ACIT, Vellore V. Shri A. Senthil Murugan, Tirupattur

ITA 3139/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5006 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 11-11-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: P RANGA RAMANUJAM
• Keywords: Unexplained cash credit
• Section: 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI . . . , !.. $ , ) BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.3139/MDS/2016 * * /ASSESSMENT YEAR: 2010-11 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, VELLORE. VS. SHRI A. SENTHIL MURUGAN, NO.68, KRISHNAGIRI MAIN ROAD, TIRUPATTUR-635 601. [PAN: AFPPA 0318 D ] ( - /APPELLANT) ( ./- /RESPONDENT) - 0 / APPELLANT BY : MR.SHIVA SRINIVAS, JCIT ./- 0 /RESPONDENT BY : MR.P. RANGA RAMANUJAM, CA 0 /DATE OF HEARING : 03.02.2017 0 /DATE OF PRONOUNCEMENT : 12.04.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 06.09.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)- 13, CHENNAI, IN ITA NO.284/CIT(A)-13/AY 2010-11 FOR THE AY 2010-11 AND RAISED THE FOLLOWING GROUNDS: ITA NO.3139/MDS/2016 :- 2 -: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO FACT S AND CIRCUMSTANCES OF THE CASE. 2.1 THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION O F CREDITS IN THE CAPITAL ACCOUNT TO THE EXTENT OF RS.7,12,194/- MADE BY THE ASSESSING OFFIC ER WHICH HAS NOT BEEN PROPERLY EXPLAINED BY THE ASSESSEE. 2.2 THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION O F CREDITS IN THE CREDITORS ACCOUNT (M/S.SRI YOGALAKSHMI BLUE METAL INDUSTRIES) TO THE EXTENT OF RS.87,49,375/- MADE BY THE ASSESSING OFFICER WHICH HAS NOT BEEN PROPERLY E XPLAINED BY THE ASSESSEE. 2.3 THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION O F CREDITS IN THE CREDITORS ACCOUNT (M/S.SRI YOGALAKSHMI AGENCIES) TO THE EXTENT OF RS. 25,00,000/- MADE BY THE ASSESSING OFFICER WHICH HAS NOT BEEN PROPERLY EXPLAINED BY TH E ASSESSEE. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASI DE AND THAT OF THE ASSESSING OFFICER RESTORED. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DISTRIB UTION OF CONSUMER PRODUCTS, CIVIL CONTRACTS AND CONTRACTOR FOR MUNICI PAL MARKET USER FEE CHARGES. FOR THE AY 2010-11, THE ASSESSEE FILED RE TURN OF INCOME ADMITTING TOTAL INCOME OF RS.14,59,220/-. THE ASSE SSMENT WAS COMPLETED U/S.143(3) BY AN ORDER DATED 22.03.2013 ON TOTAL IN COME OF RS.1,36,02,194/-.THE ASSESSING OFFICER MADE THE FOL LOWING ADDITIONS IN THE ASSESSMENT ORDER: A) CASH CREDITS IN CAPITAL ACCOUNTS : RS.8,2 8,599/- B) CREDITS IN THE NAME OF YOGA LAKSMI BLUE METAL INDUS TRIES : RS.87,49,375/- C) CREDITS IN THE NAME OF M/S YOGALAKSHMI AGENCIES : RS.25,00,000/- 2.0 GROUND NOS.1 & 3 ARE GENERAL IN NATURE WHICH DOES NOT REQUIRE SPECIFIC ADJUDICATION. 3.0 GROUND NO.2.1 IS RELATED TO THE ADDITION OF RS.7,1 2,194/-. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ( IN SHORT AO) FOUND THE FOLLOWING CREDITS IN THE CAPITAL ACCOUNT: ITA NO.3139/MDS/2016 :- 3 -: TRANSFER FROM INDIVIDUAL ACCOUNT RS.1,16,405.00 MYTHILI AGENCIES RS.5,59,359.00 AGS CONSTRUCTIONS RS.1,52,835.00 RS.8,28,599.00 3.1 THE AO CALLED FOR THE EXPLANATION FROM THE ASSESSE E AND THE ASSESSEE EXPLAINED THAT A SUM OF RS.1,16,405/- WAS TRANSFERRED FROM HIS INDIVIDUAL ACCOUNT TO THE CAPITAL ACCOUNT. SINCE T HE ASSESSEE HAS NOT MAINTAINED THE INDIVIDUAL BOOKS OF ACCOUNTS, THE AO HAS MADE THE ADDITION OF RS.1,16,405/-. 