2025 (11) TMI 1306 - AT - Income Tax

Revenue appeal dismissed, deduction u/s 80P allowed, addition u/s 69A deleted, overdue interest provision accepted

ITAT Kolkata dismissed the Revenue's appeal and upheld the order of CIT(A) in full. It confirmed deduction u/s 80P, holding there was no material to show ... Deduction u/s 80P - income derived by the assessee by providing loans/credit facilities to its non-members - CIT(A) deleted Addition - HELD THAT:- CIT(A) correctly allowed the appeal of the assessee after calling for the remand report from the AO and after taking into account the submission and contention of the assessee by observing AO after examining all the documentary evidence submitted by the appellant has submitted that there was no material information found indicating any income derived by the assessee by providing loans/credit facilities to its non-members. Unexplained cash deposit u/s 69A - day book and cash book of the assessee were examined and it was found that cash sales and receipts from its members were not duly recorded - HELD THAT:- CIT(A) deleted the addition on the basis of remand report wherein the AO recorded the finding that the cash sales and receipts of deposits from its member were duly recorded and assessee also submitted the daily cash flow from 08.11.2016 to 30.12.2016, which was checked with the cash book and day book, sale register as well as bank statement and there was no discrepancy and thus, deleted the addition. Therefore, we do not find any infirmity in the order of the CIT(A). Disallowance of provision for overdue interest - AO observed that the assessee has charged to the profit and loss account the provisions for overdue interest - When the assessee did not reply, the learned AO added the same to the return income of the assessee - CIT(A) deleted addition - HELD THAT:- In the appellate proceedings, the assessee explained the nature of said interest and the learned CIT(A) recorded a finding that the provision for overdue interest has been made as per Income-tax Act, 1961 (the Act) by the assessee and there is no reason for the same to be added back and hence, the learned CIT(A) allowed the appeal of the assessee. Since there is no infirmity in the order of the learned CIT(A), we are inclined to uphold the order of learned CIT(A) by dismissing the appeal of the Revenue on this issue. Appeal of the Revenue is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Appellate Authority erred in admitting and relying on additional evidence at the appellate stage in contravention of Rule 46A of the Income-tax Rules, 1962. 2. Whether deduction under section 80P(2) can be denied where the assessing officer alleges lending to non-members but the appellate record (including remand report) contains no material indicating income derived from lending to non-members. 3. Whether an addition under section 69A (unexplained cash deposits) is sustainable where the assessee produces day book, cash book, sales register, daily cash flow statements for the disputed period and the assessing officer's remand report records no discrepancy between books and bank statements. 4. Whether a provision for overdue interest properly made in profit and loss account and explained as made in accordance with the Income-tax Act may be disallowed by the assessing officer and added back to income. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of additional evidence at the appellate stage (Rule 46A) Legal framework: Rule 46A of the Income-tax Rules governs admissibility of additional evidence before the appellate authority; it contemplates conditions for permitting evidence to be introduced at appeal and requires compliance with the rule's provisions and procedural safeguards including obtaining comments/remand where appropriate. Precedent treatment: No prior precedent was cited in the impugned order. The Tribunal evaluated the procedural sequence as recorded in the appellate order and remand report. Interpretation and reasoning: The Court examined the appellate authority's procedure: the CIT(A) forwarded the additional evidence filed by the taxpayer to the Assessing Officer and obtained a remand report which the CIT(A) considered and recorded on the appellate record (referenced at para 5, page 19 of the appellate order). The Court treated the forwarding of evidence to the AO and consideration of the remand report as compliance with the procedural safeguards envisaged by Rule 46A, rather than an impermissible admission of evidence without AO's opportunity to comment. Ratio vs. Obiter: Ratio - where additional evidence is forwarded to the AO and a remand report is obtained and considered, admission of that evidence at appeal does not violate Rule 46A. Obiter - none beyond the specific procedural facts. Conclusion: The ground alleging breach of Rule 46A is dismissed; the Court upheld the CIT(A)'s admission and reliance on the additional evidence because the AO was given opportunity to examine and report. Issue 2 - Deduction under section 80P(2): eligibility where lending to non-members is alleged Legal framework: Section 80P(2) confers deduction to cooperative societies engaged in specified activities for or on behalf of their members; lending to non-members may affect entitlement if income is derived from a non-permitted finance business. Precedent treatment: No binding precedents