1996-VIL-04-ITAT-DEL

Equivalent Citation: TTJ 057, 745,

Income Tax Appellate Tribunal DELHI

Date: 31.10.1996

JAI TALKIES.

Vs

INCOME TAX OFFICER.

BENCH

Member(s)  : VIMAL GANDHI., P. P. PARIKH.

JUDGMENT

The assessee is in appeal before us against the order of the learned CIT(A) dt.4th Oct., 1989for asst. yr. 1983-84. The first ground raised in the appeal is against the enhancement in income from Rs. 10,000 to Rs. 1,43,531.

2. The assessee is a registered firm and runs a cinema house. In the course of assessment proceedings, the AO observed certain discrepancies in the closing cash balance. Explanation was called for from the assessee but the AO did not find it to his satisfaction. He concluded that the method of maintaining accounts was not dependable. In view of this, an addition of Rs. 10,000 was made as additional profit. The CIT(A) examined the cash book and other records in great detail. After examining the records in detail, the CIT(A) came to the conclusion that there was an unexplained difference in the cash book to the tune of Rs. 1,43,531. After giving credit to Rs. 10,000 in respect of the addition made by the AO, the CIT(A) enhanced the income by an addition of Rs. 1,33,531.

3. At the outset, the learned counsel for the assessee sought to explain the system of maintaining the accounts. It was stated that two cash books were maintained, one at the cinema and the other at the residence of the partner. In the cash book at the cinema, only the inflows and outflows taking place at the cinema were recorded. In the cash book at the residence, over and above the entries recorded in the cash book at cinema, all other inflows and outflows were also recorded. Thus, the balance as shown by the cash book at the residence was the true closing balance which was reflected in the balance-sheet. It was also stated that this system had been consistently followed by the assessee from year to year. Then the learned counsel took us through the voluminous paper book explaining the various discrepancies observed and discussed by the CIT(A) and also the explanations of the assessee thereto.

4. The learned Departmental Representative while supporting the order of the CIT(A) made mainly three propositions:

(a) that no corresponding entries in the cash book at residence were made for entries in the cash book at the cinema;

(b) entries from the cash book at the cinema were transferred to the main cash book i.e. the one at the residence on the last day of the year to explain the difference, and

(c) other day to day discrepancies were also observed by the CIT(A).

After referring to the other discrepancies as discussed by the CIT(A), the learned Departmental Representative urged for the sustenance of the addition made by the CIT(A).

5. We have duly considered the rival submissions and have gone through the material placed before us. It is pertinent to take note of certain facts, which in our opinion, will form the bedrock for deciding as to whether the additions made are justifiable or not. The CIT(A) issued a notice dt.14th May, 1987for enhancement. In this notice, specific attention was drawn to certain points as regards the discrepancies in the cash book at residence, which as per assessee's own admission was a pakki rokar of the assessee. The gist of the points raised by the CIT(A) is as follows:

(a) that balances in the cash book were not struck from2nd April, 1982to17th April, 1982

(b) on certain dates, negative cash balances were reflected in the cash book.

The assessee's response to this notice is dt.10th Aug., 1987. As regards the first issue, it was explained by the assessee that the cash book maintained at the residence was written by partner Shri Inder Kumar who was not well-versed with accountancy and hence, accounting errors could be there. As against this, in the same letter, it has been mentioned that the account books consisting of cash book and ledger maintained at the residence were written by the partner Inder Kumar himself and they were the real accounts on the basis of which balance-sheet at P&L A/c were drawn. Thus, this background that the real accounts on the basis of which final accounts are prepared, are written by a person who is not well-versed in accounting, has to be borne in mind while deciding the various issues before us.

6. As regards negative balances, it was submitted by the learned counsel that a sum of Rs. 23,000 was withdrawn by one Smt. Swarupa Devi on1st April, 1982out of her deposit with the assessee. The entry regarding this withdrawal was duly made in the cash book. However, after some time during the same accounting year itself, this amount was returned but the same was not credited in the cash book through oversight. The contention of the learned counsel was that had this lapse not occurred, there would not have been any negative balance on the various dates as shown by the CIT(A). We have verified this statement as well as the entries in the cash book and find force in the submissions of the learned counsel. The fact of this lapse on the part of Shri Inder Kumar also gets corroborated from his statement recorded by the AO. Thus, this amount of Rs. 23,000 which forms part of the total difference of Rs. 1,43,531 stands explained. The other major amount which forms part of the difference of Rs. 1,43,531 relates to five entries of Rs. 15,000 each in respect of five persons aggregating to Rs. 75,000. These entries were duly entered on16th Oct., 1982in the cash book at the cinema hall. However, through oversight, they were not transferred to the cash book at the residence. If the reconciliation which was explained to the CIT(A) is examined, then there remains hardly any doubt about the genuineness of these entries as well as the explanation thereto. We find these entries duly recorded at p. 160 of the cinema cash book. The observations of the CIT(A) with regard to these entries is quite vague and incomprehensible at various places of his order. We do not see any substance in his observations. Thus, in our view, Rs. 75,000 also stands explained. Consequentially, Rs. 98,000 (Rs. 23,000 + Rs. 75,000) out of Rs. 1,43,531 stands duly explained.