3.2 REGARDING THE CASH CREDIT OF RS.5,59,359/- IT W AS EXPLAINED BY THE ASSESSEE THAT THE CLOSING CASH BALANCE AVAILABLE I N THE PARTNERSHIP FIRM M/S.MYTHILI AGENCIES IN WHICH THE ASSESSEE WAS A PA RTNER WAS TAKEN OVER BY HIM AND THE CASH BALANCE AS AT THE END OF YEAR WAS TRANSFERRED TO HIS CAPITAL ACCOUNT. THE AO WAS OF THE VIEW THAT THE C ASH BALANCE IN THE BALANCE SHEET OF THE FIRM WAS TRANSFERRED TO HIS CA SH BOOK AND ADDED TO THE OPENING BALANCE BY MERE JOURNAL ENTRY WHICH ACC ORDING TO THE AO WAS NOT CORRECT METHOD AS PER THE PRINCIPLES OF BOOK K EEPING AND HENCE, A SUM OF RS.5,59,359/- WAS ADDED TO THE INCOME. 3.3 WITH REGARD TO THE CASH CREDIT OF RS.1,52,835/- IT WAS EXPLAINED TO THE AO THAT CASH BALANCE AVAILABLE IN THE PARTNERSH IP FIRM M/S.AGS CONSTRUCTIONS WAS CREDITED TO THE CAPITAL ACCOUNT W HEN THE FIRM WAS TAKEN OVER BY THE ASSESSEES PROPRIETARY CONCERNS. NOT BE ING SATISFIED WITH THE ITA NO.3139/MDS/2016 :- 4 -: ASSESSEES EXPLANATION, THE AO MADE THE ADDITION OF RS.15,28,35/- TO THE RETURNED INCOME. IN AGGREGATE THE AO MADE THE ADDITION OF RS.8,2 8,599/- TOWARDS THE CREDITS IN CAPITAL ACCOUNT. 4.0 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) (IN SHORT LD.CIT(A)) AND THE LD.CIT(A) DELETED THE ADDITION OF RS.7,12,194/- AND CONFIRMED THE ADDITION OF RS.1,16,405/-. AGAINST WH ICH THE REVENUE IS IN APPEAL BEFORE US. THE LD.CIT(A) HAS DELETED THE ADD ITION STATING THAT THE ASSESSEE HAS BROUGHT THE BALANCES IN THE CAPITAL AC COUNT FOLLOWING THE CORRECT METHOD OF THE PRINCIPLE OF BOOK KEEPING THR OUGH JOURNAL ENTRIES. FOR READY REFERENCE, WE EXTRACT THE RELEVANT PART O F THE CIT(A)S ORDER AS UNDER: I HAVE CONSIDERED THE GROUNDS/ARGUMENTS OF THE APPE LLANT AND THE NATURE AND CIRCUMSTANCES OF THE CASH CREDIT IN THE BOOKS OF TH E APPELLANT AND THE REASONS FOR DISALLOWANCE BY THE AO. THE CREDIT IN THE CAPITAL A CCOUNT ON ACCOUNTING CASH BY WAY OF JOURNAL ENTRY FALLS SQUARELY WITHIN THE MEANING OF CASH CREDIT UNDER SECTION 68 OF INCOME TAX ACT, NOTWITHSTANDING THAT THEY ARISE OUT OF PAS SING ENTRIES TO ACCOUNT TAKEOVER/MERGER OF THE CASH BALANCES IN THE TARGET FIRMS AS DISCUSS ED ABOVE, AS ONE LEG OF THE JOURNAL ENTRY AFFECTS CASH/BANK. THUS, THE PRINCIPLES OF EXPLANAT ION FOR THE CREDIT, AS GIVEN IN PARA 6 SUPRA, ARE TRIGGERED TO CONSIDER WHETHER THESE CASH CREDITS ARE UNEXPLAINED TO BE TAXED UNDER SECTION 68 OR NOT. FROM THE FINANCIAL STATEME NTS OF THE TARGET FIRMS, IT IS SEEN THAT THE CASH BALANCE OF AGS CONSTRUCTION AND SRI MYTHIL I AGENCIES IS RS.5,59,359/- AND RS.1,52,835/- AS ON 31/03/2009 AND THESE WERE ACCOU NTED AS ON 01/04/2009 IN THE BOOKS OF THE APPELLANT FOR GIVING EFFECT FOR MERGER/TAKIN G OVER OF THESE FIRMS. THE ONLY WAY OF INCORPORATING AN ASSET OF A TARGET ENTITY IS TO DEB IT THE ASSET IN THE ACQUIRING ENTITY WITH A CORRESPONDING CREDIT EITHER IN THE CAPITAL ACCOUNT OR UNDER PURCHASE CONSIDERATION. THE APPELLANT HAS CORRECTLY PASSED THESE ENTRIES BY CRE DITING THE CAPITAL ACCOUNT. THE AO IS NOT CORRECT IN HIS CONCLUSION THAT TRANSFERRING CASH BA LANCE OF THE FIRM TO THE ASSESSEES CAPITAL