2015 (8) TMI 1164 - AT - Income Tax

Undisclosed income added by the AO on account of cash shortage - CIT(A) confirmed part addition - Held that - The bank authorities have certified that assessee has withdrawn ₹ 8,90,000/-on 20.11.2005 which was entered in the bank register on 21.11.2005. The Standard Chartered Bank on these days were working for 365 days. It is normal practice of Bank that any transaction made by 365 days working branch on holidays is reported on Monday in case transaction is made on Sunday or on subsequent working day. This aspect was also admitted by Shri Nitin Gupta, Manager (Operations) in his statement dated 10.09.2008 before the AO. The AO used the statement recorded under section 131 of Shri Nitin Gupta in piece meal not in its entirety and also has not given copy to the assessee which is against the principles of natural justice as any evidence collected by the revenue that is to be confronted with the assessee before its use. The assessee asked to supply copy of the statement which was supplied by the AO at the appellate stage. Further assessee also filed the evidences of cash payment to M/s. Jai Hanumant on 20.02.2006 that on same day assessee received ₹ 8,00,000/- from M/s. Goodwill Fincom Pvt. Ltd. against an agreement to sale his shop situated at B-22, Transport Nagar, Jaipur for ₹ 21 lacs entered on 20.02.2006. These evidences were produced before the AO but ld. AO doubted these evidences without any adverse material brought on record. The company is a legal entity under the law. The evidences furnished before the AO which had not been appreciated properly. The ld. CIT (A) also passed a cryptic order. No specific finding has been given by her in her order dated 31.01.2013. She simply reduced ₹ 8,00,000/- from ₹ 12,85,082/- and confirmed the addition of ₹ 4,85,082/-, but no finding regarding the cash received by the assessee from the Standard Chartered Bank on 20.11.2005 has been given by her. Therefore, we reverse the order of ld. CIT (A) and allow the assessee s appeal. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction and validity of additions and disallowances made under section 143(3) of the Income Tax Act.
2. Addition of Rs. 4,85,082/- as undisclosed income due to cash shortage.
3. Charging of interest under sections 234B and 234D of the Income Tax Act.

Detailed Analysis:

1. Jurisdiction and Validity of Additions and Disallowances:
The assessee challenged the jurisdiction and the factual basis for the additions and disallowances made by the Assessing Officer (AO) under section 143(3) of the Income Tax Act. The appellate tribunal examined the procedural aspects and found that the AO had conducted a detailed scrutiny of the assessee's bank transactions and personal books of accounts. The AO had issued show cause notices and conducted inquiries under sections 131 and 133(6) of the IT Act to verify the sources of cash deposits and withdrawals.

2. Addition of Rs. 4,85,082/- as Undisclosed Income:
The primary issue was the addition of Rs. 12,85,823/- by the AO due to cash shortages on two specific dates: Rs. 5,12,566.45 on 20.11.2005 and Rs. 7,72,516.45 on 20.02.2006. The AO found discrepancies in the cash withdrawals and payments recorded by the assessee. Specifically, the AO noted that the withdrawal of Rs. 8,90,000/- on 20.11.2005 was not reflected in the bank records for that date but appeared on 21.11.2005. Similarly, the AO questioned the genuineness of an agreement to sell dated 20.02.2006, which was used to justify a cash payment of Rs. 8,00,000/-.

The CIT(A) partially allowed the appeal by deleting the addition of Rs. 8,00,000/- related to the agreement to sell but upheld the remaining addition of Rs. 4,85,082/-. The tribunal, however, found that the AO had not provided a copy of the statement from the bank manager to the assessee during the assessment proceedings, which violated the principles of natural justice. The tribunal also noted that the bank manager's statement confirmed the bank's practice of recording transactions on the next working day for transactions made on holidays. Consequently, the tribunal reversed the CIT(A)'s order and deleted the entire addition of Rs. 4,85,082/-.

3. Charging of Interest Under Sections 234B and 234D:
The assessee also contested the charging of interest under sections 234B and 234D of the IT Act. The tribunal noted that the interest charges were consequential to the primary additions and disallowances. Since the tribunal had deleted the primary additions, the interest charges under sections 234B and 234D were also consequentially deleted.

Conclusion:
The tribunal allowed the assessee's appeal in full, reversing the CIT(A)'s order and deleting the additions and disallowances made by the AO. The tribunal emphasized the importance of procedural fairness and the need to provide the assessee with an opportunity to rebut evidence collected by the revenue authorities. The interest charges under sections 234B and 234D were also deleted as a consequence of the primary relief granted to the assessee.