TaxTMI 
TaxTMI 
2018 (1) TMI 446
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....esaid addition as it was only a journal entry and by passing such an entry nothing is credited in the books of account in which case only provisions of S.68 of the Act, subject to fulfilment of certain conditions, could be invoked. 4. The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal." 2. Briefly stated, the facts of the case are that the assessee which is a Non Banking financial company engaged in the business of brokerage, commission and investment had e-filed its return of income for A.Y. 2011-12 on 08.02.2013, declaring total income at Rs. Nil. The case of the assessee was taken up for scrutiny assessment u/s 143(2) of the Act. 3. That during the course of the assessment proceedings the A.O observed that an amount of Rs. 1,47,54,165/- was credited by the assessee to the general reserve. The assessee on being called upon by the A.O to explain the addition of Rs. 1,47,54,165/- made to the general reserve, submitted that due to certain typographical errors in the preparation of the accounts, certain amounts aggregating to Rs. 1,47,54,165.50 were wrongly transferred to the general reserve account. The assessee further e....
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....oned against M/s Avdhoot Finance Investments P. Ltd. was infact an asset figure which was shown under the head "Short term loans and advances" (i.e. shown as "Amount receivable"). The A.O after deliberating on the aforesaid facts observed that it was beyond comprehension as to how the assessee could claim to have added the sum total of a liability figure and that of an asset figure to bring the total to Rs. 1,47,54,165/-, and therein claim that the said figure was wrongly credited to general reserve. The A.O further observed that even if the contention of the assessee was to be taken as true and correct, what could at all be credited to the general reserve could be a liability account which had ceased to be a liability any more. The A.O in the backdrop of his aforesaid observations concluded that if along with the liability the asset was also to be adjusted, then in that case, it was only the net liability, viz. the liability net of the amount of asset which would be transferred to the general reserve. Thus, the A.O observed that on the aforesaid premises only the net liability of Rs. 69,64,411/- [i.e. Rs. 1,08,59,288.50 (minus) Rs. 38,94,877/-] could have been adjusted either in t....
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....vation of the A.O that it was beyond comprehension as to how the assessee could claim to have added the sum total of a liability figure of Rs. 1,08,59,288.50 (Cr) of M/s Arodyne Chemicals Ltd. and the asset figure of Rs. 38,94,877/- (Dr) of M/s Avdhoot Finance and Investments P. Ltd. to bring the total to Rs. 1,47,54,165/-, and claim that the said figure was wrongly credited to general reserve, therein submitted that as far as M/s Arodyne Chemicals Ltd. was concerned, there was a credit balance of Rs. 1,08,59,288.50 as on 31.03.2012 which was transferred by debiting the said party and crediting the general reserve by passing an incorrect journal entry, as a result whereof the balance in the case of M/s Arodyne Chemicals Ltd. stood reduced to Rs. Nil. That as regards M/s Avdhoot Investments P. Ltd. where there was already a debit balance of Rs. 8,13,146/- in the ledger account on 31.03.2012, the accountant wrongly debited an amount of Rs. 38,94,877/- to the party account and credited the same to the general reserve account, as a result whereof the closing debit balance in the ledger account of M/s Avdhoot Investments P. Ltd. was raised to Rs. 47,08,023/- (i.e. Rs. 8,13,146/- (+) Rs.....
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....te an unexplained liability in its balance sheet, which by no means could be construed as a mistake on the part of its accountant. The CIT(A) though deleted the addition of Rs. 1,08,59,288/- made by the A.O in respect of the addition to the general reserve account which was explained by the assessee as being the liability of M/s Arodyne Chemicals Ltd., which as claimed by the assessee was on the basis of a wrong journal entry erroneously credited to the general reserve account, but however, sustained the addition of Rs. 38,94,877/- to the general reserve account. The CIT(A) fortifying his view that the addition of Rs. 38,94,877/- to the general reserve account made by the A.O u/s 68 and upheld by him was well in order, therein observed that the same found support from the fact that the unsecured loans of Rs. 86,07,129/- appearing in the balance sheet of the assessee on 31.03.2011 had increased to an amount of Rs. 1,57,34,795/- on 31.03.2012, which revealed that there was an increase of loan by Rs. 71,27,666/- during the year under consideration. The CIT(A) in the backdrop of the aforesaid facts observed that from perusal of the increase of the loans by Rs. 71,27,666/- (cr) during t....
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....ral reserve account. It was thus averred by Ld. A.R. that a mere increase in the general reserve account by wrongly debiting the account of the aforesaid concern, viz. M/s Avdhoot finance and investments P. Ltd., which thereafter was reversed and rectified, could by no means be brought within the sweep of Sec. 68 of the Act and assessed as the unexplained cash credit in the hands of the assessee. It was submitted by the Ld. A.R. that the addition to the extent of Rs. 38,94,877/- was wrongly sustained by the CIT(A), which thus was liable to be vacated. Per Contra, the Learned Departmental Representative (for short 'D.R.') relied on the order of the CIT(A) and submitted that as the explanation of the assessee to the extent relatable to the addition of Rs. 38,94,877/- in the general reserve account was beyond comprehension, therefore, the same had rightly been sustained by the CIT(A). It was thus averred by the Ld. D.R that the appeal of the assessee was devoid of any merit and was thus liable to be dismissed. 10. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We have given a thought....