2021 (12) TMI 353 - AT - Income Tax

Unexplained cash deposits in bank - addition u/s 68 - In survey proceedings u/s. 133A certain loose sheets and registers were impounded - HELD THAT - Due to the oversight of the Accountant certain entries have not been entered because the managers have deposited the surplus amounts which could not be disbursed to labourers at various working sites/projects. So just because these deposits could not be entered in the cash book cannot be the sole ground for making addition u/s. 68 of the Act, when the bank statement duly reflected the same. Be that as it may be, the Ld. AR alternatively suggested that at the most the income embedded in the said amount of ₹ 15,81,100/- may be taxed. It has been brought to my notice that the AO has accepted the NP @ 0.85% of the assessee s business, therefore, for the interest of both the parties, I direct the AO to restrict the addition to 1% of ₹ 15,81,100/- and balance amount to be deleted. This ground of appeal of assessee is partly allowed. Addition being interest paid to contractees - ascertainment of liability - HELD THAT - As decided in own case assessee follows mercantile system of accounting wherein the assessee was ascertained his liability of expenses as per terms of agreement and that the said ascertained liability of the assessee should be allowed as expenditure. As per the nature of the business of the assessee, the assessee has ascertained liability on interest expenditure and the Assessing Officer has not pointed out that the same was not ascertained, therefore, no justification on the part of the CIT(A) in confirming the impugned disallowance of interest expenditure. The same is ordered to be deleted. - Decided in favour of assessee.

Summary

Issues:
1. Addition of cash deposit of ?15,81,100 not disclosed in the cash book.
2. Addition of interest paid to contractees.

Issue 1: Addition of cash deposit of ?15,81,100 not disclosed in the cash book.
The appeal was filed against the order of Ld. CIT(A) confirming the addition of cash deposit of ?15,81,100. The AO conducted a survey under section 133A and found discrepancies in the cash deposits made by the assessee. The AO alleged that ?15,81,100 was deposited in the bank but not disclosed in the cash book. The assessee, a government contractor, explained that the surplus cash from project sites was deposited by managers, which might have been overlooked by the accountant. The Ld. AR argued that since the entire amount was deposited in the bank and reflected in the bank statement, it should not be treated as undisclosed income. The Ld. AR suggested taxing the income embedded in the amount. The Tribunal directed the AO to restrict the addition to 1% of ?15,81,100 and delete the balance amount, considering the NP rate accepted by the AO. The ground of appeal was partly allowed.

Issue 2: Addition of interest paid to contractees.
The Ld. CIT(A) confirmed the addition of ?3,50,942 as interest paid to contractees, stating it was a contingent liability. However, the Tribunal noted a previous decision in the assessee's favor for AY 2013-14, where a similar issue was decided in favor of the assessee. The Tribunal found no change in facts or law and directed deletion of the addition on this count, following the precedent. Consequently, this ground of appeal was allowed. Overall, the appeal of the assessee was partly allowed, and the order was pronounced on 30th November 2021.