ACCOUNT IS NOT CORRECT ACCORDING TO THE PRINCIPLES OF BOOK KEEPING AS THERE IS NO OTHER ACCOUNTING ENTRY IS POSSIBLE EXCEPT TO DEBIT THE AS SET IN THE ACQUIRING COMPANY WITH A CORRESPONDING CREDIT EITHER IN THE CAPITAL ACCOUNT OR UNDER PURCHASE CONSIDERATION. THESE CASH BALANCES ARE ALSO REFLECTED IN THE FINANCIAL S TATEMENTS OF THE TARGET FIRMS AND ALSO IN ITA NO.3139/MDS/2016 :- 5 -: THE ITR-5 UPLOADED BY THEM FOR THE ASSESSMENT YEAR 2009-10. SINCE THE SOURCE OF THE CASH IS EXPLAINED WITH REFERENCE TO THE BALANCE IN THE B ALANCE SHEET OF THE TARGET FIRMS SUPPORTED BY THE AMOUNTS REFLECTED IN THE ITR-5 UPL OADED BY THE TARGET FIRMS, THE ENTRIES FOR TAKING OVER THE CASH FROM AGS CONSTRUCTION AND SRI MYTHILI AGENCIES ARE RS.5,59,359/- AND RS.1,52,835/- RESPECTIVELY IS DELETED. AS REGARDS THE CASH ENTRY PASSED FOR RS.1,16,405/-, IT IS SEEN THAT THIS BALANCE IS NEITHER APPEARING IN AGS CONSTRUCTIONS NOR IN SRI MYTHILI A GENCIES, THE TARGET FIRMS. THERE IS NO REQUIREMENT TO PASS ANY ENTRY TO GIVE EFFECT TO THE CASH BALANCE IN THE PERSONAL BOOKS OF THE APPELLANT AS THIS CASH BALANCE IS ALREADY A PAR T OF THE BOOKS OF ACCOUNT OF THE APPELLANT AND NO FURTHER ENTRY IS REQUIRED AS NOTHING MORE IS REQUIRED TO BE ACCOUNTED. THE APPELLANT IS UNABLE TO FURNISH ANY EXPLANATION AS TO THE NATU RE AND SOURCE OF THIS SUM. AND THE REASONS FOR PASSING THIS ENTRY. IT IS ALSO PERTINEN T TO NOTE THAT THE CAPITAL ACCOUNT OF THE APPELLANT AFTER THE TAKEOVER HAS INCREASED EXACTLY BY THIS AMOUNT AS PER MY FINDING IN PARA SUPRA. THEREFORE, I UPHOLD THE ADDITION OF THIS SUM OF RS.1,16,405/- AS CASH CREDIT. 5.0 THE LEARNED DEPARTMENTAL REPRESENTATIVE (IN SHORT LD.DR) PLACED RELIANCE ON THE ASSESSMENT ORDER AND ON THE OTHER H AND, THE LEARNED AUTHORIZED REPRESENTATIVE (IN SHORT LD.AR) RELIED ON THE ORDER OF LD.CIT(A). 6.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THE ASSESSEE HAS TAKEN OVER M/S.MYTHILI AGENCIES A PARTNERSHIP FIRM AND TOOK OVER ALL THE ASSETS AND L IABILITIES. IN THE PROCESS THE OUTSTANDING CASH BALANCE OF RS.5,59,359/- WAS T RANSFERRED TO HIS CAPITAL ACCOUNT BY A JOURNAL ENTRY. THE ASSESSEE HA S FILED THE COPY OF BALANCE SHEET OF M/S.MYTHILI AGENCIES, ESTABLISHING THAT THERE WAS A CASH BALANCE AS AT THE END OF THE YEAR. SINCE THE ASSES SEE HAS TOOK OVER THE ASSETS AND LIABILITIES OF M/S.MYTHILI AGENCIES THE BALANCES WERE TRANSFERRED BY A BOOK ENTRY WHICH IS THE CORRECT METHOD OF PRIN CIPLES OF BOOK KEEPING. SIMILARLY, IN THE CASE OF M/S.AGS CONSTRUCTIONS, TH E ASSESSEE HAS TAKEN OVER THE FIRM AND TRANSFERRED THE CASH BALANCE BY WAY OF JOURNAL ENTRIES. AS PER THE BALANCE SHEET, THE CASH BALANCE OF THE F IRM WAS RS.1,52,835/-. ITA NO.3139/MDS/2016 :- 6 -: THE ASSESSEE TOOK OVER THE ASSETS AND LIABILITIES B Y PASSING NECESSARY JOURNAL ENTRIES WHICH IS ACCEPTED METHOD OF BOOK KE EPING. THEREFORE, WE DO NOT FIND ANY ERROR IN THE LD.CIT(A)S ORDER AND THE SAME IS CONFIRMED. THE REVENUES APPEAL ON THIS GROUND IS DISMISSED 7.0 GROUND NO.2.2 IS RELATED TO THE ADDITION OF RS.87, 49,375/- RELATING TO OUTSTANDING BALANCE IN THE CASE OF M/S.YOGALAKSH MI BLUE METAL INDUSTRIES. