Deletion of Addition under Section 68 Due to Clerical Error occurred while consolidating the annual accounts

ORDER

Arun Khodpia, Accountant Member. – The Captioned appeal is filed by the assessee against the order of Commissioner of Income Tax Appeal, National Faceless Appeal Centre (NFAC), Delhi (for short, “Ld. CIT(A)”), u/s 250 of the Income Tax Act, 1961 (for short, “The Act”), for the Assessment Year (AY) 2018-19, dated 27.05.2024. Resulted, from the order passed by the Addl/ Joint / Deputy/ Assistant Commissioner of Income Tax/ Income Tax Officer, National e-Assessment Centre, Delhi (for short, “The Ld. AO”), U/s 143(3) r.w.s. 144B of the Act, dated 20.04.2021.

2. The grounds of appeal, in present appeal raised by the assessee reads as under:

3. The brief facts of the case are that the assessee is engaged in the business of transportation in the name and style of “M/s Tanvi Roadways”. He filed his return of income, declaring total income at Rs. 97,46,160/-, which has been assessed u/s 143(3) r.w.s. 144B at Rs. 2,68,80,894/- vide assessment order dated 24.04.2021. Enhancement in income of the assessee was on account of increase in capital balance treating it to be unexplained cash credit u/s 68 for Rs. 1,61,29,215/-. Another addition was on account of long-term capital gain on sale of property at Rs. 10,05,519/-.

4. Aggrieved with the aforesaid additions, assessee preferred an appeal before the Ld. CIT(A), wherein detailed explanations were furnished by the assessee, however, the contention put forth by the assessee could not find favour with the Ld. CIT(A), therefore, the appeal of the assessee has been dismissed on all grounds.

5. Dissatisfied with the aforesaid order of Ld. CIT(A), assessee preferred an appeal before the Tribunal, which is under consideration in the present case before us.

6. Ground No. 1: Regarding sustaining the addition of Rs. 16,129, 215/- on account of unexplained cash credit u/s 68.

6.1 This issue was cropped up during the assessment of the assessee u/s 161 wherein the observations of the Ld. AO while the aforesaid issues are as under:

3. In the ITR of AY 2017-18, the assessee has shown capital of Rs. 4,53,64,389(Item 1, page 2 of ITR). The assessee maintains 2 balance sheets, one is his personal balance sheet and another is balance sheet of his business (M/s Tanvi Roadways) of which he is the proprietor. The capital shown in the personal capital account includes the capital of business capital account. Since the assessee is required to get his books audited u/s 44AB, hence is required to upload his audited balance sheet on e-filing portal. For the AY 2017-18, the assessee has uploaded only his business balance sheet and not his personal balance sheet and the business balance sheet so uploaded shows a capital of Rs, 1,33,03,095. The assessee was asked to justify the discrepancy _between the capital shown of Rs. 1,33,03,095 as per the uploaded business balance sheet and the capital of Rs. 4,53,64,389 shown in the ITR. The assessee replied ‘hat the capital of Rs. 4,53,64,389 shown in the ITR represents his personal capita! which Includes the capital of Rs. 1,33,03,095 shown in the uploaded business balance sheet.

In the ITR of AY 2018-19, the assessee has shown capital of Rs. 8,33,69,556. The assessee has uploaded only his business balance sheet which shows a capital of Rs. 1,61 assessee was asked to justify the difference between the capital as per IT R and the capital as per uploaded balance sheet. The assessee then furnished his personal capital account and business capital account separately. As per the personal capital account, the opening balance of capital is Rs. 4,53,64,389 and as per the business capital account, the opening balance of capital is Rs. 1,33,03,095. The assessee stated that the opening balance of capital of Rs. 4,53,64,389 includes the opening balance of business capital of Rs. 1,33,03,095. As per the personal capital account, the closing balance of capital is Rs. 6,72,40,340 and as per the business capital account, the closing balance of capital is Rs. 1,61,29,215. The assessee was asked that if the opening personal capital includes the opening capital of business, then the closing personal capital of Rs. 6,72,40,340 should include the closing capital of business of Rs. 1,61,29,215 while the assessee has in fact added the closing personal capital of Rs. 6,72,40,340 to the closing capital of business of Rs. 1,61,29,215 resulting in a figure of Rs. 8,33,69,556 (6,72,40,340+ 1,61,29,215). The assessee vide his reply dated 30.03.2021 admitted his mistake and replied as under: –

“1. I agree that Opening Personal Capital as Rs. 4,53,64,389/- includes Business Capital of Rs. 1,33,03,095/

2. I also agree that Closing Personal Capital of Rs. 6,72,40,340/- includes Closing Business Capital of Rs. 1,61,29,215/-. Copy of Closing Capital Account is enclosed herewith for your kind perusal and record.

