2018 (9) TMI 1992 - AT - Income Tax

Unexplained cash credit being peak negative cash balance found during the course of survey - HELD THAT - Since the books of accounts were accepted by the tax authorities with no defects or deficiency therein the order of CIT(A) is wrong and should not be accepted. We fail to understand that as to how addition on account of negative cash balance could be sustained by the CIT(A) when the books of accounts were accepted in which no defect or deficiency was pointed out during the assessment proceedings. We are of the view that the assessee has a very strong case in its favour and the order of Ld CIT(A) can not be sustained. We therefore set aside the order of CIT(A) and direct the AO to delete the addition as there is no unexplained cash in the books of accounts of the assessee. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Justification for reopening the assessment under Section 147 of the Income Tax Act, 1961.
2. Addition of ?56,19,155/- on account of unexplained cash credit due to peak negative cash balance.
3. Disallowance of ?2,52,500/- being ROC Charges incurred for increasing the authorized capital.

Detailed Analysis:

1. Reopening the Assessment under Section 147:
The appellant challenged the reopening of the assessment under Section 147 of the Income Tax Act, 1961. The reopening was based on the discovery of negative cash balances during a survey conducted under Section 133A, which led the Assessing Officer (AO) to believe that ?56,19,155/- had escaped assessment. The Tribunal did not specifically address the validity of reopening in the final judgment, focusing instead on the merits of the addition made.

2. Addition of ?56,19,155/- on Account of Unexplained Cash Credit:
The core issue was the addition of ?56,19,155/- due to the peak negative cash balance found during the survey. The assessee argued that:
- There was no negative cash balance during the financial year 2007-08.
- Cash sales of ?69,29,954/- were recorded in separate bill books and were accounted for in the audited books of accounts.
- The negative cash balance was a result of a consolidated entry made by the company’s accountant.
- The books of accounts were audited under both the Companies Act, 1956 and Section 44AB of the Income Tax Act, 1961, with no discrepancies reported.

The AO, however, maintained that the negative cash balances from April 2007 to November 2007, peaking at ?56,19,155/-, were unexplained and added this amount to the income of the assessee.

The Tribunal found that:
- The books of accounts were audited and found to be in order, with no defects pointed out by the AO.
- The negative cash balance was based on incomplete records found during the survey, not on the final audited books.
- The addition would result in double taxation as the cash sales were already accounted for in the books.

The Tribunal concluded that since the audited books were accepted without any defects, the addition of ?56,19,155/- was not justified. Therefore, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition.

3. Disallowance of ?2,52,500/- being ROC Charges:
The Tribunal did not specifically address this issue in the detailed analysis, as the primary focus was on the addition of ?56,19,155/-. However, the final judgment allowed the appeal of the assessee, implying that the disallowance of ROC charges was also overturned.

Conclusion:
The Tribunal allowed the appeal, directing the deletion of the addition of ?56,19,155/- and implicitly addressing the disallowance of ROC charges. The judgment emphasized the importance of audited books of accounts and the inadmissibility of additions based on incomplete records found during a survey. The Tribunal's decision was pronounced in the open court on 25.09.2018.