M/S.B.K.MOHAPATRA V. INCOME TAX OFFICER

ITA/65/2009

AI Insights

The case revolves around the appellant challenging the order of the Income Tax Appellate Tribunal, Cuttack, which confirmed the addition of Rs.2,33,446 to the appellant's income for the assessment year 2003-04. The amount was withheld by the Executive Engineer, R&B Division, and was not reflected as an asset in the appellant's balance sheet. The Tribunal and lower authorities rejected the appellant's argument that the income was recorded in the subsequent financial year, emphasizing the prohibition against mixing cash and mercantile systems of accounting as per Section 145(1) of the Income Tax Act, 1961.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 748242 (HC-CUTTACK)
• Appeal Type: Others
• Pronouncement Date: 18-12-2019
• Assessment Year: misc
• Other Referred Cases: ITO, Ward-2, Rourkela Vs. Sri Narayan Ch. Mohanty in ITA No.304/CTK/1991
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Balance sheet discrepancy; Cash system; Double assessment; Income from undisclosed source; Mercantile system
• Section: 271(c); 145(1)

Judgement Text

" 19. 18.12.2019 Heard learned counsel for the parties. 2. By way of this appeal, the appellant has challenged the order dated 11.09.2008 passed by the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack in ITA Nos.96 and 97/CTK/2008. 3. This Court vide order dated 02.12.2009 while admitting the matter has framed the following substantial question of law. “Whether in the facts and circumstances of the case and keeping in view the statutory provisions, the Tribunal was legally correct to hold the addition of the entire bill amount of Rs.2,33,446.00 released subsequently as just and proper and had not formed double assessment of the same amount and whether it was acceptable as well as permissible under the tax laws.?” 4. Learned counsel for the appellant has taken us to the orders of the Assessing Officer and the Commissioner of Income Tax (Appeals). The Assessing Officer while assessing the tax under the Act observed as under: “xxx xxx xxx If the withheld amount of Rs.2,33,446/- receivable from the Executive Engineer, R&B Division will be taken in the balance sheet then there will be an excess of assets over liabilities to the tune of Rs.2,33,446/- representing income of the firm from undisclosed source which is to be to the total income. The firm could not file any explanation for the defect seen in the balance sheet. As pointed out. Since the assesee failed to disclose penalty proceedings u/s 271(c) is initiated. xxx xxx xxx” ITA No. 65 of 2009 2 5. The Commissioner of Income Tax (Appeals) while considering the matter has observed for the following issues: “During the course of appeal, the A/R argued that the receipts had been shown in the incomes relating to earlier years for which he produced copies of list of contract executed as also TDS Certificates. The A/R also relied on the case of ITO, Ward-2, Rourkela Vs. Sri Narayan Ch. Mohanty in ITA No.304/CTK/1991 by ITAT, Cuttack Bench, wherein the ITAT held that the entire gross receipts on account of suppressed contract payment could not be added to the total income of the assessee and only a percentage of the same should be added to the income of the assesee. The A/R has not appreciated the findings of the Assessing Officer in this case. In this case, the Assessing Officer has not made any addition on account of the receipt not being disclosed in the profit of loss account. In fact, the Assessing Officer has made this addition because the amount of Rs.2,33,446/- with held by the Executive Engineer, R&B Division was released in the next financial year i.e. financial year 2003-04. However, the ssessee had not shown the amount receivable from the Executive Engineer, R&B Division in the balance sheet. By doing so, the assessee had understated the assets by a sum of Rs.2,33,446/- In view of the above, the Assessing Officer has made this addition on account of the difference in the balance sheet, which has not been explained by the assessee satisfactorily.” 6. Learned Tribunal while considering the matter has observed at paragraph-7 as under: “7. As regards the addition of Rs.2,33,446 confirmed by the learned CIT(A) , the learned AR for the assessee has not been able to controvert the factual finding of the Assessing Officer and the learned CIT(A) that the impugned amount has not been reflected in the balance sheet as an asset. It is also to be noted 3 that as per the provisions of Section 145(1) of the Act, the assessee could only follow either cash system or mercantile system of accounting. Mix system of accounting is exclusively prohibited by the above Section. Even otherwise the appellant has neither taken such a plea before the authorities below nor was it substantiated by producing relevant documents before the Tribunal. The case at hand is not a question of suppression of receipts. It has not been alleged by the Assessing Officer that there was any suppression of receipt. The assessee has also not shown by producing any evidence that in fact there was suppression of receipt by it during the relevant previous year. The claim that receipt was only shown as per cash system of accounting has not been substantiate by the appellant. In the above view of the matter, we hold that the assessee did not reflect on the assets side of balance sheet Rs.2,33,444 being amount withheld by the Executive Engineer of R&B Division during the relevant FY and if the same is accounted for there will be excess of assets on liability in the balance sheet amounting to Rs.2,33,446 which is required to be assessed as income of the assessee. Thus this ground of the assessee is also rejected.” 7. Learned counsel for the appellant contended that the amount in question was not received by the appellant in the same financial year, but the same was received in the following financial year and therefore, his income which he received in the relevant financial year, has already been shown in the balance sheet. 8. In our considered opinion, learned Tribunal has rightly observed that as per the provisions of Section 145(1) of the Income Tax Act, 1961, the assessee has to follow either cash system or mercantile system. But, the appellant has tried to mix up both the systems, which is not permissible under law. 4 9. In that view of the matter, the order under Annexure- 2 passed by learned Tribunal is just and proper. The question is, therefore, answered in favour of the Department and against the assessee. Accordingly, the ITA is dismissed. …………………….. K.S. JHAVERI (CHIEF JUSTICE) ……………………… K.R. MOHAPATRA (JUDGE) bks/jm "