Capitalising Amounts by Transferring to Capital Account without Crediting to Profit and Loss Account attracts Penalty: ITAT [Read Order]

In a recent case, the Income Tax Appellate Tribunal ( ITAT ) Delhi upheld the view of Assessing officer(AO) that on one hand the assessee had made the borrowers and paid interest on such borrowers and on the other hand has parked such interest-bearing funds towards advances on which no interest has been earned by him.

In this case, the appeal was filed by the assessee against the Order of the Ld. CIT(A)-17, New Delhi related to assessment on the following grounds that the assessee had claimed interest payable to bank amounting to Profit and Loss account and payment regarding credit card, which have been rejected by the Ld. CIT(A)  and also prayed for deleting the addition made by the assessing officer.

The brief facts of the case are that assessee filed his return of income. The case of the assessee was selected for scrutiny through CASS. The assessee has introduced Capital amounting, which has not been credited to the P&L account. The assessee was asked to explain the source of these receipts and the reasons for not crediting the same in the P&L account and also asked as to why it should not be treated as unexplained cash credit u/s. 68 of the Act. The assessee has accepted his mistake and agreed for the addition of income. Accordingly, an addition was made in the hands of the assessee and AO also initiated the penalty proceedings u/s. 271(1) of the Act.

As regards the ICICI Bank Credit Card, the assessee stated that assessee had been using ICICI bank credit card which was being shown in his balance sheet but from this year the assessee has shown this in his capital account and has credited the amount in his capital account.

The AO was of the view that assessee has not credited the amount to the profit and loss account, though it was the part of his balance sheet in earlier years, hence, the amount was added in the hands of the assessee. AO also found that the assessee has shown Loan of an amount against which he has claimed bank interest, and the assessee has further given an interest-free loan to his daughter Mehak Gandhi. AO was of the view that on one hand the assessee had made the borrowers and paid interest on such borrowers and on the other hand has parked such interest-bearing funds towards advances on which no interest has been earned by him. The assessee has claimed the exemption on expenses as well as depreciation on two computers not pertain to the year under consideration, was disallowed and an amount was added back to the income of the assessee. AO also initiated the penalty proceedings u/s. 271(1)of the Act. In the end, the AO also initiated the penalty u/s. 271B of the Act for violation of Section 44AB of the Act and completed the assessment u/s. 143(3) of the Act. Aggrieved with the assessment order, assessee filed appeal before the Ld. CIT(A), and that was dismissed.

The Income Tax Appellate Tribunal Delhi Bench comprising of JUDICIAL MEMBER  SHRI H.S. SIDHU, held by upholding the finding of the Ld. CIT(A) on the issue in dispute and rejected the appeal. The court of the view with regard to the addition of on account of credit card payment is concerned, that expenses on ICICI Credit Card and the credit facility from Phoenix ARC Pvt. Ltd. was transferred by the assessee to his capital account. The assessee has himself.  The appellate authority considered view that the AO has rightly made the addition in dispute.