions to prove the source, hardly deserves to be accepted in entirety especially when the AO found the assessee drawing cash from banks when he had sufficient cash in hand. On the other hand, the Revenue’s endeavour to disbelieve the Page 5 of 7 assessee’s contention that cash deposit has been made out of cash in hand, cannot be fully justified. In this factual matrix, there is some element of failure to explain some of the cash deposit, cannot be ruled out. Be that as it may, it is deemed appropriate, in larger interest of justice, that a lump-sum addition of ₹ 5 lakh only would be just and proper with a rider that the same shall not be treated as a precedent, so as to cover all loopholes. The ground of appeal no 2 is partly allowed. allowed.