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THERE WAS A CREDIT BALANCE OF RS.57,90,000/- IN THE NAME OF SHRI R.MANI, PROPRIETOR OF M/S.YOGALAKSHMI BLUE METAL INDUSTRIES . THE AO CROSS- VERIFIED THE BOOKS OF ACCOUNTS OF THE CREDITOR WHIC H IS ALSO SHOWING THE CREDIT BALANCE OF RS.29,59,375/- IN THE NAME OF THE ASSESSEE INSTEAD OF DEBIT BALANCE. THE AO REQUESTED THE ASSESSEE TO FU RNISH THE RE- CONCILIATION AND THE ASSESSEE FAILED TO FURNISH TH E SAME. THEREFORE, THE AO MADE THE ADDITION OF RS.87,49,375/-I.E (RS.57,90 ,000 + RS.29,59,375). THE ASSESSEE WENT ON APPEAL BEFORE T HE LD.CIT(A) AND DURING THE APPEAL HEARING SOME TYPOGRAPHICAL ERRORS WERE FOUND IN THE ASSESSMENT ORDER. THE CORRECT POSITION WITH RESPEC T TO CREDIT BALANCE OF M/S.YOGALAKSHMI BLUE METAL INDUSTRIES IN THE BOOKS OF THE ASSESSEE WAS RS.29,59,375/- AND THE ASSESSEES BALANCE IN THE BO OKS OF M/S.YOGALAKSHMI BLUE METAL INDUSTRIES WAS RS.57,90, 000/- CREDIT. THERE WAS NO CHANGE IN THE TOTAL AMOUNT. THE LD.CIT(A) C ALLED FOR THE ACCOUNT COPIES CONFIRMED THE ADDITION OF RS.4,400/- AND DEL ETED THE BALANCE ADDITION. ITA NO.3139/MDS/2016 :- 7 -: 8.0 AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE DE PARTMENT IS IN APPEAL BEFORE US. DURING THE APPEAL HEARING, THE LD .DR ARGUED THAT THERE WAS A CREDIT BALANCE IN THE BOOKS OF BOTH THE ASSES SEE AND THE CREDITOR WHICH WAS NOT RECONCILED BY THE ASSESSEE BEFORE THE AO. THE LD.CIT(A) DELETED THE ADDITION CONSIDERING THE TOTAL SUMS OF CREDITS AND DEBITS MADE DURING THE YEAR IGNORING THE OPENING BALANCES. THE LD.CIT(A) IS OF THE OPINION THAT THE OPENING BALANCES ARE BEING A JOUR NAL ENTRIES CANNOT BE BROUGHT TO TAX AS CASH CREDITS U/S.68 OF INCOME TAX ACT. THE LD.DR FURTHER ARGUED THAT THOUGH IT WAS AN OPENING BALANC E, THE ASSESSEE BOUND TO RECONCILE THE DIFFERENCE AND PROVE THAT THERE WA S NO DIFFERENCE IN THE ACCOUNTS. IN CASE OF FAILURE TO PROVE THE DIFFEREN CE, THE DIFFERENCE SHOULD BE BROUGHT TO TAX. ON THE OTHER HAND, THE LD.AR RE LIED ON THE ORDER OF THE LD.CIT(A). 9.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. WE EXTRACT THE ACCOUNT COPIES OF M/S.YOGALAKSHMI B LUE METAL INDUSTRIES IN THE BOOKS OF THE ASSESSEE AND THE ASS ESSEES ACCOUNT IN THE BOOKS OF M/S.YOGALAKSHMI BLUE METAL INDUSTRIES FROM THE LD.CIT(A)S ORDER, WHICH WAS MADE AVAILABLE IN PAGE NOS.23 & 24 OF THE LD.CIT(A)S ORDER: ITA NO.3139/MDS/2016 :- 8 -: IN THE BOOKS OF A.SENTHILMURUGAN SRI YOGALAKSHMI BULEMETAL INDUSTRIES - 01.04.09 TO 31.03.10 (AY 2010-11) LEDGER EXTRACT DATE PARTICULARS VCH TYPE VCH NO. DEBIT CREDIT 1.4.2009 DR (AS PER DETAILS) JOURNAL 7 - 5,500,000.00 A.SENTHIIMURUGAN CAPITAL ACCOUNT 20,731,188.73 DR R.MANI, VANIYAMBADI 2,564,136.66 CR K.G.DHAYAKAR, TIRUPATTUR 2,564,148.67 CR SUNDRY TRADE CREDITORS 7,513,200.00 CR A.GNANASEKAR ACCOUNT 89,703.40 CR SRI YOGALAKSHMI AGENCIES, VNB 2,500,000.00 CR 3.4.2009 CR INDIAN BANK C/A (AGS CON)-TPT CH.NO.00424562 PAYMENT 25 295,000.00 4.4.2009 DR CASH RECEIPT 21 4,400.00 27.1.2010 DR INDIAN BANK C/A(AGSCON)-TPT CH.NO.BEING RTGS RECEIVED RECEIPT 817 - 3,000,000.00 4.2.2010 CR (AS PER DETAILS) BANK CHARGES (SMA) SBI C/A (AGS CONS)-TPT CH.NO.002751 50.00 2,000,050.00 DR CR PAYMENT 2048 2,000,000.00 24.2.2010 CR SBI, TPT, POWER PACK ACCOUNT CH.NO.BEING TRF PAYMENT 2153 500,000.00 26.2.2010 CR. INDIAN BANK C/A (AGS CON)-TPT