1991 (12) TMI 101 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the addition of Rs. 5,11,680 as undisclosed income.
2. Validity of the CIT (Appeals) decision to delete the addition.
3. Explanation and evidence provided by the assessee regarding the cash credit.

Detailed Analysis:

1. Legitimacy of the Addition of Rs. 5,11,680 as Undisclosed Income:
The Income Tax Officer (ITO) added Rs. 5,11,680 as undisclosed income under the head "other sources," based on entries in the assessee's Cash Book as of 31-3-1985. The ITO argued that the assessee had no tangible cash corresponding to this amount and that it should be ignored as it represented intangible assets. The ITO held that the assessee had introduced this amount in cash to offset a fictitious loss, which was not justifiable. The ITO treated this amount as income from undisclosed sources.

2. Validity of the CIT (Appeals) Decision to Delete the Addition:
The CIT (Appeals) rejected the ITO's arguments and held that the cash balance shown by the assessee was legitimate. The Commissioner noted that the settlement with the IT Department replaced the accumulated book loss of Rs. 5,11,680 with an aggregate profit of Rs. 7,60,000. The CIT (Appeals) argued that the entire adjustment should be allowed, as the figure of accumulated income/loss had been increased by Rs. 10,61,680. Consequently, the CIT (Appeals) deleted the addition made by the ITO.

3. Explanation and Evidence Provided by the Assessee Regarding the Cash Credit:
The assessee argued that the amount of Rs. 5,11,680 was available as cash, as it had only expended 90% of the gross receipts of Rs. 76,00,000, leaving the remaining 10% as net profit. The assessee's counsel submitted that this amount remained intact and was reintroduced into the accounts. The assessee relied on the Supreme Court's decision in CIT v. Harprasad & Co. (P.) Ltd. and other cases to argue that losses are negative income and should be allowed as cash entries.

Tribunal's Decision:
The Tribunal examined the contentions and materials presented. It noted that the assessee's claim that the losses were fictitious and that the cash was still available was not supported by any evidence. The Tribunal held that the amount of Rs. 5,11,680 was an unexplained cash credit under section 68 of the Income-tax Act, 1961. The Tribunal found that the CIT (Appeals) had not correctly appreciated the facts and reversed the CIT (Appeals) order, restoring the addition made by the ITO.

Conclusion:
The appeal by the Revenue was allowed. The Tribunal concluded that the assessee failed to discharge its burden of proof under section 68 of the Act regarding the cash credit of Rs. 5,11,680. The addition made by the ITO was restored, and the CIT (Appeals) order was reversed.