MEGHRAJ JAIN SHIKAR,CHENNAI vs. ITO, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -4, Chennai, dated 17.02.2016 and pertains to assessment year 2012-13.

Shri D. Anand, the Ld.counsel for the assessee submitted that the Assessing Officer found cash deposits in various bank accounts. The assessee explained before the Assessing Officer that the cash withdrawn from banks were redeposited along with cash in hand for issuing cheques. The cash realized from debtors during the year under consideration, is also deposited in the bank account on various dates. The Assessing Officer rejected the claim of the assessee and redrawn the cash book ignoring the cash credit and, estimated peak credit at ₹84,50,519/-. The Assessing Officer found that the peak credit was not explained, therefore, made addition under Section 68 of the Income-tax Act, 1961 (in short 'the Act'). Referring to para 6 of the assessment order, the Ld.counsel submitted that the Assessing Officer himself admits that the assessee was assessed to tax for more than two decades and the accumulated income would be nearly ₹2 Crores. If this observation of the Assessing Officer is taken into consideration, then the accumulated income would be more than sufficient for making deposits in banks, hence, the addition made by the Assessing Officer to the extent of ₹84,50,519/- is not justified.

Referring to the order of the CIT(Appeals), the Ld.counsel for the assessee, submitted that the CIT(Appeals) confirmed the order of the Assessing Officer on the ground that complete address of the agent, through whom cash transaction was claimed to be made, was not furnished before him. The Ld.counsel further submitted that the conclusion of the Assessing Officer that the assessee could have accumulated nearly ₹2 Crores was not considered by the CIT(Appeals) while confirming the order of the Assessing Officer. When the Assessing Officer himself found that the assessee would have accumulated nearly ₹2 Crores, there cannot be any addition of ₹84,50,519/-.

On the contrary, Shri Shiva Srinivas, the Ld. Departmental Representative, submitted that during the course of scrutiny proceedings, the Assessing Officer found that there are several credits. The receipt of funds was credited in the cash book under the head “debtors”. The individual names of debtors were not entered in the cash book. However, the assessee claimed before the Assessing Officer a huge amount of outstanding as a balance with debtors. The assessee was directed to file a flow chart to explain the accumulated balance in the capital account to the extent of ₹3,32,50,920/-. Referring to the claim of the assessee that he was assessed to tax for more than two decades and there was accumulated balance in the capital account, the Assessing Officer found that accumulations out of income from assessment year 2007-08 to assessment year 2012-13 results in total credit to the capital account of ₹50,09,618/-. Assuming that the assessee had similar quantum of income in the earlier assessment years, the same cannot exceed more than ₹1.5 Crores. The Assessing Officer further found that when nearly 25 years of accumulation is considered, the total credit to the capital account, at any stretch of imagination, can touch only ₹2 Crores. The CIT(Appeals) after considering the observation of the Assessing Officer, found that the claim of the assessee cannot be accepted. Accordingly, the cash book was redrawn. The CIT(Appeals) found that the cash deposited in the bank account did not correspond to the known source of the assessee for relevant year. Referring to the claim of the assessee that the cash withdrawn from bank was deposited along with cash in hand, the Assessing Officer found that it was not tenable. Referring to the order of the CIT(Appeals), the Ld. D.R. submitted that the so-called receipt of funds from the alleged debtors was credited in the books under the head “debtors” without ledgerising the individual debtors. In the absence of any material to substantiate the credit found in the books of account, the CIT(Appeals) found that the assessee has not discharged his onus in proving the genuineness of the debt. Accordingly, he rightly confirmed the order of the Assessing Officer.

We have considered the rival submissions on either side and perused the relevant material available on record. The assessee credited money to the extent of ₹84,50,519/- in the books of account. The assessee explained before the Assessing Officer that the cash withdrawn from the bank are deposited along with cash in hand. The assessee also claims that cash received from debtors during the year under consideration was also deposited in the bank account on various dates. The assessee has not filed the details of debtors and their address. Referring to the claim of the assessee that huge amount was outstanding as balance with the debtors, the Assessing Officer found that the assessee would have accumulated ₹50,09,618/- for the past five years from the assessment year 2007- 08 to assessment year 2012-13. The Assessing Officer has also observed that if he accepts the logic from assessment year 2007-08 to assessment year 2012-13 and other years, the total accumulated income cannot exceed ₹1.5 Crores. Even if it is assumed that the assessee was assessed to tax for nearly 25 years, the accumulated income would touch ₹2 Crores only. Therefore, the Assessing Officer appears to have rejected the claim of the assessee and redrawn the cash book by ignoring the cash credit found under the head “debtors”. The Assessing Officer has taken the peak credit as per the redrawn cash book by him.

We have carefully gone through the provisions of Section 68 of the Act. In terms of credit in the books of account, if the assessee cannot explain to the satisfaction of the Assessing Officer the source of the credit, the same can be added as income of the assessee under Section 68 of the Act. The Assessing Officer found that introduction of cash credit under the head “debtors” has to be ignored while computing the cash balance available to make cash deposit in the bank account. The Assessing Officer has also observed that the deficit cash balance to the maximum extent, being the peak value, shows that the amount to such extent remains unexplained, therefore, it has to be added under Section 68 of the Act. The fact remains that the assessee was assessed to tax more than 25 years and the Assessing Officer himself admits that the accumulated income for the past five years from the assessment years 2007-08 to 2012-13 would come nearly to ₹1.5 Crores and by extending the similar logic for other years, the assessee would have accumulated nearly ₹2 Crores. If the accumulated income was taken into consideration along with cash book redrawn by the Assessing Officer, then this Tribunal is of the considered opinion that the accumulated income to the extent of ₹2 Crores has to be set off against the credit found in the redrawn cash book by the Assessing Officer If the cash credit as redrawn by the assessee was set off against the accumulated income estimated by the Assessing Officer, then this Tribunal is of the considered opinion that there cannot be any addition under Section 68 of the Act to the extent of ₹84,50,519/-. Therefore, this Tribunal is of the considered opinion that the addition made by the Assessing Officer is not justified. When the Assessing Officer himself found that the assessee could have accumulated income for the past 25 years to the extent of ₹2 Crores, making addition under Section 68 of the Act to the extent of ₹84,50,519/- is not called for. In view of the above, this Tribunal is unable to uphold the orders of the lower authorities. Accordingly, both the orders of the authorities below are set aside and the addition made by the Assessing Officer is deleted.

In the result, the appeal filed by the assessee is allowed.