2025 (2) TMI 34 - AT - Income Tax

Company wins appeal against Section 68 addition after proper bank interest enquiry conducted

ITAT Raipur allowed the assessee company's appeal and set aside the addition made under section 68. The Tribunal found that the AO had conducted proper ... Revision u/s 263 - addition u/s 68 - HELD THAT:- Tribunal, thereafter, vide its order passed in [2022 (10) TMI 1131 - ITAT RAIPUR] allowed the appeal of the assessee company and set-aside the order passed by the Pr. CIT u/s. 263 and restored the order passed by the A.O u/s. 143(3) of the Act wherein as difficult to agree with the DR that there was no enquiry conducted by the AO by putting any specific question to the assessee as to the treatment given to the interest. As a matter of fact, the reason for the difference in the amount as per Form 26AS and ITR was due to the interest received from the banks that was duly accounted and considered in the financial statements of the company and was adjusted against the project expenditure. The very fact that pursuant to the scrutiny when the AO proposed charging the interest amount received to tax, the very same explanation was offered by the assessee and was accepted by the AO. We are, therefore, of the considered opinion that it is not a case of no enquiry and as a matter of fact, it was specifically brought to the notice of the AO that the interest earned was adjusted against the project expenditure We find substance in the claim of the AR that now when the very genesis of the impugned addition made by the A.O u/s. 143(3) r.w.s. 263 of the Act, dated 28.12.2018 i.e. the order passed by the Pr. CIT u/s. 263 of the Act, dated 30.03.2018 had been quashed and does no more survive, therefore, the impugned order passed by the A.O u/s. 143(3) r.w.s. 263 has to meet the same fate and is liable to be quashed. We, thus, in terms of the aforesaid observations, set-aside the order of the CIT(Appeals) and vacate the addition made by the A.O vide his order passed u/s. 143(3) r.w.s. 263. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment were:1. Whether the addition of Rs. 65,00,000/- made by the Assessing Officer (A.O) under Section 68 of the Income-tax Act, 1961, was justified, given that the order under Section 263, which formed the basis for such addition, was quashed by the Tribunal.2. Whether the order passed by the Commissioner of Income-Tax (Appeals) [CIT(A)], which confirmed the additions in an ex-parte order for want of prosecution, was valid and in compliance with the principles of natural justice.ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of the Addition under Section 68- Relevant Legal Framework and Precedents: Section 68 of the Income-tax Act allows for the addition of unexplained cash credits to the income of the assessee. The power of revision under Section 263 is invoked when an order is considered erroneous and prejudicial to the interests of the revenue.- Court's Interpretation and Reasoning: The Tribunal had previously set aside the order of the Principal Commissioner of Income Tax (Pr. CIT) under Section 263, which directed the A.O to re-examine the share application money received by the assessee. The Tribunal found that the A.O had conducted adequate inquiries and verifications during the original assessment, and thus, the Pr. CIT's order was not justified.- Key Evidence and Findings: The Tribunal noted that the A.O had verified the transaction of share application money through the investor company's financial statements and supporting documents, including bank statements and affidavits. The investor company's director had also confirmed the transaction.- Application of Law to Facts: The Tribunal applied the principles from the Supreme Court's judgments in Malabar Industrial Co. Ltd. vs. CIT and CIT vs. Max India Ltd., which state that merely having a different opinion does not justify revision under Section 263 unless the original order is unsustainable in law.- Treatment of Competing Arguments: The Tribunal rejected the Pr. CIT's view that the A.O's order was erroneous due to inadequate inquiry, emphasizing that the A.O had adopted a permissible course in law.- Conclusions: The Tribunal concluded that the A.O's original assessment was not erroneous or prejudicial to the revenue, and thus, the addition made under Section 68 was not sustainable.Issue 2: Validity of the Ex-parte Order by CIT(A)- Relevant Legal Framework and Precedents: Principles of natural justice require that parties be given a fair opportunity to present their case. An ex-parte order without sufficient opportunity to the assessee may be considered invalid.- Court's Interpretation and Reasoning: The Tribunal observed that the CIT(A) dismissed the appeal for want of prosecution without adequately addressing the merits of the case or providing the assessee with a fair opportunity to be heard.- Key Evidence and Findings: The Tribunal found that the CIT(A) failed to consider the grounds of appeal on merit and did not provide sufficient opportunity for the assessee to present its case.- Application of Law to Facts: The Tribunal applied the principles of natural justice, emphasizing the need for fair hearing and consideration of the merits of the case.- Treatment of Competing Arguments: The Tribunal acknowledged the assessee's contention regarding the lack of opportunity and the procedural deficiencies in the CIT(A)'s order.- Conclusions: The Tribunal held that the ex-parte order by the CIT(A) was not justified and set it aside.SIGNIFICANT HOLDINGS- The Tribunal held that the addition of Rs. 65,00,000/- under Section 68 was not sustainable as the order under Section 263, which was the basis for such addition, had been quashed.- The Tribunal emphasized that an order cannot be deemed erroneous merely because a different view is possible, aligning with the Supreme Court's judgments in Malabar Industrial Co. Ltd. vs. CIT and CIT vs. Max India Ltd.- The Tribunal reiterated the importance of conducting adequate inquiries and verifications during assessments, and that inadequacy in inquiry does not justify revision under Section 263.- The Tribunal highlighted the necessity of adhering to the principles of natural justice, setting aside the CIT(A)'s ex-parte order for lack of fair hearing.- The Tribunal vacated the addition made by the A.O and allowed the appeal filed by the assessee.