Peak Negative Cash Balance Addition u/s 69C without giving benefit of capitalisation of sums disclosed in earlier AYs deleted

Unexplained expendiure addition u/s 69C made for peak negative cash balance without giving benefit of capitalisation of sums disclosed in earlier assessment years deleted


ITA No. 6787/DEL/2011 (Asstt. Year: 2011-12)

Rajeev Rastogi vs. ACIT

Date of Order: 11/03/2016



01. This appeal is preferred by assessee against the order of CIT (Appeals) Meerut dated 31st of October 2014, raising only one ground of appeal wherein an addition of Rs.314951/- is contested being peak negative cash balance as unexplained expenditure u/s 69C for which details explained and documents filed by assessee.

02. Assessee, is an individual who filed his return of income for A. Y. 2011-12 for Rs.34,51,070/- on 30.9.2011. The return of income was processed and assessment under section 143(3) was framed on 11.03.2014. During the course of assessment, books of accounts of the assessee were rejected. One of the reason for rejection of the books of account was that on verification of cash book it was found that there was negative cash balance on several days during the year. Ld. assessing officer tabulated the negative cash balance on various days and it was found that the highest negative cash balance was from 11–01–2011 to 30–03– 2011 of Rs.314951/-. Along with this, it was found by assessing officer that the books of accounts were not maintained in proper manner and therefore same were rejected. Assessing officer estimated the total income of the assessee at the rate of 8% of the gross receipt of the assessee, and thereby an addition of Rs.7043310/- was made. On appeal before CIT(A) he held that that the books of accounts were wrongly rejected and deleted the addition to the extent of Rs.6728359/- but confirmed the addition of Rs.314951/- to the total income of the appellant treating shortage in cash as per cash book as unexplained expenditure under the provisions of section 69C of The Income Tax Act, 1961. Against this addition assessee is in appeal before us.

03. Ld. AR of the assessee contended before us that the addition is wrongly made. He further explained that that the cash book was properly maintained and assessee had sufficient cash balance on hand. It was further stated that that assessee had an accountant who was maintaining the books of accounts with whom assessee had dispute on account of misappropriation and who with a view to take revenge from the assessee manipulated the cash book and made the negative cash balance thereon. It was his submission that assessee had sufficient cash balance in cash book in my in as much as the assessee had substantial amount as an opening cash balance and withdrawals from the firm. He stated that assessee had a huge cash balance which is proved from the fact that the assessee had made a disclosure of Rs.40 Lacs in A.Y. 2009–10. Therefore, he submitted that addition under section 69C has been wrongly made.

04. Learned Departmental Representative against this argued that that in the books of accounts maintained by the assessee there is a negative cash balance which could not be explained by the assessee before the CIT(A) also. He further submitted that that negative cash balance in cash book does not require anything else to be substantiated by assessing officer. He, therefore, submitted that they addition made by assessing officer and confirmed by the CIT(A) is just and proper. He relied on the decision of Honourable Supreme court in case of CIT v. Smt. P.K. Noorjahan (237 ITR 570).

05. We have carefully considered the rival contentions and we are of the view that contention of the assessee that that for assessment year 2009–2010 assessee has disclosed Rs.40,00,000/- to cover up possible leakages in that year. Therefore benefit of capitalisation of that sum which was disclosed by the assessee for assessment year 2009–2010 should be available to the assessee. As capitalisation of that sum has not been granted to the assessee in that year, then it is apparent that assessee must be given the benefit of  capitalisation of Rs.40 Lacs disclosed by him. Therefore, we are of the view that a shortage in cash book is just Rs.314951/-which is less than the disclosure already made by assessee this addition requires to be deleted. In the result we reverse the order of CIT(A) and direct assessing officer to delete the addition of Rs.314951/- on this account.

06. In the result appeal of the assessee is allowed.

Order pronounced in the open court on 11.03.2016.

(I.C. SUDHIR) Judicial Member  (PRASHANT MAHARISHI) Accountant Member

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