CH.NO.00941118 PAYMENT 2165 500,000.00 4.3.2010 CR. SBI, TPT, POWER PACK ACCOUNT CH.NO.BEING HULRTGS PAYMENT 2238 250,025.00 11.3.2010 CR. (AS PER DETAILS) BANK CHARGES (SMA) SBI C/A (AGS CONS)-TPT CH. NO.002763 50.00 2,000,050.00 DR CR PAYMENT 2285 2,000,050.00 CR CLOSING BALANCE 5,545,025.00 2,959,375.00 ------------------ 8,504,400.00 ------------------ 8,504,400.00 ------------------ 8,504,400.00 ------------------ ITA NO.3139/MDS/2016 :- 9 -: IN THE BOOKS OF R.MANI SRI YOGALAKSHMI BULEMETAL INDUSTRIES - 01.04.09 TO 31.03.10 (AY-2010-11) LEDGER EXTRACT DATE PARTICULARS VCH TYPE DEBIT CREDIT 01.04.2009 OPENING BALANCE 4,790,000.00 27.01.2010 STATE BANK OF INDIA, CA 73460 CH.NO.93176 PAYMENT 3,000,000.00 30.01.2010 STATE BANK OF INDIA, CA 73460 CH.NO.93181-FOR IOC PAYMENT 500,000.00 30.01.2010 STATE BANK OF INDIA, CA 73460 CH.NO.002748 500,000.00 04.02.2010 UNION BANK OF INDIA, VNB- SB A/C.NO :23041 RTGS 2,000,000.00 11.03.2010 UNION BANK OF INDIA - CC A/C, 50029 RTGS 2,000,000.00 CLOSING BALANCE ------------------- 3,500,000.00 5,790,000.00 ------------------- 9,290,000.00 ------------------- ------------------- 9,290,000.00 ------------------- 9,290,000.00 ------------------- THE LD.CIT(A) DELETED THE ADDITION OF RS.85,00,000 /- AND CONFIRMED A SUM OF RS.4,400/- AS PER DISCUSSION MADE AVAILABL E IN PAGE NO.23 TO 25 AS UNDER: THIS ENTITY IS A PROPRIETARY CONCERN OF MR. R MANI, A PARTNER OF THE APPELLANT IN AGS CONSTRUCTION, THE FIRM TAKEN OVER BY THE APPELLANT. FROM THE PERUSAL OF THE STATEMENT OF ACCOUNT OF SRI YOGALAKSHMI BLUE METAL INDUSTRIES IN THE BOOKS OF THE APPELLANT INDICATES THREE CREDITS FOR RS.55,00,000/-, RS.4,400/- AND RS . 30,00,000/- TOTALING TO RS.85,04,400/- AND DEBITS TOTALING TO RS.55,45,025/-, LEAVING A NE T CREDIT BALANCE OF RS.29,59,375/-. THE AO HAS CONSIDERED THE SAID CLOSING BALANCE OF RS.29 ,59,375/- AS UNEXPLAINED AND CONSIDERED THE SAME FOR ALLOWANCE UNDER SECTION 68. IN ORDER TO BRING CASH CREDIT TO TAX UNDER SECTION 68 OF THE INCOME TAX ACT, EACH CREDIT IN THE ACCOUNT IS REQUIRED TO BE CONSIDERED AND NOT ME RELY THE CLOSING BALANCE IN THE ACCOUNT. THE PRINCIPLES OF EXPLANATION OF CREDIT IS REQUIRED TO BE SATISFIED FOR EACH AND EVERY CASH CREDIT THAT APPEAR IN AN ACCOUNT AND IT IS NOT LIMI TED TO THE BALANCE IN THE ACCOUNT. IF BALANCE IS ONLY REQUIRED TO BE CONSIDERED, THEN AN ASSESSEE MAY NULLIFY THE CREDIT BALANCE ARISING OUT OF A CASH CREDIT BY DEBITS IN THE ACCOU NT, RENDERING THE TAXING PROVISIONS OF SECTION 68 MEANINGLESS. THUS, THE TEST U/S.68 IS RE QUIRED TO BE APPLIED IN RESPECT OF ALL CREDITS IN THE ACCOUNT. HOWEVER, THE TEST IS NOT RE QUIRED FOR ANY DEBIT IN THE ACCOUNT AS THEY DO NOT REPRESENT A CREDIT. ITA NO.3139/MDS/2016 :- 10 -: THE FIRST ITEM OF CREDIT IN THE ACCOUNT IS RS.55,00 ,000/- ENTERED ON 01/04/2009, OSTENSIBLY ACCOUNTING THE CREDIT BALANCE STANDING IN THE NAME OF AGS CONSTRUCTIONS AS ON 31/03/2009. FROM THE CONSOLIDATION STATEMENT FURNIS HED BY THE APPELLANT, THE SUNDRY CREDITORS OF AGS CONSTRUCTIONS AS ON 31/03/2009 ARE RS.1,55,13,200/-. THIS BALANCE IS ALSO REFLECTED IN THE ITR-5 OF THE SAID AGS CONSTRUCTION S UNDER THE HEAD SUNDRY CREDITORS IN PART A-BS SI NO 3.D.I.A. THIS AMOUNT WAS INCORPORAT ED IN THE