2016 (12) TMI 1486 - AT - Income Tax

Addition u/s 28(iv) - huge increase in the capital - revaluation of the jewellery - Held that - Opening balance of gold is 27.927 gms and on 31.03.1999 the closing stock of gold pawned was 31,183 gms and ₹ 5,14 ,897/- was lended by the assessee, which matches with the figures shown in the balance sheet as on 31.03.1999. Thus we note that the pawned jewellery stock of 31,183gms as on 31.3.1999 was reduced to approx 28 kgms as noted by AO as on 31.3.2007 pursuant to various redemptions that had happended during the period from 1999 to 2007. The assessee during the financial year 2006-07 thought it fit merely to revalue the said already accounted jewellery and give the effect of revalued portion of the jewellery to the tune of ₹ 1.52 crores and included the same in the jewellery account on assets side and corresponding credit to his capital account. This is merely a book entry passed by the assessee to give effect to the revaluation of the jewellery which was already disclosed in the balance sheet. Hence in any case there is no case made by the AO for framing an addition u/s 28 (iv) of the Act. The assessee was able to explain with the evidence of the auditor who has admitted to have made mistakes in describing the gold pledged as capital of the assessee , whereas, in the eyes of law it is a contingent liability and since the error has been corrected by audited reconciliation statement before the AO at the very first instance itself, we do notfind any infirmity in the order passed by the ld. CIT(A) in directing the deletion of the addition made by the AO u/s 28(iv) of the Act. Therefore we confirm the order of the ld. CIT(A) and dismiss the ground of appeal raised by the revenue on this issue. - Decided in favour of assessee Addition made u/s 68 - Held that - the undisputed fact that the assessee was maintaining accounts under Bengali conversion single entry system upto Asst Year 2006-07 (i.e immediately preceding previous year) and given the fact that the same were duly converted into English double entry system during the financial year 2006-07 relevant to Asst Year 2007-08 wherein these entries together with other entries were reflected in the books , we are persuaded to believe the version of the assessee in this regard. Respectfully following the Hon ble Supreme Court s decision in H.H.Sri Rama Verma vs CIT (1990 (9) TMI 4 - SUPREME Court) we hold that the provisions of section 68 of the Act cannot be invoked in the facts and circumstances of the case and the ld CITA had rightly deleted the addition in this regard. Hence we do not find any infirmity in the order of the ld CIT-A.- Decided in favour of assessee

Summary

Issues Involved:

1. Deletion of addition of ?1,52,00,082/- made under Section 28(iv) of the Income Tax Act.
2. Deletion of addition of ?49,50,000/- made under Section 68 of the Income Tax Act.

Issue 1: Deletion of Addition of ?1,52,00,082/- under Section 28(iv) of the Income Tax Act

The primary issue here revolves around the significant increase in the assessee's capital from ?14,33,285/- as on 31.03.2006 to ?2,35,07,705/- as on 31.03.2007. The Assessing Officer (AO) questioned this increase, attributing it to the inheritance of assets, including land, building, and gold ornaments, from the assessee's late grandfather. The AO accepted the inheritance of land and building but was skeptical about the inheritance of 27,927 grams of gold. Despite the AO's initial skepticism, he later assumed the gold was inherited but treated it as a benefit derived from the business, adding ?1,52,00,082/- to the assessee's income under Section 28(iv).

The Commissioner of Income Tax (Appeals) [CIT(A)] reversed this addition, noting that the confusion arose due to a change in the accounting system from Bengali single entry to English double entry, leading to errors by the auditor. The CIT(A) found that the gold was indeed pledged and not owned by the assessee, supported by various documents, including the grandfather's audited accounts, physical verification reports, and affidavits from the legal heirs waiving their inheritance rights. The CIT(A) concluded that the pledged gold was a contingent liability and not taxable in AY 2007-08.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's addition was based on a misunderstanding of the nature of the pledged gold. The Tribunal found that the gold was correctly shown as a contingent liability and not as the assessee's capital, confirming the deletion of the addition under Section 28(iv).

Issue 2: Deletion of Addition of ?49,50,000/- under Section 68 of the Income Tax Act

The second issue pertains to the addition of ?49,50,000/- under Section 68, related to deposits from customers in the assessee's money lending business. The AO added this amount as unexplained cash credits, questioning the genuineness of advances from two individuals, Anal Kanti Dey and Goutam Pal, due to insufficient documentation and non-appearance of the creditors for verification.

The CIT(A) deleted this addition, accepting the assessee's explanation that the advances were received in earlier years and were only reflected in the books in the financial year 2006-07 due to the conversion from single entry to double entry accounting. The CIT(A) noted that the advances were confirmed by Anal Kanti Dey and were part of the assessee's records in previous years, which had undergone scrutiny assessments.

The Tribunal agreed with the CIT(A), emphasizing that the advances were not fresh credits in the financial year 2006-07 but were brought forward from earlier years. The Tribunal highlighted that there was no physical receipt of money in the year under consideration, thus Section 68 could not be invoked. The Tribunal upheld the CIT(A)'s decision, confirming the deletion of the addition.

Conclusion:

The Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s deletion of both additions. The Tribunal found that the AO's additions were based on misunderstandings and errors, and the CIT(A) had correctly appreciated the facts and evidence, leading to the rightful deletion of the additions under Sections 28(iv) and 68 of the Income Tax Act.