2021 (3) TMI 998 - AT - Income Tax

Addition u/s 68 - unexplained credit - assessee claims that Accountant, who prepared financial statement has inadvertently passed wrong journal entries in respect of provision for depreciation account which resulted in overstatement of capital account for the assessment year 2016-17 - HELD THAT - Before us, the assessee is unable to explain as to how difference in capital account was reconciled with reference to amount outstanding in provision for depreciation account. If at all, the assessee has explained difference and filed necessary journal entries to explain the fact that wrong journal entries has been passed to capital account, then there is no reason for authorities below to observe that no evidence has been filed to explain the difference. Even before us, the said difference is unreconciled. Considering the fact that assessee has requested for one more opportunity to go back to the Assessing Officer to explain difference in capital account, we are of the considered view that the issue needs to go back to the file of the Assessing Officer. Hence, we set aside the appeal to the file of the Assessing Officer and direct him to reconsider the difference in capital account in light of various averments including reconciliation if any, filed to explain difference in capital account. The assessee shall file necessary evidences to explain the difference in capital account. Appeal filed by the assessee is allowed for statistical purposes.

Issues:
1. Addition made under section 68 of the IT Act without proper appreciation of facts.
2. Failure to consider reconciliation statement and evidences furnished.
3. Treatment of accumulated depreciation and rectification of accounting mistake.
4. Rejection of evidences by Assessing Officer and CIT(A).
5. Request for reconsideration of difference in capital account.

Analysis:
1. The appeal was against the order of the CIT(A) regarding the addition made under section 68 of the IT Act. The assessee contended that the CIT(A) erred in upholding the addition without understanding the case properly. The CIT(A) failed to appreciate the explanation provided by the assessee regarding the infusion of capital and the reconciliation statement submitted to support the claim.

2. The assessee submitted that a mistake in accounting led to the difference in the capital account balance. The Assessing Officer was not convinced with the explanation provided and treated the difference as unexplained credit under section 68. The CIT(A) upheld this decision, stating that the genuineness of the claim was not adequately proven by the assessee.

3. The Assessing Officer questioned the accumulation of depreciation and the rectification of the accounting mistake. The assessee argued that the rectification was made in the subsequent assessment year. However, the authorities did not accept this explanation and added the difference in the capital account to the total income under section 68.

4. The assessee's appeal was based on the rejection of evidences by the Assessing Officer and the CIT(A). The authorities disregarded the reconciliation provided by the assessee and made additions under section 68. The AR argued that the issue should be reconsidered with the necessary evidences.

5. The ITAT directed the issue to be reconsidered by the Assessing Officer, emphasizing the need for a proper explanation regarding the difference in the capital account. The ITAT acknowledged the request for another opportunity to clarify the discrepancy and instructed the assessee to provide the required evidences for the explanation. Ultimately, the appeal was allowed for statistical purposes, and the case was remanded back to the Assessing Officer for further review.

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