2011 (3) TMI 1627 - AT - Income Tax

Tribunal affirms CIT(A) decisions on unexplained cash credit & business loss

Dy. Commissioner of Income Tax Central Circle 1, Kanpur Versus Shri Satish Chandra Pandey

The Tribunal upheld the CIT(A)'s decisions in a case involving the deletion of Rs. 16,42,480 as unexplained cash credit and the allowance of a business ... Unexplained Cash Credit u/s 68 - During search and seizure, AO observed that the assessee did not have the cash balance as claimed, cash has been introduced by the assessee only to explain the investment of expenses in the subsequent years - Addition was made HELD THAT:- It is admitted fact that the assessee is regularly filing his returns of income for the preceding assessment years and furnished documents in support of his claim that his income was assessed regularly in the earlier years. In the instant case nothing is brought on record to substantiate that any material was found during the course of search that the assessee either purchased assets or incurred expenses for the year under consideration. Even the AO himself admitted that the said amount was shown in the cash flow statement as opening balance, so it cannot be said that the assessee earned income to the above extent during the year under consideration, as the amount in question does not pertain to the year under consideration, therefore, it cannot be a subject matter of addition u/s. 68. The above view is fortified as per the ratio laid down by the Hon'ble Delhi High Court in the case of COMMISSIONER OF INCOME-TAX VERSUS USHA STUD AGRICULTURAL FARM LTD. [2008 (3) TMI 91 - DELHI HIGH COURT]. Considering the totality of the facts, we do not see any valid ground to interfere with the findings of the ld. CIT(A) - Decision in favour of Assessee. Assessment u/s 153A - Disallowance of Business Loss - AO disallowed the business loss on the ground that the final accounts of the business relating to assessee's proprietorship firm (M/s Arohi International) have not been filed by him HELD THAT:- In the instant case, the AO acknowledge in his assessment order that the assessee attached profit and loss account and balance sheet with the regular return of income, therefore, the AO was not justified in making the disallowance when the assessee had already disclosed the relevant documents in the original return of income, therefore, the AO could not have considered the impugned loss in the proceedings u/s. 153A, particularly when nothing contrary was unearthed during the course of search. We, therefore, considering the totality of the facts do not seen any merit in this ground - Decision in favour of Assesee. Issues Involved:1. Deletion of addition of Rs. 16,42,480 as unexplained cash credit under Section 68.2. Allowance of business loss of Rs. 1,26,820 related to M/s Arohi International.Issue 1: Deletion of Addition of Rs. 16,42,480 as Unexplained Cash CreditThe Department appealed against the CIT(A)'s decision to delete the addition of Rs. 16,42,480 made by the Assessing Officer (AO) as unexplained cash credit under Section 68 of the Income-tax Act, 1961. The AO contended that the assessee did not provide sufficient evidence to substantiate the opening cash balance shown in the cash flow statement. The AO argued that the assessee's claims of having such a cash balance were unsubstantiated, especially considering the assessee's financial behavior, such as maintaining an overdraft balance and taking loans from various individuals.The CIT(A) observed that the AO admitted the cash balance was brought forward from the previous year and should have verified the closing balance of the preceding year. The CIT(A) noted that the assessee had filed income tax returns, VDIS certificates, and balance sheets for earlier years, proving the capital of Rs. 16,42,480. The CIT(A) concluded that the AO ignored the records and documents available with the Department, and thus, the addition was unjustified.The Tribunal upheld the CIT(A)'s decision, emphasizing that in an assessment under Section 153A, additions can only be made based on material found during the search. The Tribunal found no evidence that the assessee invested or incurred expenses amounting to Rs. 16,42,480 during the relevant year. Since the amount was shown as an opening balance, it could not be added under Section 68 for the year under consideration. The Tribunal dismissed grounds No.1 and 2 of the Department's appeal.Issue 2: Allowance of Business Loss of Rs. 1,26,820 Related to M/s Arohi InternationalThe Department also contested the CIT(A)'s decision to allow the business loss of Rs. 1,26,820 claimed by the assessee for M/s Arohi International. The AO disallowed the loss, arguing that the assessee did not provide the final accounts or sufficient documentation to prove the loss during the assessment proceedings.The assessee explained that the books of accounts and related documents were lost in transit, which was reported to the police. However, the assessee provided copies of sales tax assessment orders and other documents to substantiate the existence of the business and the claimed loss. The CIT(A) noted that the final accounts were filed with the original return and were on record with the Department. The CIT(A) held that the AO should have utilized these documents instead of disallowing the loss, especially since the powers under Section 153A are confined to assessing undisclosed income found during the search.The Tribunal agreed with the CIT(A), stating that the AO acknowledged the existence of the final accounts with the original return. Since the relevant documents were already disclosed and no contrary evidence was found during the search, the AO was not justified in disallowing the loss. The Tribunal dismissed ground No.3 of the Department's appeal.Conclusion:The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s decisions on both issues. The deletion of the addition of Rs. 16,42,480 as unexplained cash credit and the allowance of the business loss of Rs. 1,26,820 related to M/s Arohi International were found to be justified based on the records and the legal principles governing assessments under Section 153A.