2014 (2) TMI 1158 - AT - Income Tax

Unexplained credits of interest accrued - CIT(A) deleted the addition - Held that - AO has not taxed the principal amount of ₹ 25,56,316/- for the Assessment Year under consideration though he has asked the assessee to explain the credit balance of ₹ 25,56,316/- as on 31.03.2001, thus when the principal amount has not been taxed in the hands of the assessee for the relevant Assessment Year, then how can the AO tax the assessee on the purported interest accrued on the basis of a figure written on piece of paper (Rs. 4,00,000/- and ₹ 2,27,000/-) and certain dates appearing against it (10.04.1999 and 27.04.1999). Even if for argument sake the interest accrued on the said amount (Rs.6,27,000) was ₹ 5,48,900/- then it would amount to an interest rate of more than 87.54% which is too high an interest and it is common knowledge that in business dealings no one gives such a high interest. And moreover the said amount of ₹ 6,22,700/- also does not pertain to this relevant Assessment Year under consideration too. - Decided in favour of assessee. Unexplained opening cash balance - income from undisclosed sources - CIT(A) deleted the addition - Held that - It is evident from the records that the assessee was not having a bank account and therefore the assessee had explained the reason to keep cash at home. The assessee's cash flow statement reveals that the had a balance of ₹ 3,62,155/- as on 01.04.2000, which is the same amount reflected as his closing balance on 31.03.2000. Since this amount of ₹ 3,62,155/- was related to the Assessment Year 2000-01, the same could not have been taxed for the relevant Assessment Year under consideration i.e., 2001-02. Therefore, we do not find any infirmity in the order of ld CIT(A) to delete the said addition of ₹ 3,62,155/- on account of opening cash balance as on 01.04.2000. - Decided in favour of assessee.

Summary

Issues:
1. Deletion of addition of Rs. 5,48,900 made under section 68 of the Income Tax Act, 1961.
2. Deletion of addition of Rs. 3,62,155 made on unexplained opening cash balance.

Analysis:

Deletion of addition of Rs. 5,48,900 under section 68:
The case involved a search operation where cash and documents were found, leading to the addition of Rs. 5,48,900 as interest accrued. The Assessing Officer relied on a seized paper, but the assessee denied ownership of the document. The ld CIT(A) deleted the addition, stating that the AO failed to establish conclusively that the interest amount belonged to the assessee. The AR argued that section 68 was not applicable as no entry was found in the assessee's books of accounts. The Tribunal agreed, dismissing the revenue's appeal due to lack of evidence linking the interest amount to the assessee.

Deletion of addition of Rs. 3,62,155 on unexplained opening cash balance:
In this issue, the Assessing Officer treated the opening cash balance as income from undisclosed sources despite being accepted in a previous assessment. The ld CIT(A) deleted the addition, emphasizing that the cash balance was carried forward from the previous year and not taxable for the current assessment year. The Tribunal upheld this decision, noting that the cash flow statement supported the explanation provided by the assessee regarding the origin of the cash balance. The revenue's appeal was dismissed.

In conclusion, the Tribunal confirmed the ld CIT(A)'s orders in both issues, highlighting the importance of establishing a direct link between the income and the assessee for tax purposes.