Case Law Details
Mehboob Amirali Kamdar Vs ITO (ITAT Mumbai)
Introduction: In the recent case of Mehboob Amirali Kamdar vs. ITO, the Income Tax Appellate Tribunal (ITAT) in Mumbai rendered an important decision. The case revolved around a disputed addition under Section 68 of the Income Tax Act, concerning unexplained cash credits.
The primary issue at hand was a discrepancy in the amount shown as received from M/s Kukreja Constructions by the taxpayer, Mr. Mehboob Amirali Kamdar. The Assessing Officer had made an addition of Rs. 40 lakhs, believing there was a mismatch between the sum received and the amount confirmed by M/s Kukreja Constructions. Mr. Kamdar’s appeal sought to prove that the difference was due to an accounting mistake, and therefore, no addition was warranted under Section 68.
Detailed Analysis: The crux of the matter lay in the fact that while Mr. Kamdar had indeed received Rs. 3,85,75,000 from M/s Kukreja Constructions, his books of accounts reflected a receipt of Rs. 4,25,75,000. This difference of Rs. 40 lakhs raised suspicions, leading the Assessing Officer to seek clarification.
Mr. Kamdar’s explanation centered on an accounting error made by his accountant. He asserted that he had initiated an RTGS transfer of Rs. 40 lakhs to a company named M/s. Elyco Builders. However, due to a technical issue, the RTGS did not get through. As a result, the bank reversed the entry by crediting the Rs. 40 lakhs back to Mr. Kamdar’s account.
Unfortunately, his accountant inadvertently credited the same amount to the account of M/s Kukreja Constructions, rather than rectifying the entry in M/s. Elyco Builders’ account. To remedy the situation, Mr. Kamdar subsequently initiated a second RTGS transfer of Rs. 40 lakhs to M/s Elyco Builders on the following day. This resulted in the M/s. Elyco Builders’ account displaying a payment of Rs. 80 lakhs when only Rs. 40 lakhs were actually transferred.
While Mr. Kamdar maintained that the excess debit in M/s. Elyco Builders’ account and the excess credit in M/s Kukreja Constructions’ account were merely accounting errors, the Assessing Officer did not accept this explanation. Consequently, the Assessing Officer made an addition of Rs. 40 lakhs to Mr. Kamdar’s income under Section 68.
Displeased with this outcome, Mr. Kamdar appealed to the Commissioner of Income Tax (Appeals) (CIT(A)). However, the CIT(A) upheld the Assessing Officer’s decision, affirming the addition.
Conclusion: The case highlights the importance of proper accounting practices and documentation in substantiating claims and rectifications of errors when dealing with tax assessments and disputes.
The ruling by the ITAT Mumbai demonstrates that the absence of actual money receipt and the presence of a genuine accounting mistake can prevent a Section 68 addition. It serves as a reminder of the significance of maintaining meticulous financial records, ensuring that they accurately reflect financial transactions, and addressing any errors promptly.
In this particular case, the ITAT, in the interest of natural justice, decided to set aside the order of the CIT(A) and restore the matter to the Assessing Officer. This step was taken to allow for a more thorough examination of the claim made by Mr. Kamdar that the discrepancies in the accounts of M/s Kukreja Constructions and M/s Elyco Builders were the result of an accounting error.
The case exemplifies the legal principle that when there is no actual receipt of money, the question of making an addition under Section 68 of the Income Tax Act should not arise. The decision also underscores the importance of providing proper details and documentation to substantiate claims and rectifications, ultimately serving as a lesson in the complexities of income tax disputes and the need for meticulous financial record-keeping.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The assessee has filed this appeal challenging the order dated 28.3.2023 passed by the learned CIT(A), National Faceless Appeal Centre, Delhi and it relates to A.Y. 20 13-14. The assessee is aggrieved by the decision of the learned CIT(A) in confirming the addition of Rs. 40 lakhs made by the Assessing Officer under section 68 of the I.T. Act.
2. The Learned counsel appearing for the assessee submitted that the assessing officer has made the above said addition of Rs.40.00 lakhs on the reasoning that there was difference in the amount shown as received from M/s Kukreja Constructions. The facts relating thereto are that the assessee held a land at Ghodbander Road, Thane which was proposed to be sold to M/s Kukreja constructions and accordingly, the assessee received a sum of Rs.3,85,75,000/- from it. Though the above said amount was confirmed by M/s Kukreja Constructions, yet the books of account of the assessee showed receipt of Rs.4,25,75,000/- against the name of M/s Kukreja Constructions, i.e., the books of account of the assessee showed excess receipts by Rs.40.00 lakhs. Hence the assessing officer asked the assessee to clarify this difference.