However, at the same time I admit with regret that while submitting my Return of Income for Assessment Year 2018-19 in Balance Sheet, in Persona/ Capita/ of Rs. 6,72,40,340/- (which already includes Business Capital of Rs. 1,61,29,215/-), this sum of Rs. 1,61,29,215/- was again got added wrongly and therefore Capital has wrongly been shown as Rs. 8,33,69,556/-, instead of Rs. 6,72,40,340/- Assets side also there is duplicity in reporting. I attach herewith copies of my Persona/ Balance Sheet and Balance Sheet of Firm also for your kind perusal and consideration. / hope that on perusal of same, you would be satisfied with my submission given in above para. I humbly request your honor that the error is clerical in nature and there is no instance or intension of hiding any income or tax evasion -In view of the same, I request your honor that such clerical error ay very kindly be ignored, while framing Assessment.

In this way, the assessee has increased capital in his books by Rs. 1,61,29,215 (8,33,69,556- 6,74,40,340) which represents unexplained cash credits in its books of A/c.

The onus to prove the nature and source of cash credits in the books of the assessee in the form of increase in capita/ contribution lies upon the assessee.

Section 68 of the Income tax Act reads as under: – Cash credits.

Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.

In fact, the principle of onus, that the assessee is required to establish the identity, prove the genuineness of the transaction and establish the creditworthiness of the donor, has been reiterated even in a recent decision of Hon. Delhi High Court in the case of CIT v. Oasis Hospitalities Pvt. Ltd. , [2011] 9 taxmann.com 179/198 Taxman 247/333 ITR 119 (Delhi)(2011)./n this case it was held by the Hon. Court that “The initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68. Those are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise.”

The assessee’s contention that this mistake is only clerical and not intentional is not acceptable. For Ay 2017-18 and 2018-19, the assessee has uploaded only his business balance sheet and not his personal balance sheet due to which the possibility of changing the entries in the personal balance sheet at any time cannot be ruled out. Had this case not been selected in scrutiny, the assessee would have easily moved ahead with increased capital and any asset could have been created against this increased capital since the personal balance sheet is not uploaded anywhere. Even the ITR of AY 2019-20 has been filed by the assessee wherein this mistake has not been rectified, then when this mistake would be caught by the assessee. Besides, assessee has furnished many replies during the assessment proceedings and never detected this mistake. It was only when the assessee was asked specifically on this pointy that the assessee has admitted his mistake which shows that it is intentional. The assessee is obliged to upload his complete balance sheet on E-filing portal which he has avoided in both the years. Besides this in an audited case, hence the possibility of clerical mistake is not acceptable. Since the assessee has introduced unexplained cash credits in its books of a/c to the tune of Rs. accordingly, an Addition of Rs. 1,61,29,215 is made to the income of the assessee u/s 68 r.w.s. 115BBE of the Act.

[Add: Rs. 1,61,29,215]

6.2 The aforesaid addition based on the findings by the Ld. AO was not found to be acceptable by the assessee, therefore, the matter was carried before the Ld. CIT(A), wherein assessee tried to further substantiate that the difference in capital balance in the balance sheet figures of the assessee was only due to clerical mistake while filing the ITR form no. 3 for the relevant AY, however, the explanations of the assessee though considered but not found convincing and satisfactory, therefore, the addition made by the Ld. AO was confirmed by the Ld. CIT(A).

6.3 Aggrieved with the decision of Ld. CIT(A), the assessee preferred to the recourse of remedy available, therefore, has filed an appeal before us, and the issue qua the addition u/s 68 of the on account of unexplained cash credit in the garb of fresh introduction of capital is assailed before us.

