Amount transferred from Current Account to Deposit Account to maintaining shortfall of Accounts cannot be consider Income of Assessee: ITAT deletes Addition [Read Order]

The Chennai bench of Income Tax Appellate Tribunal ( ITAT ) after deleting the addition made by the assessing officer held that the amount transferred from the current account to maintain the shortfall of the account could not be considered the income of the assessee .

The Assessee, Aaditra Foundations is a resident firm that did not file a return of income for the year. Armed with the information that the assessee made a time deposit with the bank and also received interest against the same, the case was reopened and the assessee was directed to file its return of income. Since the assessee remained non-compliant, the AO added a deposit of Rs.207.06 Lacs to the income of the assessee. The interest income of Rs.2.62 Lacs was also added as income from other sources.

Aggrieved by the order the assessee filed another appeal before the CIT(A), who allowed the appeal of the assessee. Accordingly the revenue filed another appeal before the tribunal.

D. Hema Bhupal, the counsel for assessee submitted that it was engaged in business of real estate and civil work. Due to sluggishness in the construction business, the firm closed its operations and surrendered its PAN during November, 2017. Since the business was closed, the assessee could not represent during assessment proceedings.

Further argued that out of total credit of Rs.207.06 Lacs in Kotak Mahindra Bank Ltd., an amount of Rs.60 Lacs was received from one of the partners as capital contribution whereas the remaining amount was sweep credit wherein the bank automatically transfers surplus funds to deposits.

Hence the counsel for assessee submitted that Whenever the current account falls short, the funds from sweep account is transferred back to the current account. Therefore only interest would be taxable and not the entire sweep credit. Y. Sridhar,counsel for revenue, supported the order of assessing officers. 

It was observed that the assessee is holding a current account. In case of surplus funds beyond a certain threshold limit, the excess funds would be transferred to a deposit account and whenever there is a shortfall in the current account, the amount is transferred back to the current account. Therefore, it is a cyclical transaction and deposits could not be considered to be the income of the assessee.

After reviewing the facts the ITAT bench of Mahavir Singh, ( Vice President ) and Manoj Kumar Aggarwal (Accountant Member) dismissed the appeal filed by the revenue.

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