2023 (12) TMI 1415 - AT - Income Tax

Cash balance treated as undisclosed income under Section 69 upheld due to incomplete books of account

Shrivastava Associates Versus The Income Tax Officer-3 (1), Raipur (C.G.)

The ITAT Raipur upheld the addition under section 69 regarding cash balance treated as undisclosed income, finding the assessee firm's failure to produce ... Addition u/s 69 - Treating cash balance shown in the books of account as cash introduced from alleged undisclosed income - HELD THAT:- It incomprehensible that in case the cash-in-hand as claimed by the assessee firm was sourced from its books of account, then why such books of accounts were held back and not produced before the A.O. Rather, the production of only the extract of the cash book as of 31.03.2016 wherein the cash-in-hand was disclosed at Rs.29.64 lacs (supra) in view would be nothing better than a mere eye wash which could not have been acted upon by the A.O. Accordingly, finding no infirmity in the view taken by the CIT(Appeals) who had rightly approved the addition made by the A.O, thus, uphold the same. Scope of limited scrutiny - Addition made with respect to the difference in the interest income disclosed by the assessee firm in its return of income as against that shown in its Form 26AS - HELD THAT:- Case of the assessee firm was selected for limited scrutiny, the A.O. could not have ventured to an issue that did not form the basis for taking up the case for scrutiny assessment - ITAT, Mumbai in the case of Su-Raj Diamond Dealers (P) Ltd. [2019 (12) TMI 26 - ITAT MUMBAI] had observed that since the assessee’s case was selected for “limited scrutiny” under CASS with respect to certain specific issues, the jurisdiction of the A.O in the absence of getting the said case converted into complete scrutiny as per the CBDT Instruction No.20 of 2015 dated 29.12.2015, was confined only to the specific reason/issue based on which the case of the assessee was picked up for scrutiny. Accordingly, addition made by the A.O is liable to be quashed for want of valid assumption of jurisdiction by the A.O while framing the “limited scrutiny” assessment vide his order u/s. 143(3) of the Act dated 13.12.2018. Assessee appeal partly allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are as follows:1. Whether the Commissioner of Income-Tax (Appeals) erred in dismissing the appeal by not considering the written submissions filed by the assessee firm.2. Whether the CIT(A) erred in confirming the action of the Assessing Officer (AO) in converting the case from limited scrutiny to complete scrutiny without following the procedures outlined by the CBDT.3. Whether the CIT(A) erred in sustaining the addition of Rs. 29,64,532/- made by the AO by invoking provisions of section 69, treating the cash balance shown in the books as cash introduced from undisclosed income.4. Whether the CIT(A) erred in sustaining the addition of Rs. 1,28,386/- made by the AO on account of a discrepancy between income/receipts as per Form 26AS and the Profit & Loss Account.ISSUE-WISE DETAILED ANALYSIS1. Dismissal of Appeal Without Considering Written SubmissionsThe assessee firm argued that the CIT(A) dismissed the appeal without considering the written submissions. The Tribunal noted that the CIT(A) had indeed culled out the reply filed by the assessee firm but did not take cognizance of the cash flow statement or the cash book filed before him. The Tribunal found no infirmity in the CIT(A)'s decision as the documents were filed as additional evidence without a formal request under Rule 46A of the Income-Tax Appellate Tribunal Rules, 1963.2. Conversion from Limited Scrutiny to Complete ScrutinyThe Tribunal examined whether the AO followed the CBDT procedures for converting the case from limited scrutiny to complete scrutiny. The Tribunal held that the AO overstepped his jurisdiction by addressing issues not included in the limited scrutiny, as the conversion procedures were not followed. This was supported by precedents from the ITAT, Raipur, and ITAT, Mumbai, which emphasized the need for proper conversion procedures.3. Addition of Rs. 29,64,532/- Under Section 69The AO added Rs. 29,64,532/- to the assessee's income, treating it as undisclosed income under Section 69. The assessee failed to substantiate the cash-in-hand with adequate documentation. The Tribunal found that the assessee merely provided an extract of the cash book as of 31.03.2016. The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee did not adequately explain the nature and source of the cash-in-hand, justifying the AO's addition.4. Addition of Rs. 1,28,386/- Based on Discrepancy in IncomeThe AO made an addition of Rs. 1,28,386/- due to a discrepancy between the interest income reported and that shown in Form 26AS. The Tribunal found merit in the assessee's argument that the AO exceeded his jurisdiction by addressing this issue without converting the limited scrutiny to complete scrutiny. The Tribunal cited CBDT Circular No.20/2015 and relevant case law to support its decision to vacate this addition.SIGNIFICANT HOLDINGSThe Tribunal's significant holdings include:- The Tribunal upheld the CIT(A)'s decision to disregard additional evidence not submitted in compliance with Rule 46A.- The Tribunal emphasized the necessity of adhering to CBDT procedures for converting limited scrutiny to complete scrutiny, vacating the addition of Rs. 1,28,386/- due to jurisdictional overreach.- The Tribunal affirmed the addition of Rs. 29,64,532/- under Section 69, as the assessee failed to substantiate the cash-in-hand with credible evidence.The appeal was partly allowed, with the Tribunal vacating the addition related to the discrepancy in interest income but upholding the addition related to the cash-in-hand. The Tribunal's decision underscores the importance of procedural compliance and the burden of proof on the assessee in substantiating claims of cash-in-hand.