2021 (9) TMI 968 - AT - Income Tax

Addition on difference between balance in account as per the books and the balance as per bank statement - difference between the books of accounts of the assessee as on 31.03.1990 and bank statement of Uco Bank, Harnam Street Branch - HELD THAT - Bank statement relates to the year 1993 and therefore we find merit in the contention of the Ld. A.R. that it is rather impossible to produce the statement belonging to 1993 in the year 2018. Moreover, the fact of the cheques not presented in the bank in the subsequent year has been confirmed by the AO after enquiring the same from the UCO bank. Amount of cheques issued by the assessee which were reversed subsequently for the reason that same were not presented for payment. So far as the discrepancies in the dates are concerned, we do not find that any minor mistake as such would lead to such a heavy addition in the hands of the assessee that too when the verification of facts are almost impossible due to the fact that these entries belong to 1993. These cheques were never encashed from the bank a finding qua which has been given in the remand report by the AO after carrying out verification from then UCO bank - addition can not be made merely because it was not explained by the assessee by overlooking the facts on records which testified that the difference between the books of account of the assessee and bank statement of UCO bank are attributed to cheques/advices issued but not encashed and presented in the bank - we direct the AO to delete the disallowance - Decided in favour of assessee. Assessment of interest income - whether to be assessed as cash system of accounting instead of mercantile system of accounting - CIT(A) deleted the addition - HELD THAT - CIT(A) allowed the appeal of the assessee by following the decision of the co-ordinate Bench of the Tribunal in the case of Sudheer Mehta A.Y. 2009-10 to 2011-12 2017 (12) TMI 1668 - ITAT MUMBAI . Accordingly, we do not find any infirmity in the order of Ld. CIT(A) and same is upheld by dismissing the appeal of the Revenue. Penalty us 271(1)(c) - whether notice barred by limitation? - HELD THAT - As per the provisions of section 275 of the Act, the A.O. ought to have passed the penalty order u/s. 271(l)(c) of the Act on or before 31.05.1995 as the ld CIT(A) passed the order on 28.10.1994. Since the penalty order has been passed on 28.04.2006, in our considered view ,the same was beyond the limitation period and hence void ab initio. As the penalty order passed beyond the time limit permissible u/s. 275(l)(a) of the Act and is invalid and void ab initio. Consequently the same is quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ?5,51,63,286/- due to discrepancy between balance in books and bank statement.
2. Assessment of interest income of ?48,03,311/- under cash system vs. mercantile system of accounting.
3. Validity of penalty order under section 271(1)(c) of the Act due to limitation.

Issue-wise Detailed Analysis:

1. Addition of ?5,51,63,286/- due to discrepancy between balance in books and bank statement:

The assessee filed a return of income declaring ?34,90,090/-, which was later revised to ?34,94,650/-. A search action under section 132(1) revealed discrepancies, leading to an assessment of ?1,90,67,99,460/- after rejecting the books of accounts. The AO added ?5,60,33,309/- due to discrepancies between the balance in UCO Bank as per the books and the bank statement. The CIT(A) confirmed the addition to the extent of ?5,51,63,286/- after considering a reconciliation statement.

The Tribunal set aside the issue for fresh consideration, directing the CIT(A) to provide the assessee with an opportunity to be heard and to make further inquiries with the bank. However, the CIT(A) again confirmed the addition, stating that the assessee failed to provide sufficient evidence to substantiate the claim that the transactions were related to a proposed sale of securities for SBI, which was subsequently canceled.

Upon further appeal, the Tribunal found that the cheques were never encashed and presented in the bank, as confirmed by the AO's remand report. The Tribunal held that the discrepancies were due to cheques issued but not presented for payment, and thus, directed the AO to delete the disallowance, allowing the assessee's appeal.

2. Assessment of interest income of ?48,03,311/- under cash system vs. mercantile system of accounting:

The AO added ?48,03,311/- as accrued interest, arguing that the assessee followed the mercantile system for trading in securities. The CIT(A) deleted the addition, following the Tribunal's decision for AY 1989-90, which held that the interest income should be taxed as per the cash system of accounting. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

3. Validity of penalty order under section 271(1)(c) of the Act due to limitation:

The assessee challenged the penalty order dated 28.04.2006, arguing it was barred by limitation. The Tribunal examined the provisions of section 275 and found that the penalty order should have been passed on or before 31.05.1995, considering the CIT(A)'s order dated 28.10.1994. Since the penalty order was passed much later, it was deemed void ab initio.

The Tribunal also noted that the notice issued under section 271(1)(c) was in a standard format without specifying the limb under which the penalty was proposed, rendering it invalid. Consequently, the penalty order was quashed, and the assessee's appeal was allowed. The Revenue's appeal on this issue was dismissed as infructuous.

Conclusion:

- The Tribunal allowed the assessee's appeal regarding the addition of ?5,51,63,286/- due to discrepancies in the bank statement.
- The Tribunal upheld the CIT(A)'s decision to assess the interest income of ?48,03,311/- under the cash system of accounting.
- The Tribunal quashed the penalty order under section 271(1)(c) due to being barred by limitation and the invalid notice, allowing the assessee's appeal and dismissing the Revenue's appeal.