A mere mismatch of cash in cash book and Audited BS cannot be treated as undisclosed income: ITAT

The facts in brief are that the assessee in the present case is an individual and engaged in the activity of tours and travelling. The assessee in his balance sheet as on 31 March 2011 has shown a cash balance of Rs 2,96,249.00 whereas the cash book filed in the course of the assessment the cash balance was shown at Rs 6,08,574.00 leading to a difference of Rs 3,12,325.00 which was treated as unexplained/ unaccounted income of the assessee. Thus, the AO added the same to the total income of the assessee.

Aggrieved assessee preferred an appeal to the learned CIT-A also confirmed the order of the AO by observing as under:

“In his submissions before me the Ld. AR has tried to argue that cash balance as per audit report stands verified and therefore there was no scope for any addition even if cash book submitted before the assessing officer during assessment proceeding was showing different cash balance because this cash book was nothing but a rough work. This argument of AR is not only strange but also self defeating. Ld AR has not appreciated the fact that this cash book was submitted before the AO utilised to explain the cash deposits in the appellant bank account. In other words if cash book is treated rough noting having no evidentiary value then appellant would have suffered addition on account of unexplained cash deposit in the bank account. It is needless to stay there is no force in the argument of the Ld. AR. I do not find any infirmity in the order of the assessing officer. The addition stands confirmed.”

Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before Income Tax Appellate Tribunal (ITAT).

The learned AR in the written submission stated that there was the opening cash balance of Rs 1,93,755.00 which has not been reduced from the addition made by the authorities below. It was further stated in the written submission that the cash balance shown in the audited financial statement should be relied upon for the reason that it has been duly verified and attested by a qualified chartered accountant. Accordingly, the cash balance shown in the cash book should be ignored and therefore no addition is warranted merely on account of the difference in the cash balance as discussed above.

On the contrary, the learned DR vehemently supported the order of the authorities.

ITAT analyzed that merely observing the difference in cash balance as per Balance Sheet and Cash Book does not give any authority to draw an inference that there was unaccounted/undisclosed income of the assessee. The income cannot be determined merely on the basis of documents/papers until and unless it is corroborated by the tangible materials. There can be numerous reasons for the difference in the cash balance as discussed above but that difference does not lead to draw any adverse inference against the assessee. For example, there was the advance received by the assessee in cash which was entered in the cash book but the same was not incorporated in the balance sheet. Such advance received cannot be categorized as income of the assessee. Likewise, there can be receipt of money from the debtors which can again not be categorized as income of the assessee.

Accordingly, ITAT set aside the findings of the learned CIT-A and directed the AO to delete the addition made by him. Hence the ground of appeal of the assessee was allowed.