TMI Blog2016 (12) TMI 1486X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 (iv) of the Act. The assessee was able to explain with the evidence of the auditor who has admitted to have made mistakes in describing the gold pledged as capital of the assessee , whereas, in the eyes of law it is a contingent liability and since the error has been corrected by audited reconciliation statement before the AO at the very first instance itself, we do notfind any infirmity in the order passed by the ld. CIT(A) in directing the deletion of the addition made by the AO u/s 28(iv) of the Act. Therefore we confirm the order of the ld. CIT(A) and dismiss the ground of appeal raised by the revenue on this issue. - Decided in favour of assessee Addition made u/s 68 - Held that:- the undisputed fact that the assessee was maintaining accounts under Bengali conversion single entry system upto Asst Year 2006-07 (i.e immediately preceding previous year) and given the fact that the same were duly converted into English double entry system during the financial year 2006-07 relevant to Asst Year 2007-08 wherein these entries together with other entries were reflected in the books , we are persuaded to believe the version of the assessee in this regard. Respectfully following th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the demise of his grand-father. In order to prove that the assessee inherited the business of money- lending from the late grand father, the assessee produced a copy of the notarised affidavit which was sworn by the uncles of the assessee and father of the assessee, in which it was stated that according to the wish of the late grand father the money lending business and the pawn gold weighing 27,975 gms which was in the possession of the late grand father as pledged gold in the money lending business was transferred to the assessee for doing business. Thus the assessee explained to the AO that pledged gold which was revalued and the land and building got from his grand-father increased the capital of the assessee in the year under consideration, which was not fully accepted by the AO. The AO believed that the land and building was bequeathed by the assessee which was supported by a registered gift deed (original cost of ₹ 25,000/- and revalued cost at ₹ 14.5 lakhs) and the AO accepted the fact the late grand father of the assessee was an income tax assessee, however according to the AO it was difficult to accept that gold weighing 27,909 gms (28 kgs) came to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Aggrieved the assessee preferred an appeal before ld.CIT(A) and contended that the entire confusion in respect to the increase in capital was caused due to certain mistakes committed by the auditor because of over-sight and that in the instant assessment year, the assessee deviated from the Bengali conversion single entry system to the English double entry systems, so the assets which he got from his late grand father was not reflected in the previous assessment year. The ld. CIT(A) having taking note of the fact that the late grand father of the assessee Shri Khagendra Nath.Nandi was an income tax assessee and died in 1997 and taking note of the audited statement of accounts of the said late Shri Khagendra Nath.Nandi for the year ending 31.03.1997 along with the notes of account specifying the fact of pledged gold weighing 927.170 gms and also taking note into account the physical verification report dated 7.5.1997 of M/s. P.C.Associates, Chartered Accountant regarding pledged stock of gold/jewellery as on 31.03.1997 certifying that the gold weighing 27,927.17 gms of stock of gold was in fact pledged and kept in the custody of late grand father as on 31.3.1997. The ld. CIT(A) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y.2007-08 and ordered deletion of the addition. 5. We have heard both the parties and perused the records. The whole controversy is that during the assessment proceedings the AO observed that the assessee has shown in his own capital as on 31.03.2007 at ₹ 2,35,09,705/- as against the capital of ₹ 14,33,285/- as on 31.03.2006. The assessee pursuant to the notice issued by the AO to explain the increase in the capital, the assessee explained that until 31.03.2006 the accounts of the assessee were maintained in Bengali conversion single entry system and in the instant year the assessee switched on to English double entry system wherein AS-28 and AS-29 of the accounting system was followed. It was pointed out that there was a mistake on the part of the auditor who had admitted the same. The description of the gold items as inherited stock in the balance sheet was not correct because these are the very same gold items which have been pawned before the late grand father and later on transferred to him after the demise of grand father and the said gold is appearing in the pledged stock register maintained during the business of the late grand father Shri Khagendra Nath N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 27,909.070 gms noted that the assessee was running the money lending business after the death of his grandfather and was having the pledged stock of 27,927.170 gms as on 31.03.1997 onwards. The ld. CIT(A) took note of the fact that in the remand report the AO has confirmed from six borrowers who had redeemed the pledged gold from the assessee. The ld. CIT(A) has not agreed with the AO s conclusion that the gold which has not been redeemed by the borrowers becomes forfeited asset of the assessee. The ld. CIT(A) has observed that the assessee could not have forfeited the pawned items and in any case he cannot own the same. The ld. CIT(A) has taken note that the entire controversy has started because in the year under consideration the assessee changed from the single entry system to double entry system and the pledged gold was wrongly shown as inherited capital in the balance sheet and which was in fact a contingent liability The ld. CIT(A) has taken note of the auditors clarification that the description of the inherited stock of gold as capital was wrong when the fact was that the pledged gold was a contingent liability. The auditor clarified that the capital includes the conti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended 31.03.1997 which is placed at page 49 and perusal of notes on accounts reveals the fact of stock of gold of 27,927.170 gms as on that date. This fact has been corroborated by the Chartered Accountants M/s. PC Associates who have physically verified the stock has given a certificate dated 7.5.1997 which is placed at page 50 of the paper book and list of gold stock which is placed from 51 to 54 of the paper book wherein the products, number of items, weight in grams have been enumerated. The ld. AR took our attention from pages 55 to 145 of his paper book which is the pledged stock