6.4 At the outset, Ld. AR before us, submitted that the assessee herein Shri Ankur Bansal is engaged in the business of transportation and logistics services and such business is being conducted by the assessee in his personal capacity as well as in capacity of the Proprietor of “M/s Tanvi Roadways”. It is the practice of the assessee that he maintains separate books of accounts for “Ankur Bansal personal” and for “M/s Tanvi Roadways”. Assessee has two sets of final accounts, out of which balance sheet of M/s Tanvi Roadways has been audited and a separate unaudited balance sheet of Ankur Bansal personal are prepared. Both these balance sheets are merged at the end of the year to furnish the consolidated figures of the assessee’s financial position as required in form ITR-3 filed for the year. It is the submission that while preparing the consolidated balance sheet for the year ended 31.03.2018, a mistake is committed that the amount of capital account in the Ankur Bansal personal balance sheet for Rs. 6,72,40,340/-was added with the amount of proprietor’s capital account in the books of M/s Tanvi Roadways for Rs. 1,61,29,215/- and the amount filled as proprietor’s capital in the ITR was Rs. 8,33,69,556/-, whereas the total proprietor’s capital was to be reflected at Rs. 6,72,40,340/-. It is further submitted that the similar mistake was affected on the asset side of the consolidated balance sheet also, as the amount of investment was shown at Rs. 6,35,57,036/-, which includes an amount of Rs. 1,61,29,215/- towards assessee’s capital contribution in M/s Tanvi Roadways, whereas this amount was to be reduced while consolidating the balance sheets of assessee and its proprietary concern, the correct figure of investment to be shown in the ITR-3 should be 4,74,27,821/- (6,35,57,036 – 1,61,29,215). Ld. AR further contended that under the recognized accounting principles while consolidating the balance sheets of a single assessee having different branches of operations, the figures commonly representing certain assets and liabilities are to be eliminated on both the sides. Ld. AR clarified that in present case a mistake occurred while consolidating the annual accounts by the assessee that such common assets and liabilities are left to be removed, whereas such figures were added as such, thus, the amounts representing asset in one balance sheet and liability in the other balance sheet are doubled. Since there was no variance in the total balance of liabilities viz-a-viz assets in the consolidated balance sheet of the assessee while filing the figures in the ITR, therefore, such mistake could not be identified at that stage. In order to substantiate that it was merely a clerical mistake, Ld. AR has placed before us a synopsis showing that how such error has taken place in the consolidated balance sheet as on 31.03.2018, also the capital account reflected in the previous year is furnish before us to show that such mistake was not committed for the year ended as on 31.03.2017. The synopsis furnished by the Ld. AR dated 24.9.2024 and second synopsis showing balance sheets as on 31.03.2019 and 31.03.2020 are extracted hereunder for the sake of analysis of the facts in terms of aforesaid contentions on behalf of the assessee:

6.5 Ld. AR also placed before us, (i) copies of ITR-3 for AY 2018-19, 2019-20 & AY 2020-21, (ii) audited balance sheet of M/s Tanvi Roadways (Proprietor ship of the assessee) and balance sheet of Ankur Kumar Bansal for as on 31.03.2018, 31.03.2019 and 31.03.2020, (iii) capital account of Ankur Kumar Bansal and other relevant documents.

6.6 Backed by aforesaid submissions, it was the contention by Ld. AR that the clerical mistake made while filing the return of the assessee has no financial impact, such mistake was revenue neutral so far as taxes are concerned. Ld. AO have made the addition with his conviction qua the assessee’s assertion regarding mistake in furnishing the closing balance of personal capital at Rs. 8,33,69,556/-wherein the amount of capital invested in Tanvi Roadways for Rs. 1,61,29,215/-was added twice. Ld. AO reckoned such mistake in the balance of capital account as introduction of fresh capital through unexplained sources. The assessee has also made the similar mistake which was in the asset aside of the balance sheet, however, both the revenue authorities have not taken any cognizance of such averment. As the individual balance sheets of the assessee and it’s proprietary concern are before the revenue authorities, therefore, the inference that the duplicity on asset aside was not substantiated by the assessee was a misconceived interpretation. Under such fact and circumstances, no addition on account of a clerical mistake having no impact on the taxable income of the assessee has to be made. The aforesaid addition made u/s 68 therefore, is liable to be deleted.

