2018 (7) TMI 2340 - HC - Income Tax

Addition on account of peak of negative cash as undisclosed investments - benefit of telescoping - Whether the Appellate Tribunal 2018 (2) TMI 2112 - ITAT AHMEDABAD has erred allowing benefit of telescoping the original disclosure made against negative cash balance in books of accounts which was never a part of the disclosure made by the assessee in the return of income especially when F.D.R. are not part of books of accounts of the assessee? Assessee submitted that such negative balance was on account of payment made out of the unaccounted income and therefore it was submitted that when the entire unaccounted income found during the search was offered as a part of the overall disclosure the same cannot be added in the total income as undisclosed investment. HELD THAT - It is required to be noted that the Tribunal has rightly observed that such negative balance was made on unaccounted income and when necessary entries were made in the books of accounts it is bound to result in negative cash balance. We are in complete agreement with the view taken by the learned Tribunal. Considering the aforesaid facts and circumstances of the case and more particularly when the entire unaccounted income which was found during the search was offered as part of overall disclosure Tribunal has rightly held that the assessee shall be entitled to the benefit of telescoping of negative cash balance against the disclosure made. Tribunal has rightly allowed the assessee the benefit of telescoping the original disclosure made against the negative balance in the books of accounts. Decided against revenue.

Summary

Issues:
Telescoping of original disclosure against negative cash balance in books of accounts.

Analysis:
The case involved a dispute regarding the telescoping of the original disclosure against a negative cash balance in the books of accounts for the Assessment Year 2009-10. The Income Tax Appellate Tribunal had dismissed the revenue's appeal and confirmed the order of the Commissioner of Income Tax (Appeals) allowing the benefit of telescoping. The revenue challenged this decision in the present Tax Appeal, questioning the legality of allowing the benefit of telescoping in such circumstances.

During the assessment, a search and seizure operation was conducted, leading to the discovery of unaccounted income/assets by the Mahek Group of Bhavnagar. The Assessing Officer noted a negative cash balance in the cash book and made an addition of the peak negative cash balance as undisclosed investment. However, the assessee explained that the negative balance was due to payments made from unaccounted income, which was part of the overall disclosure made during the search. The Commissioner of Income Tax (Appeals) accepted this explanation and deleted the addition. The Income Tax Appellate Tribunal upheld this decision, emphasizing that the negative balance was a result of entries made for unaccounted income in the books of accounts.

In the High Court's analysis, it was observed that the entire unaccounted income discovered during the search was offered as part of the overall disclosure. Therefore, the Tribunal's decision to allow telescoping of the original disclosure against the negative cash balance was deemed appropriate. The Court agreed with the Tribunal's view that when necessary entries were made in the books of accounts for unaccounted income, it would naturally lead to a negative cash balance. Consequently, the Court concluded that no substantial question of law arose in this case, and the revenue's appeal was dismissed.

In conclusion, the High Court upheld the Tribunal's decision to allow the benefit of telescoping the original disclosure against the negative cash balance in the books of accounts. The Court found no legal error in this approach, considering that the unaccounted income had been disclosed and accounted for in the overall declaration made by the assessee during the search and seizure operation.