Income Tax Addition Can't Be Deleted For Sole Reason Of Erroneously Mentioning Section: ITAT

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that the addition cannot be deleted for the sole reason that the section under which the addition is made is mentioned erroneously and that it is necessary to look into the merits of the case.

The bench of Anikesh Banerjee (Judicial Member) and Padmavathy S (Accountant Member) has observed that the addition is made primarily for the reason that the assessee has not furnished details to substantiate the genuineness of the impugned transactions, thereby not discharging the onus. It is also noticed that the assessee has not appeared before the CIT(A) to contend the issue on legal grounds as well as on merits.

The appellant/assessee is in the business of manufacturing display items. The assessee filed the return of income for AY 2011–12, returning a loss of Rs. 7,96,993. The Assessing Officer (AO), based on information received that the assessee had made bogus purchases from various parties totaling Rs. 15,51,506, reopened the assessment by issue of notice under Section 148 of the Income Tax Act.

The assessee, in response, requested that the AO treat the original return as the return filed in response to the notice under Section 148. During the course of reassessment proceedings, the AO noticed that the assessee had made investments in immovable property for an amount of Rs. 52,23,570 and called on the assessee to produce the details, including the source for the purchase of the property.

The assessee contended that the source was the withdrawals from the proprietary concern and loans from other parties. From the details furnished, the AO noticed that the assessee had borrowed a loan from four parties to the tune of Rs. 31,89,681 and called on the assessee to prove the identity, creditworthiness, and genuineness of these parties.

Since the assessee did not furnish the loan confirmation, income tax returns, copy of bank account, etc., the AO treated the loan as non-genuine and made the addition under Section 69 towards the entire loan. The AO on the bogus purchases made an addition of Rs. 1,93,938 by applying a profit ratio of 12.5%.

The assessee appealed before the CIT (A). Before the CIT(A), besides the grounds on merits, the assessee also contended the legal issue that addition could not have been made under Section 69 since the impugned transaction has already been recorded in the books of accounts of the assessee. Since the assessee did not appear or make any submissions before the CIT (A), the CIT (A) dismissed the appeal, confirming both the additions made by the AO. The CIT (A) also recorded findings on merit based on materials available on record while confirming the additions. The assessee is in appeal before the Tribunal, contending the addition made under Section 69 to the loan transactions.

The assessee contended that the addition ought not to have been made under Section 69 since the loan transactions are already recorded in the books of accounts of the assessee. The AO has made the addition without properly considering the details submitted before him. The assessee did not appear before the CIT (A) for the reason that the assessee did not receive the notice of hearing.

The department contended that the assessee has not appeared before the CIT (A) and has not cooperated with the appellate proceedings. Therefore, the department supported the order of the lower authorities, submitting that the assessee has not discharged the onus of proving the genuineness of the loan transaction.

The tribunal held that, in the interest of natural justice and fair play, we deem it fit to remit the issue back to the CIT(A) for consideration of the issue afresh. The assessee is directed to submit the necessary details in support of the claim that the loans are genuine without seeking any adjournments and to cooperate with the appellate proceedings.

Counsel For Appellant: Kinjal Bhuta

Counsel For Respondent: R.R. Makwana

Case Title: Jignesh Chimanlal Jobanputra Versus ITO

Case No.: I.T.A. No. 4008/Mum/2023

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