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Income tax view of shortage of cash balances

17 February 2020

Somebody has asked me that if any assessee (be it individual / HUF/ partnership firm / company) has cash balance in the books of account as on 01.01.2020. And suppose income tax carries a survey on 02.01.2020 and ask for cash verification and assessee doesn't become able to show him the cash... than what action survey team can take.

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9 Replies

sabyasachi mukherjee (25979 Points)
Replied 17 February 2020

The assesse can provide valid reasons for not providing sufficient information.
He can easily provide valuable information in that case.
Fix a time and provide him information

Kapadia Pravin (17249 Points)
Replied 17 February 2020

Request to elaborate the above post,

Give one or two examples about .......
valid reasons for not providing sufficient information to tax team on survey......

What is meant by ......providing valuable information .... Who will decide that !!!!

With whom and how to fix a time that too for providing information ? Do you have that right ??

Elaborate reply post !!

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scrap book (11 Points)
Replied 17 February 2020

Yes I too say this

scrap book (11 Points)
Replied 17 February 2020

Hi sabyasachi mukherjee

Point is what will the assessee explain to survey team that why he is out of cash suddenly.... Means what will construe as valid reasons in this case....

If the assesee will says that he expended the cash for revenue expenditures but doesn't have proof of expenditure than what is the action of law....

also would like to say that this is not a case of "unexplained cash credit" , or "unexplained investment"... it would be a case of "unexplained shortage of cash" and what are the tax provisions regarding this

Kapadia Pravin (17249 Points)
Replied 17 February 2020

Literally speaking you may interpret it's not unexplained cash credit or unexplained investment. But it is not so.

But Survey team may consider this as unexplained cash credit and take a view that cash balance is inflated as per books of accounts but in reality it's somewhere invested or lying somewhere else.

The shortage they may treat it as unexplained and hence the entire books are un-reliable and may even presume it as cooked up.

Time will tell what the outcome comes out. Till then pray with patience This is a serious finding by Survey team.

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rama krishnan (12234 Points)
Replied 18 February 2020

Scenario 1: suppose if physical cash balance is 1 lakhs and as per books it's 60000, then 40000 will be treated as suppressed sales

scenario 2: if physical cash balance is 1 lakhs and as per books 140000, then 40000 will be treated as unexplained expenditure

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scrap book (11 Points)
Replied 18 February 2020

Ys.. I gone thru the 69 series back ur answer sounds ok thanks

scrap book (11 Points)
Replied 18 February 2020

my was second case thanks

scrap book (11 Points)
Replied 18 February 2020

thanks --- Originally posted by : Kapadia Pravin
	Literally speaking you may interpret it's not unexplained cash credit or unexplained investment. But it is not so.But Survey team may consider this as unexplained cash credit and take a view that cash balance is inflated as per books of accounts but in reality it's somewhere invested or lying somewhere else.The shortage they may treat it as unexplained and hence the entire books are un-reliable and may even presume it as cooked up.Time will tell what the outcome comes out. Till then pray with patience This is a serious finding by Survey team.