6.7 Ld. Sr. DR, on the other hand vehemently supported the orders of revenue authorities.

6.8 We have considered the rival submissions, perused the material available on record and the orders of revenue authorities qua the addition u/s 68. Under the factual matrix of the present case, on perusal of the assessee’s personal final accounts (APB Page No- 13 & 14) and audited accounts of M/s Tanvi Roadways (APB Page No. 07 & 08) as on 31.03.2018, we find that the capital account balance in personal balance sheet of the assessee has been recorded at Rs. 6,72,40,340/- and balance of investment includes investment in M/s Tanvi Roadways to the tune of Rs.1,61,29,216/-. It is also noted that in the audited balance sheet of M/s Tanvi Roadways, the capital balance on the liability side has been shown at Rs. 1,61,29,216/-. It is further verifiable from the balance sheet of the assessee and M/s Tanvi Roadways as on 31.03.2019, placed before us at APB page no. 73 to 80, that the opening balance of proprietor’s capital in the audited final accounts of the M/s Tanvi Roadways in Annexure- ‘A’ has been brought forward at Rs. 1,61,29,216/-, which was further added with the profit during the year for Rs. 41,38,487/- and reduced by debits during the year for Rs.1,60,63,046/- resulting thereby the closing capital balance of Rs. 42,04,657/-, matching with the amount of investment in Tanvi Roadways shown in the personal balance sheet of Ankur Bansal. On a thoughtful perusal of the aforesaid facts emerging from the books of accounts of the assessee which were there before the Ld. Revenue Authorities, however, the mistake committed by the assessee qua the capital account are treated as unexplained investment by the assessee, whereas the corresponding error on the asset side was not taken into consideration. Herein, it would be pertinent to refer to Accounting Standard-21 (AS-21) guiding the accounting treatment and procedures while consolidating the financial statements, as per which certain amounts complementing each other are required to be eliminated. The procedure laid in AS-21 is culled out as under:

13. In preparing consolidated financial statements, the financial statements of the parent and its subsidiaries should be combined on a line-by-line basis by adding together like items of assets, liabilities, income and expenses. In order that the consolidated financial statements present financial information about the group as that of a single enterprise, the following steps should be taken:

Where the carrying amount of the investment in the subsidiary is different from its cost, the carrying amount is considered for the purpose of above computations.

Explanation:

6.9 As per aforesaid the procedure for consolidation laid down in the AS-13, the assessees having multiple business entities to operate its business and have maintained separate set of accounts for such entities, it is required to consolidate the final accounts of all such entities so as to arrive at and to present the true and fair consolidated picture of the assessees state of affairs. As per para 13(a) of the aforesaid AS-13, capital balance of the principal, while consolidating needs to be reduced with the figure of investment in the subsidiary, adopting the same analogy for the present case, wherein the principals is Ankur Kumar Bansal and the subsidiary is “M/s Tanvi Roadways”, the cost of investment i.e., capital contribution in the subsidiary has to be eliminated while showing the amount of total capital of the assessee.

6.10 Under such facts and circumstances, considering the commonly adopted accounting principles, we are of the considered view that the amount shown in the ITR by the assessee without eliminating the common amounts qua the capital and investment, was only on account of clerical error, due to which the amount of assessee’s liabilities as well as asset are enhanced with an identical amount, which has no effect on the taxable income of the assessee, therefore, it was a revenue neutral exercise, consequently, there was no prejudice to the interest of the revenue. The findings of the Ld. AO are perverse as the complete aspect of the error could not be looked into by him and again Ld. CIT(A) had perpetuated the error of considering the clerical mistake in consolidated amount of capital of the assessee as fresh capital introduced as unexplained cash credit within the meaning of section 68 of the Act. We, thus, are unable to persuade and to endorse the findings of Ld. CIT(A) in sustaining the addition u/s 68 enforced under the misconceived interpretation by the Ld. AO, consequently, the addition of Rs. 1,61,29,215/- made u/s 68 is directed to be deleted.

6.11 In result, ground no. 1 of the present appeal of assessee is allowed, in terms of our aforesaid observations.

7 . Ground No. 2: Since, we have vacated the addition made by the Ld. AO u/s 68 in terms of our observations, while deciding the ground no.1 of the present appeal, therefore, the contention of the assessee regarding sustaining the application of section 115BBE by the Ld. CIT(A) has been rendered as academic only. Thus, Ground no. 2 of the present appeal is dismissed as infructuous.

8 . Ground No.3: This ground of the assessee is general and academic in nature, therefore, the same does not require any adjudication.

9 . Resultantly, the present appeal of the assessee is partly allowed in terms of our aforesaid observations.