were cited or overruled; the Tribunal relied on evidence examined on remand. Interpretation and reasoning: The AO disallowed deduction on the basis that the society carried out finance business by providing loans to non-members and the assessee failed to respond to AO notices leading to assessment under section 144. On appeal the assessee produced documentary evidence; the CIT(A) forwarded that evidence to the AO and considered the AO's remand report, which stated that no material was found indicating income derived by the assessee from lending to non-members. The Court reviewed the appellate record and remand findings and found no infirmity in the CIT(A)'s conclusion that the precondition for disallowance (material indicating income from lending to non-members) was not established. Ratio vs. Obiter: Ratio - denial of section 80P(2) deduction requires material evidence of income derived from activity inconsistent with cooperative society status; absence of such material (as found on remand) requires restoration of the deduction. Obiter - procedural note that non-compliance with AO notices resulting in assessment under section 144 does not automatically validate a disallowance where subsequent evidence negates the AO's factual basis. Conclusion: The CIT(A)'s deletion of the section 80P disallowance is upheld; the addition is not sustained for lack of material indicating income from lending to non-members. Issue 3 - Addition under section 69A for unexplained cash deposits during demonetisation period Legal framework: Section 69A permits addition as unexplained cash deposits where money is found credited to bank accounts and the assessee fails to satisfactorily explain the nature and source of such credits; supporting books, contemporaneous records and reconciliation with bank statements can rebut such addition. Precedent treatment: No precedent analysis was invoked; the Tribunal focused on contemporaneous documentary reconciliation performed and recorded in the remand report. Interpretation and reasoning: The AO initially made an addition of Rs. 2,15,53,700 on account of cash deposits during the demonetisation window, citing non-compliance with notices and assessment under section 144. The assessee produced day book, cash book, sales register and a daily cash flow statement (08.11.2016-30.12.2016). The CIT(A) sought AO's comments; the AO's remand report recorded that these books and statements were examined and that cash sales and member deposits were duly recorded with no apparent discrepancy upon cross-checking with bank statements. On that basis the CIT(A) deleted the addition. The Tribunal found the remand report's factual findings adequate to rebut the presumption under section 69A and saw no error in the CIT(A)'s decision to delete the addition. Ratio vs. Obiter: Ratio - an addition under section 69A cannot be sustained where contemporaneous books and reconciliatory documents, when examined by the AO (on remand), show the deposits to be recorded and unexplained cash cannot be established; the assessing officer's procedural section 144 assessment does not immunize the addition if subsequent examination negates unexplained nature. Obiter - records produced at appeal that are satisfactorily examined on remand may cure earlier non-compliance with notices for purposes of establishing source of deposits. Conclusion: The deletion of the section 69A addition is upheld; the addition is not sustainable in light of documentary reconciliation and the AO's remand finding of no discrepancy. Issue 4 - Disallowance of provision for overdue interest Legal framework: Provisions charged to profit and loss account are deductible unless specifically disallowed by the Act; assessing officers may add back provisions only where such provisions are not allowable under the Act or are otherwise unjustified. Precedent treatment: No precedents were cited. The Tribunal relied on the assessee's explanation and the CIT(A)'s finding that the provision was made as per the Income-tax Act. Interpretation and reasoning: The AO added back a provision for overdue interest of Rs. 24,624 because the assessee did not reply to notices. On appeal the assessee explained the nature of the provision; the CIT(A) found the provision had been made in accordance with the Act and there was no reason to add it back. The Tribunal accepted the CIT(A)'s factual and legal conclusion, noting absence of infirmity in the appellate finding. Ratio vs. Obiter: Ratio - where a provision is made in accordance with the Act and adequately explained, the assessing officer may not add it back merely because the assessee failed to respond earlier; such addition requires substantive reason. Obiter - procedural default by the assessee does not automatically render allowable provisions disallowable if the substance supports allowance. Conclusion: The CIT(A)'s deletion of the addition in respect of the provision for overdue interest is sustained; the assessing officer's add-back is not upheld. Overall Disposition The Court dismissed the Revenue's appeal on all grounds; each appellate deletion (admission of evidence after remand, section 80P deduction, section 69A addition, and provision for overdue interest) was upheld on the basis of remand findings, documentary reconciliation, and the absence of material justifying the assessing officer's additions.