APPELLANT BOOKS BY WAY OF THE FOLLOWING 3 ENTRIES AS ON 1/4/2009 ON CONSOLIDATION : SL.NO. PARTICULARS AMOUNT (IN RS) 1 SUNDRY TRADE CREDITORS 75,13,200 2 SRI YOGALAKSHMI BLUE METAL INDUSTRIES 55,00,000 3 SRI YOGALAKSHMI AGENCIES 25,00,000 TOTAL 1,55,13,200 THE ENTRIES IN THE CAPITAL ACCOUNT ALSO CONFIRMS TH E FACT THAT THE SUNDRY CREDITORS APPEARING IN THE BOOKS OF THE AGS CONSTRUCTION IS SPLIT AMONG THE ABOVE THREE ENTRIES. THE AMOUNT OF RS.55,00,000/- APPEARING AS OPENING BALANCE IN THE ACCOUNT OF SRI YOGALAKSHMI BLUE METAL INDUSTRIES IS NOTHING BUT A JOURNAL ENTRY INCORPORA TED BY APPORTIONING BALANCE OF SUNDRY CREDITORS APPEARING IN THE BOOKS OF AGS CONSTRUCTIO NS AS ON 31/03/2009. THIS BEING A JOURNAL ENTRY, CANNOT BE TERMED AS A CASH CREDIT RE QUIRING EXPLANATION AS GIVEN IN PARA SUPRA. NO PART OF THE JOURNAL ENTRY, INCORPORATING IS ENTRY, AS CASH OR BANK EITHER AS DEBIT OR CREDIT, EVEN ASSUMING FOR A FACT THAT THIS ENTRY IS REQUIRED TO BE TREATED AS A CASH CREDIT, THIS AMOUNT STANDS EXPLAINED BY WAY OF A BALANCE AS ON 31/3/2009 IN THE BOOKS OF AGS CONSTRUCTIONS DULY REFLECTED IN THE FINANCIAL STATE MENTS AND IN THE RETURN OF INCOME UPLOADED IN THE INCOME TAX SITE. IF THIS BALANCE AP PEARING AS ON 31/3/2009 IN THE BOOKS OF AGS CONSTRUCTION IS REQUIRED TO BE SUBJECTED TO THE RIGORS OF EXPLANATION UNDER SECTION 68, IT IS REQUIRED TO BE TESTED FOR THE CREDITS APPEARI NG IN THE BOOKS OF THE AGS CONSTRUCTIONS IN THE RESPECTIVE YEARS IN WHICH THE CREDITS ARE ENTER ED IN THEIR BOOKS OF ACCOUNT. THERE IS A CONSIDERABLE FORCE IN THE ARGUMENT OF THE APPELLANT THAT THE CREDIT IN THE CAPITAL ACCOUNT AS ON 1/4/2010 FOR RS.55,00,000/- IS ONLY A JOURNAL EN TRY GIVING EFFECT TO TRANSFER OF ASSETS AND LIABILITIES OF THE TARGET FIRM AND CANNOT BE CO NSIDERED AS CASH CREDIT IN THE BOOKS OF THE APPELLANT. ACCORDINGLY, THE SAID SUM OF RS.55,00,00 0/- CANNOT BE CONSIDERED FOR ADDITION UNDER SECTION 68 OF INCOME TAX ACT, 1961 AND THEREF ORE THIS ADDITION IS DELETED. A CREDIT OF RS.30,00,000/- APPEARING ON 27/01/2010 IN THE BOOKS OF THE APPELLANT IN THE ACCOUNT OF SRI YOGALAKSHMI BLUE METAL INDUSTRIES IS ALSO APPEARING AS A DEBIT IN THE ACCOUNT OF THE APPELLANT IN THE BOOKS OF SRI YOGALAKSHMI BL UE METAL INDUSTRIES, THE CREDITOR. THUS, NOT ONLY THE IDENTITY OF THE PARTY IS CONFIRMED; TH E CAPACITY OF THE PARTY IS ALSO CONFIRMED BY WAY OF CORRESPONDING DEBIT ENTRY IN THE BOOKS OF THE CREDITOR. THE GENUINENESS OF THE TRANSACTION IS ALSO CONFIRMED AS THESE ARE CONTINUI NG TRANSACTION BETWEEN THE APPELLANT AND MR. MANI, AS PARTNERS IN AGS CONSTRUCTION. MOREOVER , THIS CREDIT WAS NOT DISPUTED BY EITHER PARTY NOR BY THE ASSESSING OFFICER EVEN DURING THE REMAND PROCEEDINGS WHEN THE AO HAS EXAMINED THE PARTIES. THEREFORE, THIS CREDIT OF RS. 30,00,000/- ALSO STANDS EXPLAINED AS REQUIRED UNDER LAW AND THEREFORE CANNOT BE CONSIDER ED FOR ADDITION UNDER SECTION 68 OF INCOME TAX ACT, 1961. HOWEVER, A CREDIT OF RS.4,400/- DOES NOT APPEAR IN THE BOOKS OF THE CREDITOR AND THIS DIFFERENCE IS NOT RECONCILED BETWEEN THE APPELLANT AND CREDITOR EVEN DURING THE REMAND PROCEEDINGS. SINCE THIS CREDIT IS NOT EXPLAINED, TH E SAME IS REQUIRED TO BE CONSIDERED AS UNEXPLAINED WITHIN THE MEANING OF SECTION 68 