BALAJI CONSTRUCTION,KOLKATA vs. ITO, WD-28(1), KOLKATA, KOLKATA

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-XIV, Kolkata dated 01.11.2013. Assessment was framed by ITO Ward-28(1), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide her order dated 31.12.2008 for assessment year 2006-07.

Briefly stated facts are that assessee, a firm, engaged in business of civil construction. The assessee for the year under consideration has shown the receipt of ₹98,296/- from Emami Paper Mills Ltd. (EPML for short). However, on confirmation u/s 133(6) of the Act it was revealed that the total transactions in the year under consideration with EPML was of ₹14,82,237/-. On question by the AO about the aforesaid mismatch the assessee admitted the discrepancy and offered 20% of such receipt as “income”. The assessee also clarified that the aforesaid bank account was not disclosed in the return as the same was opened by way of unfair means by the other partner. The assessee also submitted that the expense incurred in connection with aforesaid receipt has also not been booked in the books of account of assessee. However, AO disregarded the claim of assessee by observing that the details of the expenses not booked in relation to impugned receipt from EPML has not been substantiated. The AO also observed that there was an outstanding balance shown in the books of account of assessee in the name of EPML for ₹1,37,844/- only. Accordingly, AO treated a sum of ₹12,46,096/- (1482237 – [137844 + 98296]) as undisclosed cash credit u/s. 68 of the Act and added to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that AO erred in not considering the corresponding expense incurred in relation to impugned undisclosed receipt. Therefore, only gross profit should be brought to tax. However, Ld. CIT(A) disregarded the claim of assessee and confirmed the order of AO by observing as under:- “4.2 I have examined the impugned assessment order of the AO and considered the written submission and heard the verbal arguments of the AR of the appellant – assessee. However, I do not find any merits in the arguments of the AR of the appellant. In the assessment proceedings the AR was asked by the AO to explain the discrepancy and furnish the bank details of the account in which the receipts from Emami Paper Mills Ltd, were credited since the disclosed bank account does not reflect these receipts. He submitted that the accountant resorted to unfair mean in connivance with one of the partners due to which bank details was not available and is closed 20% of the escaped receipts. The A.Y. 2006-07 Balajia Construction Vs. ITO Wd-8(1) Kol. Page 3 AR has admitted the omission of receipts from Emami. His disclosure is not acceptable as the matter of relevant expenses not being booked/accounted is not substantiated. The total transactions less amount outstanding of Rs.1,37,844/- and the one already reflected of Rs.98,296/- is treated as undisclosed cash credit u/s. 68. The balance amount of Rs.12,46,096/- is added back to total income. The appellant admitted the mistake during assessment proceedings which had occurred due to the unfair connivance the accountant with one of the partners. 4.2.1 In view of the above discussion of facts, I declined to accept the contention of the AR and uphold the addition of Rs.12,46,096/- made by the AO. In the result, the appeal failed on this ground and I dismissed the instant appeal.”

We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the instant case relates to the addition made by AO and subsequently confirmed by Ld. CIT(A) on account of undisclosed receipts in the undisclosed bank account from EPML. There is no dispute about the facts of the case, therefore the same are not repeated for the sake of brevity. Admittedly, assessee has not offered to tax a receipts of ₹12,46,096/- from EPML. However, the A.Y. 2006-07 Balajia Construction Vs. ITO Wd-8(1) Kol. Page 4 undisclosed receipt was treated as unexplained cash credit u/s 68 of the Act. At this juncture, we find importance to reproduce the provision of Sec. 68 of the Act hereunder:- “Cash credits. 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year: [Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) The person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) Such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory;