2013 (11) TMI 1609 - AT - Income Tax

Unexplained/undisclosed cash found at the time of search - Held that - Assessing Officer has himself admitted that the said amount was shown in the cash flow statement as opening balance so it cannot be said that the assessee earned income to that extent during the year under consideration. In the present case also, as per the cash flow statement submitted by the assessee for the present year as available on page 12 of the paper book, opening balance of cash in hand was ₹ 4.09 lacs and the closing balance is ₹ 4.39 lacs. This increase of ₹ 0.30 lacs is on account of cash withdrawn from bank ₹ 1.175 lacs and expenses and drawings of ₹ 0.87 lacs. Hence, it cannot be said that there is any increase in cash in hand in the present year which stands unexplained. Regarding this contention of the learned DR of the revenue that the cash flow statement was not filed with income tax return filed before the date of search, we find that there is no such requirement that the assessee must file cash flow statement, balance sheet or copy of capital account with the return of income. Hence, on this basis, no adverse inference can be drawn against the assessee. The A.O. could have asked the assessee to explain the opening cash as on 01.04.2003 ₹ 4.60 lacs and if he could find that the assessee is not able to explain this opening cash on 01.04.2003, addition could have been made in A. Y. 2003 04 when the assessee is showing the cash for the first time but is not able to explain. The A.O. can do so now also if the law permits but in the present year, the addition made by him cannot be sustained in the facts of the present case. We delete the same. - Decided in favour of assessee

Summary

Issues:
Appeal against addition of undisclosed cash during search; Disbelief of explanation for cash source; CIT(A) upholding addition; Justification of CIT(A) order; Validity of cash flow statement; Assessment of cash source; Admissibility of cash flow statement in assessment proceedings.

Analysis:
The appeal pertains to the addition of undisclosed cash amounting to Rs. 4,16,000 during a search operation, with the CIT(A) upholding an addition of Rs. 3,70,000. The Assessing Officer disbelieved the explanation provided by the assessee for the cash source, citing lack of evidence beyond a cash flow statement. The CIT(A) partially allowed a relief of Rs. 46,000 based on savings from previous years but confirmed the remaining addition. The assessee contended that the cash flow statements for the relevant periods invalidated the CIT(A)'s decision. The assessee relied on a Tribunal decision in a similar case to support their argument.

The Revenue supported the CIT(A)'s order, emphasizing that the cash flow statements were self-serving documents submitted belatedly. They argued that the absence of financial statements before the search rendered the cash flow statements unreliable. The Revenue contested the applicability of the Tribunal decision cited by the assessee.

The Tribunal analyzed the contentions and the cited Tribunal decision. It noted that the cash flow statement indicated no unexplained increase in cash on hand for the relevant year. The Tribunal clarified that there was no legal requirement to submit cash flow statements with income tax returns before the search. The Tribunal highlighted that the Assessing Officer could have questioned the opening cash balance from previous years if unexplained. Consequently, the Tribunal found no basis to sustain the addition made by the Assessing Officer and ruled in favor of the assessee, deleting the addition.

In conclusion, the Tribunal allowed the assessee's appeal, emphasizing the lack of evidence to support the addition of undisclosed cash. The decision underscored the importance of valid explanations and the legal requirements for assessing cash sources, ultimately ruling in favor of the assessee based on the presented facts and legal precedents.