GIRISH PRADHAN ( HUF),THANE vs. ITO WD 2(1), THANE

This appeal by the assessee is preferred against the order of the Ld. CIT(A)-11, Thane dated 27.06.2011 pertaining to Assessment year 2006-07.

The assessee is aggrieved by two additions. First addition on account of remission of liability u/s. 41(1) amounting to Rs. 1,20,000/- and second addition on account of cash credits amounting to Rs. 10,00,000/-.

While scrutinizing the return of income, the Assessing Officer noticed that the assessee has shown M/s. Real Software as loan creditor for Rs. 11,20,000/-. However, the assessee has repaid Rs. 10,00,000/- during financial year 2005-06. The Assessing Officer did not find any loan amount outstanding as on 31.3.2006 in the name of M/s. Real Software. On receiving no plausible reply, the AO formed a belief that the liability has ceased to exist and therefore treated Rs. 1,20,000/- as the income of the assessee.

The assessee carried the matter before the Ld. CIT(A) but without any success.

Before us, the Ld. Counsel for the assessee drew our attention to the list of sundry loan for the accounting year 2004-05 and pointed out that the amount outstanding in the name of M/s. Real Software is Rs. 12,71,200/-. The list is exhibited at page-10 of the Paper Book. The Ld. Counsel further drew our attention to page-20 of the Paper Book and pointed out that Rs. 5,00,000/- was paid to Real Software on 27.9.2006, Rs. 5,00,000/- on 4.10.2006 and on 14.3.2007 cash was paid for Rs. 2,71,200/-. Thus the account of Real Software stood Nil as at the end of the year.

The Ld. Departmental Representative could not controvert to these facts.

We have given a thoughtful consideration to the exhibits referred to hereinabove. We find force in the contention of the Ld. Counsel. The total outstanding of Rs. 12,71,200/- has been repaid by cheque Rs. 5,00,000/- each on two occasions and by cash of Rs. 2,71,200/- making the account of Real Software Nil. Since the transactions have been explained, we do not find any reason in making the addition of Rs. 1,20,000/-. Order of the Ld. CIT(A) is set aside and the AO is directed to delete the addition of Rs. 1,20,000/-.

The second addition relates to the addition of Rs. 10,00,000/- u/s. 68 of the Act.

The assessee agitated the issue before the Ld. CIT(A) but without any success.

Before us, the Ld. Counsel for the assessee stated that after the close of the accounting year 2004-05, the assessee brought certain assets in its balance sheet because of which the opening capital of the assessee was increased. It is the say of the Ld. Counsel that investment in PPF, NSC and plot of land at Navghar remained outside the balance sheet in earlier years and the same were incorporated in the balance sheet of the assessee by a journal entry which increased the capital. The Ld. Counsel further stated that if given an opportunity, he can explain the transaction before the AO.

The Ld. DR fairly conceded to this.

We have given a thoughtful consideration to the findings of the lower authorities. In our considered opinion, these are factual errors which need to be reconsidered by the AO. Therefore, in the interest of justice and fair play, we restore this issue to the file of the AO. The assessee is directed to explain the assets brought in the balance sheet to justify the increase in the capital. The AO is directed to decide this issue afresh in the light of the details filed by the assessee. Addition of Rs. 10,00,000/- is treated as allowed for statistical purpose.

In the result, the appeal filed by the assessee is allowed in part for statistical purpose.