Realisation of debtors and liquidation of advances: balance-sheet evidence supported deletion of additions as unexplained income.

Additions for realisation of debtors and liquidation of advances were found unsustainable where balance-sheet figures and statement of affairs showed opening balances and subsequent reduction during the year. The assessee's explanation was supported by financial statements, discontinuance of business, loss of records, and inability to obtain full verification from the earlier auditor. As the amounts were not shown to have been invested in any new asset or to represent a fresh unexplained source, the material on record supported the claim that they arose from existing receivables and advances. The additions were deleted and the appeals were allowed on merits.

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Issues: Whether the additions made on account of realisation of debtors and liquidation of advances were sustainable when the assessee relied on balance-sheet figures and statement of affairs to show that the amounts represented opening balances and their reduction during the year.

Analysis: The assessee's explanation was that the business records were unavailable for genuine reasons, including the death of the spouse who handled the transactions, discontinuance of business, loss of records, and non-cooperation of the earlier auditor. The balance-sheet materials showed opening debtor balances and subsequent reduction or liquidation during the relevant years. The amounts added by the Assessing Officer were not shown to be invested in any other asset or to represent any fresh unexplained source. On the available financial statements, the movement in the debtor and advance balances supported the assessee's version that the sums came from realisation of existing receivables and advances.

Conclusion: The additions were not sustainable and were deleted; the appeals were allowed on merits for both assessment years.

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