register of late Shri Khagendra Nath Nandi for the year 1996-97, 1997-98 which shows the continuity of pledged items and subsequent redemption/release of some of the items back to the borrowers. The ld. AR took our attention to the statement showing release of the pledged stock of gold for the year 1997-98, 1997-98 and 1998-99 which are placed at pages 146 to 163 of the paper book. The ld. AR took our attention the fact that after the death of the grand father the business of money lending was being run by the assessee from his father that he had taken the money lending licence on 21.11.1997 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 thought it fit merely to revalue the said already accounted jewellery and give the effect of revalued portion of the jewellery to the tune of ₹ 1.52 crores and included the same in the jewellery account on assets side and corresponding credit to his capital account. This is merely a book entry passed by the assessee to give effect to the revaluation of the jewellery which was already disclosed in the balance sheet. Hence in any case there is no case made by the AO for framing an addition u/s 28 (iv) of the Act. The assessee was able to explain with the evidence of the auditor who has admitted to have made mistakes in describing the gold pledged as capital of the assessee , whereas, in the eyes of law it is a contingent liability and since the error has been corrected by audited reconciliation statement before the AO at the very first instance itself, we do notfind any infirmity in the order passed by the ld. CIT(A) in directing the deletion of the addition made by the AO u/s 28(iv) of the Act. Therefore we confirm the order of the ld. CIT(A) and dismiss the ground of appeal raised by the revenue on this issue. 6. The last issue to be decided in the appeal of the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anal Kanti Dey for rate of sale of gold and because the price of gold is gradually increasing on the higher side, naturally no business would like to make his investment remain idle. Hence in the absence of any documentary evidence of advance to establish the genuineness of transaction, the ld AO added the advance amount of ₹ 49,50,000/- as unexplained cash credit u/s 68 of the Act. 8. The ld CITA appreciated the various contentions of the assessee together with the evidences submitted before him in the paper book and held that no addition u/s 68 of the Act could be made in the year under appeal in the facts and circumstances of the case and accordingly deleted the addition. Aggrieved , the revenue is in appeal before us on the following ground:- 4. That the Ld.CIT(A) has erred in facts and circumstances of the case by allowing relief ₹ 49,50,000/- to the assessee though in the assessment stage as well as in remand stage, Sri Anal Kanti Dey was specifically asked to provide details of his transaction (i.e. date and mode of transaction) with the appellant and the said person as well as the appellant assessee failed to discharge the onus not only to prove the genu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002-03 2003-04 based on the said books of accounts finding that the advance received were satisfactorily explained in the assessment. He argued that the subject mentioned advance from customers had not entered either the cash book or the bank book of the assessee during the financial year 2006-07. The ld AO also had not disputed this aspect. While that is so, how the provisions of section 68 of the Act could be invoked in as much as the said section starts with the phrase where any sum found credited in the books . He argued that the expression sum mentioned in section 68 of the Act means only sum of money and not otherwise, in support of which he placed reliance on the decision of the Hon ble Supreme Court in the case of H.H.Sri Rama Verma vs CIT reported in (1991) 187 ITR 308 (SC) wherein it was held :- The use of the expression any sums paid contemplates payment of an amount of money . One of the dictionary meanings of the expression sum means any indefinite amount of money. In the context in which expression sums paid by the assessee has been used make the legislative intent clear that it refers to amount of money paid by the assessee as donation . The plain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has been maintaining accounts in Bengali conversion single entry system and the same were duly converted into English double entry system during the financial year 2006-07 relevant to Asst Year 2007-08. The ld AR argued that the advances from Mr Anal Kanti Dey had been received prior to 1.4.2002 which fact has been duly confirmed by him also in the reply letter filed by him before the ld AO in response to notice u/s 133(6) of the Act and proceedings thereafter. This is further ratified by the fact that the assessee had duly recorded the receipt of advances from Mr Anal Kanti Dey in his usual style of Bengali conversion single entry system of accounting and income tax returns filed based on those accounts have been duly subjected to scrutiny assessments in Asst Years 2001-02 , 2002-03 2003-04 by the ld AO. These facts are not controverted by the revenue before us. Hence the fact of non- receipt of advances in the sum of ₹ 49,50,000/- received from Mr Anal Kanti Dey during the financial year 2006-07 relevant to Asst Year 2007-08 stands very clearly established. The only basis for the revenue to invoke the provisions of section 68 of the Act in respect of such advance in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrying on jewellery business in Lahore prior to migration to India and hence it was held that the value of those assets (irrespective of it getting taxed in Lahore or not) that were brought into India cannot be added u/s 68 of the Act. Hence we hold that the decision relied upon by the ld DR does not advance the case of the revenue. It is also not in dispute that there was no physical inflow of money either in cash or by cheque in respect of advance received from Mr Anal Kanti Dey during the financial year 2006-07. To support this, Mr Anal Kanti Dey had confirmed to the ld AO in more than one occasion that the said advances were paid prior to 1.4.2002 and were outstanding as on 31.3.2007 with the assessee. Given this fact and the undisputed fact that the assessee was maintaining accounts under Bengali conversion single entry system upto Asst Year 2006-07 (i.e immediately preceding previous year) and given the fact that the same were duly converted into English double entry system during the financial year 2006-07 relevant to Asst Year 2007-08 wherein these entries together with other entries were reflected in the books , we are persuaded to believe the version of the assessee in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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