2012 (9) TMI 507 - AT - Income Tax

Addition on account of Opening cash balance in books of accounts During survey u/s 133A, neither the books of accounts nor the vouchers were made available - In course of assessment proceedings, the cash book and ledger and two Nandi files containing vouchers relating to previous assessment years are produced and the same was impounded AO made addition on the basis of such opening cash Held that - As the receipts from business were deposited in another account and the same was also withdrawn as self- withdrawals. The opening cash balance cannot be said to be any sum found credited in the books of the assessee maintained for the previous year. Upheld the decision of CIT(A) in favour of assessee Addition on account of unexplained creditor u/s 68 - Assessee did not produce creditor, to satisfactorily explain the credit in his account Held that - The said sum in creditor s account was already disallowed u/s 40(a)(ia), which was of labour charges paid to creditor. Therefore CIT(A) was justified in his conclusions, as sustaining the said disallowance would amount to making disallowance twice. Decision in favour of assessee Addition on account of outstanding amount towards expense - Books of account and other relevant materials were impounded during assessment proceeding by AO - AO has not allowed the assessee to take photocopies of the impounded books of account and other documents Held that - As the assessee was not in a position to furnish the name and complete addresses of the creditors. In the remand report, the AO is silent on this aspect except merely stating that the assessee failed either to furnish the full address of the persons. Therefore issue remand back to AO Disallowance in respect of cash payment of expenses exceed Rs.20,000/- AO invoking provisions of Sec.40A(3) disallowed 20% thereof in addition to the total income Held that - These expenses are in respect of labour charges which are already disallowed. Therefore making disallowance u/s 40A(3) of the Act would amount to double disallowance. Decision in favour of assessee Disallowance of certain expense on account of failure to produce relevant detail - The assessee could not furnish the full details viz., name and address of the persons to whom the payments of expenses were made - AO has not reported any specific finding as to whether the expenditure claimed is excessive, bogus or not related to the assessee business. Books of account were impounded and kept under his custody and copies of the same were not provided to the assessee. Therefore, assessee could not furnish the requisite details. Issue remand back to AO.

Summary

Issues Involved:
1. Addition of Rs.15,05,497/- as income from other sources.
2. Deletion of Rs.4,10,900/- on account of sundry creditors.
3. Disallowance of Rs.4,80,827/- under Section 40A(3) for cash payments exceeding Rs.20,000/-.
4. Disallowance of Rs.4,60,000/- under Section 37 for failure to produce relevant details.

Issue-wise Detailed Analysis:

1. Addition of Rs.15,05,497/- as income from other sources:
The assessee, a PWD contractor, declared a total income of Rs.5,43,511/- for AY 2007-08. During a survey under Section 133A, the department found that the books of accounts were not available at the business premises. The assessee claimed the books were with his Chartered Accountant, who denied having them. The AO noted a closing cash balance of Rs.15,05,497/- as on 31-03-2006, which became the opening balance for the subsequent year. The AO added this amount as income from other sources, asserting that the source of the opening cash balance was unexplained due to insufficient income declarations in prior years and lack of corresponding bank withdrawals.

The CIT(A) held that the cash balance as on 31-03-2006 could not be taxed in AY 2007-08, as it pertained to the previous year. The CIT(A) referenced the Supreme Court decision in Baladin Ram Vs CIT and the Karnataka High Court decision in CIT Vs N.L. Sathyanarayana Setty, emphasizing that income from undisclosed sources should be assessed in the financial year it pertains to. The CIT(A) also noted that the AO did not provide evidence linking the opening cash balance to the assessment year under consideration.

The Tribunal upheld the CIT(A)'s decision, stating that the opening cash balance could not be treated as income credited in the books for the previous year 01-04-2006 to 31-03-2007. The Tribunal dismissed the revenue's grounds on this issue.

2. Deletion of Rs.4,10,900/- on account of sundry creditors:
The sum of Rs.4,10,900/- included two parts: Rs.1,69,150/- and Rs.2,41,050/-. The AO added Rs.1,69,150/- as outstanding payable to Shri Emam under Section 68, as the assessee failed to produce Emam for verification. The CIT(A) deleted this addition, noting that Rs.9,50,550/- paid to Emam as labor charges had already been disallowed under Section 40(a)(ia), thus avoiding double disallowance.

The remaining Rs.2,41,050/- related to outstanding amounts for water charges, road roller charges, and labor welfare. The CIT(A) deleted this addition, reasoning that the AO had the impounded books and should have verified the details himself. The Tribunal agreed with the CIT(A) on Rs.1,69,150/- but remanded the issue of Rs.2,41,050/- to the AO for fresh examination.

3. Disallowance of Rs.4,80,827/- under Section 40A(3) for cash payments exceeding Rs.20,000/-:
The AO disallowed 20% of cash payments exceeding Rs.20,000/- made to various individuals, totaling Rs.24,04,136/-. The CIT(A) deleted this disallowance, noting that the labor charges had already been disallowed, thus avoiding double disallowance. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's ground on this issue.

4. Disallowance of Rs.4,60,000/- under Section 37 for failure to produce relevant details:
The AO disallowed 20% of Rs.23,00,095/- claimed under various charges due to incomplete details. The CIT(A) deleted the disallowance, noting that the books were impounded and the AO should have verified the details himself. The Tribunal remanded the issue to the AO for fresh consideration, allowing the assessee to substantiate the claim.

Conclusion:
The Tribunal partly allowed the revenue's appeal for statistical purposes, remanding specific issues for further examination by the AO while upholding the CIT(A)'s decisions on other points.