2021 (10) TMI 275 - AT - Income Tax

Addition of opening cash balance - AO treated the opening balance for the A.Y. 2012-13 as unexplained and added the same to the total income of the assessee - case of the assessee that it does not maintain the balance sheet or Profit and Loss Account but the cash statement has been placed on record - HELD THAT - The transactions were routed through banking channel which has not seen to have been verified by the Revenue. Thus, upon considering the entire aspect of the matter we find it fit and proper to remit the issue to the file of the Ld. AO to verify the genuineness of the transaction i.e. the source of the opening balance of the assessment year in consideration and to pass orders in accordance with law upon granting an opportunity of being heard to the assessee and upon taking into consideration the evidence which the assessee may rely upon at the time hearing of the matter. This ground of appeal is, thus, allowed for statistical purpose. Disallowance of interest expense - assessee has not produced the balance sheet or the statement of accounts or evidence with regard to the activities carried out by him, the interest charged on loan given by the assessee, purpose of loan taken, business activities carried out - HELD THAT - As case of the assessee is this that the assessee paid interest on borrowed amount and earned interest on the loan given but only the interest earned has been taken into consideration by the Revenue and the interest paid has not been deducted, since the verification on this aspect has not been done by the Revenue under this facts and circumstances of the case we find it fit and proper to remit the issue to the file of the Ld. AO to verify such details - Assessee's appeal disposed of by statistical purposes.

Summary

Issues:
1. Addition of opening cash balance
2. Disallowance of interest expense

Issue 1: Addition of Opening Cash Balance

The appeal challenged the addition of the opening cash balance of ?16,00,952 by the Assessing Officer (AO) for the assessment year 2012-13, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The appellant, a salaried individual with income from various sources, argued that the opening balance should not be added as it originated from the previous year's transaction. The appellant contended that the genuineness of the source of the opening balance was not verified by the Revenue. The appellant provided documents showing that the transactions leading to the opening cash balance were through banking channels. The Income Tax Appellate Tribunal (ITAT) found that the transactions were indeed routed through the banking channel, which had not been verified by the Revenue. Consequently, the ITAT remitted the issue back to the AO to verify the genuineness of the transaction and to pass orders in accordance with the law after allowing the assessee an opportunity to present evidence.

Issue 2: Disallowance of Interest Expense

The second ground of appeal pertained to the disallowance of interest expenses amounting to ?24,75,921. The AO disallowed interest expenditure paid to two entities, Shiv Corporation and Laxmi Corporation, totaling the mentioned amount. The appellant failed to provide balance sheets, statements of accounts, or evidence regarding the activities carried out, interest charged on loans, purpose of loans taken, or business activities conducted. Due to the lack of supporting details, the interest payments were disallowed and added to the total income, a decision upheld by the CIT(A). During the appeal hearing, the appellant's counsel presented ledger accounts of the entities showing payments made through banking channels, which were not previously submitted to the authorities. The appellant argued that interest was paid on borrowed amounts and earned on loans given, but only the interest earned was considered by the Revenue. The ITAT decided to remit the issue back to the AO to verify the details and genuineness of the interest paid, granting the assessee an opportunity to present relevant documents. The appeal was disposed of for statistical purposes.

In conclusion, the ITAT allowed the appeal for statistical purposes, remitting both issues back to the AO for further verification and appropriate action in accordance with the law.