2014 (7) TMI 1130 - AT - Income Tax

Unexplained cash - deficit cash balance - Held that - Since the books of account were audited and deficit cash was identified on the basis of entries in the books of account, explanation that accountant did not enter the entries of cash receipt properly cannot be accepted as a bona fide explanation. Even though the Assessing Officer did not verify the statements/affidavits filed by partners, the affirmations made there in itself confirms that cash was available with the assessee outside books of account as discussed above. In view of this, we agree with the Assessing Officer and the learned Commissioner of Income-tax (Appeals) findings that the explanation of the assessee is an afterthought and there was no proper explanation for the cash deficit in the books of account. Since the amounts were spent without there being any explained source of the amount, addition of the above amount is called for and accordingly, the same is confirmed. - Decided against assessee.

Summary

Issues:
Confirmation of addition of Rs. 4,53,560 to the income of the assessee.

Detailed Analysis:
1. The assessee declared a total income of Rs. 75,090 with audited accounts showing sales of about Rs. 1.93 crores. The Assessing Officer noted deficit cash balances on two occasions during the year, totaling Rs. 4,53,560. The Managing Director failed to explain the deficit, leading to the addition of this amount as unexplained cash available.

2. The assessee submitted affidavits from partners stating they had advanced funds as temporary accommodation. However, the Commissioner of Income-tax (Appeals) considered this an afterthought, as the Assessing Officer's remand report indicated that the payments by partners were not explained during scrutiny assessment. The Commissioner upheld the addition due to lack of documentary evidence corroborating the affidavits.

3. The assessee argued that the deficit should be deleted as genuine advances were made by partners, and discrepancies arose due to improper entries by the accountant. The Departmental representative contended that the explanation was an afterthought and no evidence was provided during the assessment.

4. The Tribunal examined the details and affidavits, noting the audited books of account should have prevented cash discrepancies. The Assessing Officer's working showed a peak deficit of Rs. 4,53,560, with the explanation of advances by partners deemed an afterthought due to discrepancies in the working. The repayment of amounts outside the books further supported the addition.

5. Affidavits confirmed advances by partners and subsequent repayment during the same financial year, not recorded in the books. The Tribunal agreed with the Assessing Officer and Commissioner that the explanation was an afterthought, leading to the confirmation of the addition. The appeal of the assessee was dismissed.

This detailed analysis highlights the key aspects of the judgment regarding the confirmation of the addition to the income of the assessee, emphasizing the lack of proper explanation and the afterthought nature of the submissions made by the assessee during the proceedings.