NAYNABA ASHOKSINH JEDEJA,SURAT vs. INCOME TAX OFFICER, WARD-1(3)(8), SURAT

The grounds of appeal

1. On the facts and in the circumstances of the case, as well as law on the subject, the Learned CIT-(A) NFAC Delhi erred confirming the addition of Rs.34,10,000/- made by the Ld assessing officer treating the cash lying as safe custody as unexplained cash credit u/s 68 of the I.T. Act, 1961 without proper appreciating the fact of the case.

The facts necessary for disposal of this appeal are stated in brief. During the course of assessment proceedings, the assessing officer noted that the closing cash balance as per assessment year (AY) 2015-16, as on 31/03/2015, was to the tune of Rs.2,30,459/-. However, in the cash book, as on 01/04/2015, the opening cash balance was shown at Rs.36,40,459/- Thus, the assessing officer noted that the excess opening cash balance of Rs.34,10,000/- (Rs.36,40,459- Rs.2,30,459) was shown by the assessee. Therefore, assessing officer issued a show cause notice to explain the cash in hand. In response to the show cause notice, during the course of assessment proceedings, the assessee claimed that the 'cash lying as safe custody' shown under the head 'loans & advances' amounting to Rs.34,10,000/- as on 31/03/2015, which has been carried forward in the subsequent year on 01/04/2015. The assessee had replied to the assessing officer that part of the cash was lying in safe custody from assessment year (AY) 2013-14, and the same was existed in the books of accounts. However, the assessing officer did not accept the explanation of the assessee and made addition of Rs.34,10,000/- u/s 68 of the IT Act.

On appeal, the ld CIT(A) has confirmed the action of the assessing officer, therefore, the assessee is in further appeal before this Tribunal.

Shri Tinish R. Mody, Learned Counsel for the assessee, argued that assessee has shown in the income tax return, filed with the Department, the balance of current assets, as on 31.03.2013, to the tune of Rs.13,48,639/-, likewise balance as on 31.03.2014, ITA.423/SRT/2023/AY.2016-17 Naynaba Ashoksinh Jadeja Rs.52,22,500/-, balance as on 31.03.2015 Rs.34,13,639/- and balance as on 31.03.2016 Rs.26,11,030/-. These were the balances of current assets including cash in hand in the balance sheets filed by the assessee to the Income Tax Department. Therefore Ld. Counsel contended that as per the policy of the assessee, the assessee has used to maintain cash in hand, and over and above the safe cash deposit in the form of cash, which is shown and disclosed by the assessee, to the Income tax Department. As a matter of policy, the assessee maintains under the head, other current asset, the safe deposit, which contains the balance of cash amounting of Rs.34,11,000/- which was added by the Assessing Officer. The Ld. Counsel submitted that Assessing Officer himself has noted that cash balance of Rs.34,10,000/- was lying under the head of ‘safe custody’ which is recorded in the books of accounts of the assessee and reflected under the head of current assets/loans and advances. However, the Assessing Officer has considered the cash in hand as an opening balance to the tune of Rs.2,30,459/- which was deducted by him from the opening cash balance of Rs.36,40,459/- as on 01.04.2015 and worked out the difference to the tune of Rs.34,10,000 (Rs.36,40,459 – Rs.2,30,459). The Ld. Counsel contended that the assessee has passed the adjustment entry to transfer the cash in ‘safe custody’ account, which is a genuine adjustment entry and without looking into the correct aspect, the Assessing Officer made addition, which is not justifiable. Therefore, Ld. Counsel contended that addition made by the Assessing Officer may be deleted.

On the other hand, Learned Departmental Representative (ld. DR) for the Revenue submitted that assessee has not explained the reasons that why he has passed the adjustment entry. The assessee has ITA.423/SRT/2023/AY.2016-17 Naynaba Ashoksinh Jadeja also not explained that why he is showing some cash balance under the head ‘safe custody, instead of showing the cash under the head ‘cash balance’, therefore it raises doubt and hence Assessing Officer has made the addition, which should be upheld.

