2018 (2) TMI 341 - AT - Income Tax

Unexplained credit - excess of credit balance found - posting error - Held that - Assessee has duly clarified that the amount appearing was not an unsecured loan albeit was an advance receipt for a booking of villa by M/s. Global Solutions Pvt. Ltd. The said amount was in fact refunded back to the said party on the cancellation of villa and this fact has duly been confirmed and acknowledged by M/s. Global Solutions Pvt. Ltd. directly before the AO that the said company made the payment towards advance for purchase of villa. The assessee has again duly explained the fact that the said amount of cheque was entered into books of accounts twice and such a mistake was rectified only in the subsequent financial year and that is a reason why as on 31.3.20008 there was an excess of credit balance in the name of the said party. Such an accounting error has been duly appreciated by the Ld. CIT(A) and if that is so, then ostensibly there is no revenue impact, because it has not resulted into any kind of cash inflow and any kind of receipt or income in the hands of the assessee. Such a mistake has duly been rectified in the subsequent year and hence it cannot be held that it is an unexplained credit in the hands of the assessee as on 31.3.2008. What the AO has narrated in the assessment order is only the nature of transaction in assessee s bank account, that is, one cheque received from M/s. Global Solutions Pvt. Ltd. is reflected only once but has failed to took note of the fact that this booking amount was returned and both these transactions is reflected in the bank account on 27.3.2008 and 31.3.2008. Ld. CIT (A) has duly incorporated the relevant transactions as per the bank books from there it is quite clear that receipt of one particular cheque No. 7581 was shown twice. Thus, it was a pure case of posting error in the accounts book - Decided against revenue

Summary

Issues:
1. Deletion of addition of ?75,00,000 made by the AO.

Analysis:
The appeal was filed by the revenue against the order passed by Ld. CIT(Appeals) XVI, New Delhi for the quantum of assessment u/s 143(3) for the assessment year 2008-09, challenging the deletion of the addition of ?75,00,000 made by the AO. The assessee, a Director in M/s. Netlink Business Systems Pvt. Ltd. and proprietor of M/s. JSB Investment, received an unsecured loan of ?75,00,000 from M/s. Global Solutions Pvt. Ltd., which the AO considered as an unexplained credit. The AO conducted inquiries, obtained balance sheet details, and issued notices, concluding that the amount was not reconciled in the assessee's books. The AO issued a show cause notice, and the assessee explained the clerical error in showing the amount as an unsecured loan instead of an advance for villa booking. The Ld. CIT(A) considered the explanations and evidence provided by the assessee, including ledger accounts and bank statements, and deleted the addition after finding that the excess credit balance was due to a posting error and did not result in any cash inflow or income for the assessee.

The Ld. CIT(A) observed that the excess credit balance was due to a double entry error in the ledger, where the same cheque was mistakenly accounted for twice. The mistake was rectified in the subsequent financial year without any revenue impact. The Ld. CIT(A) noted that the explanation provided by the assessee was satisfactory, as confirmed by M/s. Global Solutions Pvt. Ltd., and directed the AO to delete the addition. The tribunal found that the AO's assessment only reflected the nature of transactions in the bank account, failing to consider that the booking amount was returned, resulting in a posting error. The tribunal upheld the Ld. CIT(A)'s decision, emphasizing that the posting error did not lead to any cash inflow or income for the assessee, and hence, the addition of ?75,00,000 as unexplained credit was unjustified. The appeal filed by the revenue was dismissed, affirming the deletion of the addition.

In conclusion, the tribunal upheld the Ld. CIT(A)'s decision to delete the addition of ?75,00,000 as unexplained credit in the assessee's books, as the excess credit balance was due to a posting error rectified in the subsequent financial year, without any revenue impact. The tribunal found that the explanation provided by the assessee was satisfactory, and the addition was unjustified as it did not result in any cash inflow or income for the assessee.