2024 (7) TMI 1185 - AT - Income Tax

Addition being the cash deposited during the demonetization period - HELD THAT - AO has not considered the sales and nature of business of the assessee. Though, the AO has doubted the source of cash deposit, yet did not point out any error or infirmity in the books of accounts of the assessee. No defect was pointed out nor found by any of the lower authorities and since the entire deposits have gone through the books of accounts regularly maintained by the assessee duly audited, therefore, we are of the considered view that the entire addition has been made on the basis of surmises and conjectures which have no legs to stand. Moreover, though the AO has alleged unexplained cash deposit during demonetization period but has not brought on record anything to show that the said cash deposits were made in specified bank notes (SBN). AO has referred to huge variation in the cash deposited during the demonetization period and has also referred to the huge surge of revenue from operations but has not pointed out any error or defect in the books of accounts. We find that at clause (iv) at page 5, the AO has mentioned that the assessee has produced the accounts at the fag end of the assessment proceedings. Therefore, AO should examine the books of accounts thoroughly and decide the issue afresh after affording reasonable and adequate opportunity of being heard to the assessee. AO is also directed to examine the authenticity of the bills furnished by the assessee. Accordingly, this ground is allowed for statistical purposes. Carry forward of the claim of business loss - HELD THAT - We are of the concerned view that all that the AO is required is to inform the assessee about the amount of loss as computed by him. Whether the loss in any year may be carry forward to the following year and set off against the profits, has to be determined by the AO who deals with the assessment of the subsequent year. It is for the AO dealing with the assessment in the subsequent year to determine whether the loss of the previous year may be set off against the profits of that year. See MANMOHAN DAS (DECEASED) 1965 (11) TMI 33 - SUPREME COURT as held decision recorded by the Income-tax Officer who computes the loss in the previous year that the loss cannot be set off against the income of the subsequent year is not binding on the assessee. Appeal of the assessee is allowed.

Summary

Issues:
1. Addition of cash deposits during demonetization period.
2. Rejection of claim of carry forward of loss.

Issue 1: Addition of cash deposits during demonetization period
The appeal was against an order confirming the addition of Rs. 49,49,000/- as cash deposited during the demonetization period. The assessee's return of income declared a loss, and the case was selected for scrutiny assessment. The assessee, a private limited company engaged in earthwork and gravel supply, deposited cash during demonetization. The Assessing Officer (AO) believed the source of the cash was unexplained and made the addition under section 68 r.w.s. 115BBE of the Act. The claim of carry forward of loss was also rejected as the return was filed after the due date. The CIT(A) upheld the AO's decision. The assessee contended that audited books and details of cash sources were provided, citing a Co-ordinate Bench decision. The Tribunal noted the audited accounts, revenue from operations, and nature of the business, finding no errors in the books. It concluded that the addition was based on surmises and conjectures, lacking a basis. The AO was directed to re-examine the issue, ensuring a fair hearing for the assessee.

Issue 2: Rejection of claim of carry forward of loss
Regarding the claim of carry forward of business loss, the Tribunal held that the AO's role was to inform the assessee of the loss amount, while the decision on carrying forward and setting off losses against future profits rested with the AO of the subsequent year. Citing a Supreme Court decision, the Tribunal emphasized that the AO determining the loss in one year did not bind the assessee for subsequent years. Consequently, the Tribunal directed the AO to remove the disallowance of carrying forward losses, allowing the assessee's appeal.

In conclusion, the Tribunal allowed the appeal, emphasizing the need for a thorough examination of the books and fair consideration of the assessee's submissions. The decision highlighted the importance of proper assessment procedures and the independence of loss carry forward determinations between different assessment years.