7. The third major portion of the difference is of Rs. 25,000 comprising of five entries of Rs. 5,000 each. In this case, the explanation of the assessee does not appear to be satisfactory. At p. 188 of the cinema cash book, these entries do appear but they seem to have been written after the balance was struck and it also does not form part of the carried over balance. Thus, considering all the facts and circumstances of the case, especially the background mentioned earlier, out of the total difference of Rs. 1,43,531, we treat Rs. 1,00,000 as duly explained and sustain the addition to the extent of Rs. 43,531.

8. The second ground raised in the appeal is regarding this disallowance of interest of Rs. 17,758. The sole reason on which the AO made the disallowance was that the assessee was maintaining huge cash balance. The CIT(A) sustained the addition. In our opinion, the addition is not sustainable. The CIT(A) confirmed the addition not only for the reason given by the AO, but by also placing much reliance on the entry of Rs. 23,000 in respect of Smt. Swarupa Devi which he considered to be non-genuine. From the perusal of records, it is observed that Smt. Swarupa Devi was paid interest only to the extent of Rs. 3,723. Smt. Swarupa Devi is an old depositor and while dealing with the issue relating to the difference in cash balances above, we have considered those entries to be genuine. The allegation of the lower authorities that the assessee was maintaining huge cash balances is not borne out of any facts, and even if it were to be so, it was quite a subjective matter which generally should be left to the wisdom of the businessman. Thus, we delete the addition of Rs. 17,758.

9. The last ground in the appeal is regarding the disallowance in respect of certain cash payments exceeding Rs. 2,500 each made under s. 40A(3) in respect of 11 items as mentioned in the ground. The AO had made an addition of Rs. 97,500 in respect of 16 items. Out of the 11 items taken in the ground aggregating to Rs. 74,000, an item of Rs. 4,000 at S.No. 9, paid on15th Jan., 1983to Navrang Theatre does not arise out of the order appealed against. The CIT(A) has given a clear finding that in respect of this item, no addition has been made by the AO and hence the same was not dealt with by him also. Accordingly, that part of the ground is rejected. Now we are left with ten items aggregating to Rs. 70,000. The details of such payments are as follows:

Only a general argument in respect of all the payments was made by the learned counsel to the effect that the identities of the payees and the genuineness of the payments are not in dispute and hence, no amount could be disallowed under s. 40A(3). For this proposition, he relied on the decisions reported as Kantilal Purshottam & Co. vs. CIT (1985) 155 ITR 519 (Raj), Navsari Waste Cotton Products vs. CIT (1986) 51 CTR (Guj) 252 : (1987) 163 ITR 378 (Guj), Girdharilal Goenka vs. CIT (1989) 80 CTR (Cal) 410 : (1989) 179 ITR 122 (Cal) and CIT vs. Meghdoot Sales (1983) 200 ITR 490 (Del). Further, in respect of items mentioned at Sl. Nos. 2, 5, 12 and 13, it was claimed that the payments were either on Sundays or public holidays and hence they clearly fell within the exception carved out by r. 6DD(j). The learned Departmental Representative drawing our attention to the order of the CIT(A) stated that in most of the payments genuineness was also doubted and as the payments were in contravention of specific statutory provision, the same were rightly disallowed by the CIT(A).

10. We have gone through the order of the CIT(A) in detail. In respect of item No. 1, no reason whatsoever, leave aside exceptional circumstances, has been given for making payment in cash. Payments mentioned at Sl. Nos. 2, 5, 12 and 13 are claimed to have been made on bank holidays. Making payments on bank holidays do not ipso facto permit the assessee to make payments in cash. The circumstances which compelled the assessee to make payment on bank holidays have to exist and shown to the assessing authorities. No such compelling circumstances have been shown. Moreover, as per the findings of the CIT(A) in respect of these four items, the assessee was required to give full particulars of the payees. Despite three opportunities, no such details were furnished and hence, the CIT(A) doubted the identities of the payees as well. In respect of item No. 6, no explanation of any sort was given before the CIT(A). In respect of items mentioned at Sl. Nos. 7, 10 and 11, the payments were claimed to have been made by cheques. However, the same could not be established before the first appellate authority. In respect of item No. 8, the assessee has taken varying stands before the lower authorities. Nothing emerges out of it.

11. Considering all the facts and circumstances in respect of each item of payment, as mentioned above, we are left with no other alternative but to sustain the entire addition of Rs. 70,000. We hold accordingly.

12. In the result, the appeal is partly allowed.

 

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