No disallowance u/s 36(1)(iii) can be made for cash-in-hand over certain time unless shown that it was utilized for undisclosed purpose- ITAT

No disallowance u/s 36(1)(iii) can be made for cash-in-hand over the certain period of time unless cogent material is brought to show that it was utilized for undisclosed purpose – ITAT 

ABCAUS Case Law Citation:
ABCAUS 2405 (2018) 07 ITAT

The instant appeal by the assessee was directed against the order of the Commissioner of Income Tax (Appeals) in inter alia sustaining additions made by the Assessing Officer (AO) u/s 36(1)(iii) of the Income Tax Act, 1961 (the Act).

The Assessing Officer noted that as per entries in the assessee’s cash book, cash of Rs. 6 lacs had been deposited in the bank account. However, as per the bank statement, the corresponding entry in the bank was reflected after five months from the date the deposit was reflected in the cash book. Hence, the Assessing Officer inferred that the assessee had utilized this amount for non business purpose for five months.

The assessee explained that due to clerical mistake on the part of the Accountant, there was a mistake in the date of entry in the cash book which remained so by oversight. However, the Assessing Officer did not accept the explanation of the assessee and added interest @ 18% for five months in this regard and disallowed the same u/s 36(1)(iii) of the Act.

Commissioner of Income Tax (Appeals) confirmed the addition.

The Tribunal opined that the addition made in this regard was bizarre as the cash-in-hand over the certain period of time, by no stretch of imagination, can lead to disallowance u/s 36(1)(iii) of the Act unless cogent material is brought on record that the same has been utilized by the assessee for undisclosed personal purpose.

Moreover, the Tribunal concurred with the submission of the assessee that in any case, the assessee was having sufficient interest bearing own funds. Hence, the disallowance u/s. 36(1)(iii) of the Act for the diversion of interest bearing funds was not at all sustainable in the case.

Accordingly, the Tribunal set aside the addition.

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