Cash Balance Increase Alone Cannot Justify Income Addition: ITAT Indore

Ganpat Pannalal Vs NFAC (ITAT Indore)

Summary: The ITAT Indore partly allowed the assessee’s appeal for Assessment Year 2016-17 and directed deletion of an addition of Rs.37,01,999/- arising from the difference between opening and closing cash balances. The assessee had filed its return declaring total income of Rs.23,41,800/-. Its case was originally selected for limited scrutiny on the issues of cash in hand and share capital, and the assessment was completed on 27.12.2018 by accepting the returned income.

Subsequently, notice under section 148 was issued on 31.03.2021 after recording reasons concerning, inter alia, increase in partners’ capital and the movement in cash balance from Rs.15,43,216/- as opening balance to Rs.52,45,215/- as closing balance. The Assessing Officer ultimately made an addition of Rs.37,01,999/- with reference to the difference in cash-in-hand. The Tribunal noted that the assessee’s books for the relevant financial year were duly audited and the cash balance was incorporated in the audited financial statements.

Pursuant to the Bench’s direction, the assessee also produced the audited balance sheet for the year ended 31.03.2015 and partners’ capital account. On examining these materials, the Tribunal found that Rs.15,43,216/- represented the opening cash balance as on 01.04.2015, being the corresponding closing balance carried forward from the immediately preceding financial year.