3. The assessee explained that the excess amount of Rs.40.00 lakhs was shown in the account of M/s Kukreja Constructions on account of error committed by its accountant. The Ld A.R submitted that the assessee transferred a sum of Rs. 40 lakhs by RTGS to a concern named M/s. Elyco Builders on 3.8.2012 from its HDFC Bank. Accordingly, the account of M/s Elyco Builders was debited with the above said amount of Rs.40.00 lakhs. However, the said RTGS did not get through and hence the bank reversed the entry by crediting Rs. 40 lakhs to the account of the assessee. The Learned AR submitted that the accountant of the assessee should have also reversed the entry passed earlier, i.e., the account of M/s Elyco Builders should have been credited. However, the accountant committed an error by wrongly crediting the amount of Rs.40.00 lakhs to the account of M/s. Kukreja Construction.
4. Since the payment did not reach to the account of Elyco Builders on 03- 08-20 12, the assessee transferred a sum of Rs. 40 lakhs by RTGS again to the account of M/s Elyco Builders on the next day i.e. on 4.8.2012. It was also submitted that the account of M/s Elyco Builders was showing payment of Rs.80.00 lakhs (Rs.40.00 lakhs was shown twice), while the actual payment made to them was Rs.40.00 lakhs only. Accordingly, it was submitted that the excess debit in the account of M/s Elyco Builders and excess credit in the account of M/s Kukreja Constructions should be netted off, as it was an accounting error.
5. The above said explanation given by the assessee with regard to the difference of Rs. 40 lakhs was not accepted by the Assessing Officer. Accordingly, he assessed the difference amount of Rs. 40 lakhs as income of the assessee under section 68 of the Act. The learned CIT(A) also confirmed the same.
6. The Ld A.R reiterated above facts and submitted that the assessee has not received Rs.40.00 lakhs from M/s Kukreja Constructions and also did not pay the same to M/s Elyco Builders second time. Accordingly he submitted that the one debit in the name of M/s Elyco Builders and one credit in the name of M/s Kukreja constructions should be netted off. He submitted that the above said accounting mistake was not appreciated by the tax authorities and accordingly, prayed for deletion of the addition of 40.00 lakhs.
7. We heard Ld D.R and perused the record. We noticed that it is the case of the assessee that the amount of Rs. 40 lakhs was wrongly credited to the account of Kukreja Construction instead of crediting the same to the account of M/s. Elyco Builders. The assessee has obtained ledger account copy from both M/s Kukreja Constructions and M/s. Elyco Builders. A comparison of their accounts with the books of account would show that the assessee is showing excess credit of Rs.40.00 lakhs in the name of M/s Kukreja Constructions and excess debit of very same amount in the account of M/s Elyco Builders. It is the submission of the assessee that the above differences have happened due to a mistake committed by its accountant. Accordingly, it was submitted that both the differences have to be netted off.
8. However, we notice that the assessee has not furnished any document to show that the above said mistake was corrected subsequently by passing suitable journal entry. In our view, the assessee could have also obtained a certificate from HDFC bank to substantiate its contention that the payment made to M/s Elyco builders on 03-08-2012 by RTGS did not get through. In any case, the journal entry passed subsequently to correct the accounting error would have substantiated the claim of the assessee.
9. There should not be any dispute that when there was no actual receipt of money from Kukreja Constructions, the question of making any addition u/s 68 will not arise. Since the assessee has not furnished proper details as discussed above in order to substantiate its claim, we are of the view that, in the interest of natural justice this issue may be restored to the file of AO for examining it afresh by considering relevant factual aspects. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and restore the same to the file of the Assessing Officer for examining the claim of the assessee that the differences in the account of M/s Kukreja Constructions and M/s Elyco Builders were due to an accounting error. We also direct the assessee to furnish all information/explanation in this regard. If there is no actual receipt of money as submitted by the assessee, then the question of making addition u/s 68 of the Act will not arise. After examining the issue, the AO may take appropriate decision.
10. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.
Order pronounced in on 21.9.2023.