OF THE IT ACT AND THEREFORE STANDS CONFIRMED. THUS, OUT OF A BALANCE OF RS.29,59,375/-, A SUM OF RS.4,400 IS CONFIRMED AND THE BALANCE OF RS.29,54,975/- IS DELETED. AS REGARDS THE DEBIT BALANCES APPEARING IN THE ACCO UNT OF SRI YOGALAKSHMI BLUE METAL INDUSTRIES DOES NOT FALL WITHIN THE PURVIEW OF SECT ION 68 AND THEREFORE IS NOT CONSIDERED BY ME IN THIS ORDER. THE AO HAS CONSIDERED A SUM OF RS.57,90,000/- AS UN EXPLAINED CASH CREDIT, WHICH IN FACT IS THE BALANCE OF THE APPELLANT APPEARING IN THE BOOKS OF THE CREDITOR. THIS AMOUNT IS NOT APPEARING IN THE BOOKS OF THE APPELLANT. FOR AN AMO UNT TO BE TAXED UNDER SECTION 68 OF INCOME TAX ACT, THE SUM SHOULD BE FOUND CREDITED IN THE BOOKS OF THE ASSESSEE MAINTAINED FOR THE PREVIOUS YEAR. THE BALANCE OF RS.57,90,000/ - IS APPEARING IN THE ACCOUNT OF THE ITA NO.3139/MDS/2016 :- 11 -: APPELLANT IN THE BOOKS OF SRI YOGALAKSHMI BLUE META L INDUSTRIES, THE CREDITOR OF THE APPELLANT AS THE CLOSING BALANCE AS ON 31/03/2010. THE BOOKS OF ACCOUNT OF THE CREDITOR ARE NOT THE BOOKS OF ACCOUNT THE APPELLANT. FOR THE AMO UNT OF CREDIT TO BE TAXED UNDER SECTION 68, THE CREDIT SHOULD BE APPEARING IN THE BOOKS OF THE APPELLANT AND NOT IN THE BOOKS OF THE CREDITOR. THEREFORE, THE AMOUNT APPEARING IN THE BO OKS OF THE CREDITOR CANNOT BE TAXED IN THE HANDS OF THE APPELLANT UNDER SECTION 68. THUS, THE ADDITION OF THE BALANCE OF RS.57,90,000/- ON THIS ACCOUNT IS DELETED. 10.0 ON PERUSAL OF THE ACCOUNT COPIES REFERRED ABOVE, I T IS SEEN THAT THE ASSESSEES BOOKS ARE SHOWING THE CREDIT BALANCE OF RS.29,59,375/- IN THE CASE OF M/S.YOGALAKSHMI BLUE METAL INDUSTRIES. ON THE OTHER HAND, IN THE BOOKS OF M/S.YOGALAKSHMI BLUE METAL INDUSTRIES THE ASSESSEES ACCOUNT IS SHOWING THE CREDIT BALANCE OF RS.57,90,000/-. IN F ACT, IT SHOULD HAVE BEEN EQUIVALENT AMOUNT OF CREDIT AND DEBIT IN THE ASSESS EES BOOKS AND THE CREDITORS BOOKS. THOUGH, THE LD.CIT(A) HELD THAT THERE WAS A TOTAL CREDIT OF RS.85,04,400/-, DURING THE YEAR CONSISTING OF TH REE CREDITS AND DEBITS OF RS.55,45,025/- LEAVING THE NET BALANCE OF RS.29,59, 375/- WHICH RELATED TO OPENING BALANCES STILL THE ASSESSEE IS REQUIRED TO EXPLAIN THE REASON FOR DIFFERENCE AND RECONCILE THE SAME. FROM THE ACCOUNT COPIES, IT IS NOTICED THAT OPENING BALANCE IN THE BOOKS OF THE ASSESSEE I N THE CASE OF M/S YOGALKSMI WAS RS.55,00,000/-(CREDIT) AND IN THE BOO KS OF THE CREDITOR (M/S.YOGALAKSMI) THE OPENING BALANCE OF THE ASSESSE E WAS RS.47,90,000/- WHICH SHOULD HAVE BEEN CREDIT AND DEBIT OF EQUAL AM OUNT. SIMILARLY EXCEPT THE CREDIT OF RS.30,00,000/- ON 27/01/2010, THE PAY MENTS OF RS.20,00,000/- ON 11/03/2010 AND RS.20,00,000/- ON 04/02/2010 NONE OF THE OTHER ENTRIES ARE IN SYNCH WITH THE CREDITOR S BOOKS. THE OPENING BALANCES AND OTHER ENTRIES SHOULD BE RECONCILED WIT H THE ASSESSEES BOOKS AND THE CREDITORS BOOKS AND UNRECONCILED BALANCES A ND THE ENTRIES ITA NO.3139/MDS/2016 :- 12 -: REQUIRED TO BE EXPLAINED. THE LD.CIT(A)S OBSERVATI ON THAT OPENING BALANCE DIFFERENCES SHOULD NOT BE TAXED AS UNEXPLAI NED CASH CREDITS IS NOT TENABLE. WHEN THERE WAS A DIFFERENCE IN THE OPENIN G BALANCES AND SERIES OF TRANSACTIONS SUBSEQUENT TO OPENING BALANCE GETS ADJUSTED WITH THE SUBSEQUENT CREDITS/DEBITS IN RESPECTIVE ACCOUNTS AN D THE BALANCE WHICH REMAINED WOULD BE UNEXPLAINED AND THE SAME REQUIRED TO BE BROUGHT TAX U/S.68 OF INCOME TAX ACT. