2021 (2) TMI 174 - AT - Income Tax

Unexplained cash credit u/s 68 - addition made towards non-existing liability on account of loans availed - HELD THAT - Assessee has reconciled difference in loan liability shown in its books of account in the name of M/s. Sundaram Finance Ltd. and has passed necessary entries to rectify the duplicate entries passed towards loans with corresponding debit in work-in-progress account and has explained the difference in loan account as per books of account and loans confirmed by the creditor. The said discrepancy is due to the fact that the assessee by inadvertent error had twice accounted loan old cleared loans and newly availed loans in the books of account of the assessee whereas the creditor M/s. Sundaram Finance Ltd. has confirmed only new loan amount which telescope the aforesaid transactions including loans squared up during the year. AO as well as the ld.CIT(A) without considering reconciliation filed by the assessee along with necessary evidences including confirmation letter from M/s. Sundaram Finance Ltd. has made addition towards difference in liability u/s.68 of the Act although said liability was non-existing liability but continued to live in the books of account of the assessee due to inadvertent error. Therefore we direct the AO to delete addition made towards non-existing liability on account of loans availed from M/s. Sundaram Finance Ltd. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
- Appeal against order treating amount as unexplained cash credit under section 68 of the Income Tax Act.
- Discrepancy in loan liability shown in books of account and confirmation letter issued by creditor.
- Addition made towards non-existing liability in books of account.
- Consideration of reconciliation and evidences filed by the assessee.
- Decision on the appeal filed by the assessee.

Analysis:

1. The appeal was directed against the order of the Commissioner of Income Tax (Appeals) regarding the treatment of a specific amount as unexplained cash credit under section 68 of the Income Tax Act for the assessment year 2015-16.

2. The assessee, engaged in operating a fishing harbor, faced scrutiny during which discrepancies in loan liabilities were identified. The Assessing Officer made additions under section 68 for unexplained credits related to loans from a finance company and other creditors.

3. The assessee contended before the CIT(A) that the discrepancies were due to inadvertent errors in accounting entries, providing explanations and necessary documents to support the claim that the liabilities were correctly recorded.

4. The CIT(A) noted the lack of evidence from the assessee on how the discrepancies occurred and were rectified in subsequent years. Despite the confirmation letter from the finance company, the CIT(A) upheld the additions made by the Assessing Officer.

5. The Appellate Tribunal reviewed the details provided by the assessee, including the confirmation letter and reconciliation of accounts. It was observed that the discrepancies arose from inadvertent errors in recording loan transactions, resulting in duplicate entries and a non-existing liability.

6. The Tribunal found that the assessee had rectified the discrepancies by passing necessary entries to eliminate duplicate entries and reconcile the loan liabilities. The Tribunal concluded that the additions made by the Assessing Officer and upheld by the CIT(A) were unfounded as the discrepancies were due to inadvertent errors in accounting.

7. Consequently, the Tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to delete the addition made towards the non-existing liability related to loans availed from the finance company.

8. The decision was pronounced on 1st February 2021 at Chennai, in favor of the assessee, highlighting the importance of reconciling discrepancies in financial records to avoid erroneous tax implications.

This comprehensive analysis covers the issues raised in the legal judgment, detailing the arguments presented by the parties, the decisions of the authorities involved, and the final ruling by the Appellate Tribunal.