2025 (7) TMI 1739 - AT - Income Tax

Section 68 Addition Deleted as Assessee Proves Loan Liability with Proper Records and PAN Details

DCIT, Circle-22 (2), New Delhi Versus SB Infosoft India Pvt. Ltd

The ITAT DELHI upheld the CIT(A)'s deletion of the addition under section 68 relating to an increase in unsecured loan liability, finding that the ... Addition u/s 68 - increase in unsecured loan liability - CIT(A) deleted addition - penalty u/s 271(1)(c) - HELD THAT:- The assessee filed the confirmation copy of account of the main party having made advance to whom duly confirmed by that party also which was appearing under the head other current liabilities as on 31-3-2012. Apart from these figures, the other liabilities included statutory dues such as audit fees, bonus and other expenses payable as per note 8 of the balance sheet. The assessee also furnished the complete reconciliation of the figures taken in the assessment order towards increase in credit balances and as appearing in the balance sheet as on 31-03-2012 before the learned CIT(A) which is also reproduced of the learned CIT(A). On complete verification of the same, the learned CIT(A) concluded that assessee had maintained complete record of the expenses incurred and have also deducted tax at source wherever applicable, and filed the TDS returns with the income tax department after duly depositing the tax so deducted. CIT(A) also noted that the AO had completely ignored these facts. CIT(A) concluded that assessee had furnished the complete name and addresses of the sundry creditors/ current liabilities and also had filed confirmed copy of accounts giving their PAN as well as invoices and linking the same with the audited balance sheet of the company who had also made an advance in respect of all the sundry creditors and current liabilities including the party who had made an advance. CIT(A) noted that the books of accounts of the assessee company had been rejected by the learned AO under section 145(3) of the Act without pointing out any defects in any manner whatsoever there on. With these observations, the learned CIT(A) proceeded to delete the addition made on account of increase in sundry creditors / current liabilities in the sum. None of these factual observations made by the learned CIT(A) could be controverted by the revenue before us. Hence, we do not find any infirmity in the order of CIT(A). Accordingly, the grounds raised by the revenue are hereby dismissed. Since the quantum proceedings are decided in favour of the assessee, the penalty proceedings would have no legs to stand. ISSUES: Whether the appellate authority was justified in admitting additional evidence filed by the assessee under Rule 46A of the Income Tax Rules despite objections by the Assessing Officer.Whether the addition made under section 68 of the Income-tax Act on account of unexplained increase in unsecured loans was justified.Whether the addition made under section 68 on account of unexplained increase in sundry creditors and current liabilities was justified.Whether penalty proceedings under section 271(1)(c) could be sustained following the deletion of additions in the quantum proceedings. RULINGS / HOLDINGS: The appellate authority was correct in admitting the additional evidence as it 'go to the root of the matter and are very much relevant and crucial for the purpose of adjudication,' and the Assessing Officer failed to examine the merits of such evidence in remand reports.The addition of Rs. 24,30,000/- on account of increase in unsecured loans was deleted because the loan was found to be a 'continuing loan account' with no fresh loan received during the year, supported by lender confirmations and interest payment subjected to TDS.The addition of Rs. 2,98,74,317/- on account of increase in sundry creditors and current liabilities was deleted as the assessee furnished 'complete record,' including confirmations, PAN details, invoices, audited financial statements, and reconciliations, which were duly verified by the appellate authority.Penalty proceedings under section 271(1)(c) were dismissed as they had 'no legs to stand' once the quantum additions were deleted. RATIONALE: The court applied provisions of the Income-tax Act, 1961, specifically sections 68 (unexplained cash credits), 144 (best judgment assessment), 145(3) (rejection of books of account), and 271(1)(c) (penalty for concealment), along with Rule 46A of the Income Tax Rules regarding admission of additional evidence.The appellate authority emphasized the principle that additional evidence which is relevant and goes to the root of the matter should be admitted, especially when the Assessing Officer fails to properly examine or rebut such evidence.The rejection of books of account under section 145(3) was noted to be without any pointed defects, undermining the basis for additions under section 68.The decision reflects a careful verification of documentary evidence such as confirmations, PAN details, audited financial statements, and reconciliations, affirming the assessee's explanation for the increases in unsecured loans and sundry creditors.The dismissal of penalty proceedings follows the settled principle that penalty cannot be sustained if the underlying additions or assessments are deleted.