I have carefully considered the facts of the case, material as are available on record and written reply / explanation furnished on behalf of the assessee and arguments of ld DR for the Revenue. Before me, the assessee has submitted the following documents and evidences, Viz: (i) Copy of Return of income (ROI) for AY.2016-17 along with computation of income, profit and loss account, balance sheet and capital account (vide Pb.28 to 33), (ii) Bank statements for AY.2016-17 (vide Pb.34 to 42), (iii) Balance sheet of the assessee for AY.2013-14 (vide Pb.43), (iv) Name and address of the parties from whom cash and cheque were received for AY.2013-14 in a chart format (vide Pb.44), (v) Summary of Cash Flow for AY.2013-14 (vide Pb.45), (vi) Cash Book for AY.2013-14 (vide Pb.46 to 48), (vii) Balance Sheet of the assessee for AY.2014-15 (vide Pb.49), (viii) Name & address of parties from whom cash and cheque were received for AY.2014-15 in a chart format (vide Pb.50 to 51), (ix) Summary of cash flow for AY.2014-15 (vide Pb.52), (x) Cashbook for AY.2014- 15 (vide Pb.53 to 57), (xi) Balance sheet of the assessee for AY.2015- 16 (vide Pb.58), (xii) Name & address of parties from whom cash and cheque were received for AY.2015-16 in a chart format (vide Pb.59), (xiii) Summary of cash flow for AY.2015-16 (vide Pb.60), (xiv) Cash book for AY.2015-16 (vide Pb.61 to 66), (xv) Name & address of parties from whom cash and cheque were received for AY.2016-17 in a chart format (vide Pb.67), (xvi) Summary of cash flow for AY.2016- 17 (vide Pb.68), (xvii) Cash book for AY.2016-17 and safe custody

From the above documents, evidences, and cash flow statement of assessee for various assessment years, clearly state that assessee has been maintaining ‘safe custody account, as a matter of policy, which has been shown by the assessee under the head liquid assets/current assets. The ‘safe custody account, is cash in hand only which has been shown by the assessee under different nomenclature / head. With help of ‘safe custody account’, the assessee has explained the entire cash in hand with assessee. In fact, the cash of Rs.34,10,000/- was shown as “safe custody” under the head “Loans and Advances” in books of accounts in the immediately preceding previous year i.e. AY.2015-16 which was transferred to cash book in the subsequent year as on 01.04.2015 i.e. AY.2016-17 by passing book entry i.e. “Cash Book” A/c. Dr. of Rs.34,10,000/-, to “Sage custody” A/c. Cr. of Rs.34,10,000/-. Thus, the said amount of Rs.34,10,000/- cannot be said as the difference in the opening cash balance since the same was transferred to “cash book” from the “Safe custody” as on 01.04.2015 as is evident from the cash book for AY.2016-17. Thus, the opening cash on hand as on 01.04.2015 was Rs.2,30,459/- and after passing entry as on 01.04.2015 for amounting to Rs.34,10,000/- as mentioned above, the cash balance at the end of the day on 01.04.2015 is reflected at Rs.36,40,459/-. The Assessing Officer ought to have accepted the explanation of the assessee, however without proper verifying the details, added the amount of Rs.34,10,000/- treating as unexplained cash credit u/s 68 of the Act. It

Therefore, I note that assessee was having cash balance of Rs.2,30,459/- and cash lying as ‘Safe Custody’ - shown under “Loans & Advances” amounting to Rs.34,10,000/-, as on 31-03-2015, which has been carried forward in the subsequent year i.e. on 01.04.2015. On-going through the cash book submitted, I observe that opening cash balance as on 01.04.2015 under the head “Cash in hand” was Rs.2,30,459/- only, which is the same figure as closing balance as on 31-03-2015 and as shown in return of Income filed for A.Y.2015-16. Then after, on 01.04.2015, an adjustment entry was passed for an amount of Rs.34,10,000/- by crediting “Safe custody” account lying under the head “Loans & Advances” and by debiting the “Cash on Hand” account. Thus, there is no difference in the opening balance of cash book as alleged considering the cash on hand of Rs.2,30,459/- and safe custody of Rs.34,10,000/- lying in the books of account of the assessee as in 31-03-2015 i.e. for A.Y.2015-16. Accordingly, the assessee was having closing cash balance of Rs.26,11,030/- as on 31- 03- 2016 after transferring the cash balance of Rs.34,10,000/- lying under the head “Safe Custody” by passing necessary adjustment entry

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