2020 (8) TMI 307 - AT - Income Tax

Unexplained cash credit u/s 68 - addition being cash balance as reflected in balance sheet - HELD THAT - The provisions of section 68 can be invoked with respect to the sum found credited in the books of accounts and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not satisfactory. Thus it is very clear that the provisions of section 68 can be attracted in relation to the credit entries found in the books of accounts. Closing cash balance shown at the end of the financial year cannot be subject matter of addition under the provisions of section 68 - addition made under 68 of the Act deserves to be deleted. Assessee has declared her income from the activity of tailoring/embroidery which has been duly accepted by the revenue. Once the revenue disbelief the activity of the assessee, then it has to disturb the entire income offered by the assessee in her return of income. For the income offered to tax from the activity of embroidery business, the revenue has not made any negative remark but for the cash balance shown by the assessee as on 31 March 2015 the revenue doubts on the genuineness of the business activity of the assessee. In our considered view the revenue cannot give different treatment for part of the transaction of the assessee. We are not convinced with the finding of the authorities below. We set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.

Summary

Issues:
1. Addition of unexplained cash credit under section 68 of the Income Tax Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT Rajkot stemmed from an order by the CIT(A)-2, Rajkot regarding the addition of ?4,98,040 as unexplained cash credit under section 68 of the Income Tax Act, 1961. The assessee, engaged in tailoring/embroidery, declared total income of ?2,49,110 for the year under consideration. The CIT(A) upheld the addition, stating that the assessee's contentions lacked substantiation and credibility. The assessee's claim of not maintaining client records despite claiming business expenses was deemed untenable. The CIT(A) concluded that the cash deposits were unexplained and confirmed the addition to the total income.

The Appellate Tribunal analyzed the provisions of section 68 of the Act, which require an explanation for any sum credited in the books of the assessee. The Tribunal determined that the closing cash balance at the end of the financial year cannot be subject to addition under section 68. Additionally, the Tribunal noted that the revenue had accepted the income declared by the assessee from tailoring/embroidery, raising doubts only on the cash balance. The Tribunal emphasized that the revenue cannot treat different aspects of the assessee's transactions differently. Consequently, the Tribunal set aside the CIT(A)'s finding and directed the AO to delete the addition, allowing the assessee's appeal.

In light of the prevailing COVID-19 situation causing delays in pronouncing orders, the Tribunal referred to a judgment extending the time for order pronouncement. Acknowledging the exceptional circumstances, the Tribunal pronounced the order beyond the usual 90-day period. The Tribunal allowed the assessee's appeal and dismissed the Assessing Officer's appeal, concluding the proceedings.

In conclusion, the Tribunal's detailed analysis of the provisions of section 68, the assessee's business activities, and the revenue's treatment of the transactions led to the allowance of the assessee's appeal. The Tribunal's consideration of the extended time for order pronouncement due to the COVID-19 situation further highlighted the exceptional circumstances affecting judicial proceedings.