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE REQUIRES FURTHER VERIFICATION AT THE END OF THE AO. ACCORDINGLY, WE SET-ASIDE THE ORDER OF THE LD.CIT(A ) AND REMIT THE MATTER BACK TO THE FILE OF THE AO TO DECIDE THE MATTER AFR ESH ON MERITS. THE REVENUES APPEAL ON THIS GROUND IS ALLOWED FOR STATI STICAL PURPOSES. 11. GROUND NO.2.3 IS RELATED TO THE ADDITION OF RS.25, 00,000/- IN THE NAME OF M/S.SRI YOGALAKSHMI AGENCIES. M/S.SRI YOGA LAKSHMI AGENCIES WAS SHOWN AS CREDITOR IN THE ASSESSEES BOOKS OF AC COUNTS FOR RS.25.00 LAKHS. ON VERIFICATION OF THE BOOKS OF ACCOUNTS OF M/S.SRI YOGALAKSHMI AGENCIES, DID NOT FIND THE ASSESSEE AS DEBTOR AND T HE CREDITOR ALSO INFORMED THAT NO SUCH AMOUNT WAS DUE FROM THE ASSES SEE. THEREFORE, THE AO MADE THE ADDITION OF RS.25,00,000/- TO THE RETUR NED INCOME. 12.0 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) DELETED THE AD DITION STATING THAT THE ADDITION WAS SIMILAR TO THAT OF YOGA LAKASHMI METAL INDUSTRIES WHICH WAS DISCUSSED IN EARLIER PARAGRAPHS. ITA NO.3139/MDS/2016 :- 13 -: APPEARING FOR THE REVENUE, THE LD.DR ARGUED T HAT NO DETAILS WERE FURNISHED BY THE ASSESSEE BEFORE THE AO IN RESPECT OF RS.25.00 LAKHS AND THE LD.CIT(A) DELETED THE ADDITION WITHOUT APPRECIA TING THE COMPLETE FACTS. THE LD.DR FURTHER ARGUED THAT THE ASSEESSE F AILED TO EXPLAIN THE NATURE AND SOURCE OF CREDIT. ON THE OTHER HAND THE LD.AR ARGUED THAT THE COMPLETE DETAILS WERE FURNISHED BEFORE THE CIT(A) A ND EXPLAINED THE CASE TO THE LD.CIT(A) AND ON THE BASIS OF EXPLANATIONS T HE LD.CIT APPEAL CONVINCED THAT THE CREDIT OF RS.25.00 LAKHS WAS EXP LAINED AND DELETED THE ADDITION. WE HEARD BOTH THE PARTIES. THERE WAS NO EN TRY WITH REGARD TO THE CREDIT OF ASSESSEES ACCOUNT IN THE CREDITORS BOOK S AND THE CREDITOR HAS NEGATED THE CLAIM OF THE ASSESSEE. THE LD.CIT(A) HA S NOT DISCUSSED THE ISSUE IN DETAIL AND DID NOT PLACE ANY MATERIAL ON W HAT BASIS THE CREDIT BALANCE IN THE ACCOUNT OF THE ASSESSEE STANDS EXPLA INED. DURING THE APPEAL HEARING THE LD.AR DID NOT PLACE ANY EVIDENCE TO ESTABLISH THE CREDIT OF YOGALAKSHMI AGENCIES. THE DETAILS OF TRANSACTIO N WITH DATE AND AMOUNT, NATURE OF TRANSACTIONS, ETC., WERE NOT PLAC ED BEFORE US. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT TH IS ISSUE REQUIRE FURTHER VERIFICATION TO EXPLAIN THE NATURE AND SOURCE OF TH E CREDIT. ACCORDINGLY WE REMIT THE ISSUE BACK TO THE FILE OF THE AO TO EXAMI NE THE NATURE AND SOURCE AND DECIDE THE ISSUE AFRESH ON MERITS. THE A .O MUST GIVE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL MATERIALS AND EVIDENCES TO ITA NO.3139/MDS/2016 :- 14 -: SUBSTANTIATE HIS CASE AND THE ASSESSEE MUST EXTEND ALL THE COOPERATION TO COMPLETE THE SET-ASIDE ASSESSMENT. 13.0 GROUND NOS.2.2 & 2.3 ARE ALLOWED FOR STATISTICAL P URPOSE. 14.0 IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH APRIL, 2017, AT CHENNAI. SD/- ( ... ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( ! . . $ ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 12 TH APRIL, 2017. TLN 0 .$6 76 /COPY TO: 1. - /APPELLANT 4. 8 /CIT 2. ./- /RESPONDENT 5. 6 . /DR 3. 8 ( ) /CIT(A) 6. * /GF