2026 (2) TMI 927 - AT - Income Tax

Misapplied charging section vitiates additions; unexplained cash additions unsustainable without cogent contrary evidence.

The note addresses two issues: first, that treating a loan transaction under the wrong charging provision vitiates the addition because the correct ... Additions made u/s. 69A - Wrong application of charging provision - Section 68 or Section 69A - assessee had taken loan but the assessee was not able to furnish ITR of loan provider - HELD THAT:- AO had applied wrong provisions of the Act i.e. Section 69A of the Act while making the addition on the issue since it is a loan transaction and if at all, additions were to be made, it should have been done u/s. 68 of the Act i.e. unexplained cash credit in the hands of the assessee. The Revenue should have examined the applicability of Section 68 of the Act to the facts of the assessee’s case. Section 69A of the Act on the other hand applies to unexplained money, bullion, jewelry or other valuable article for which the assessee has not furnished any explanation about the nature and source of such money, bullion, jewelry or other valuable article etc. This wrong application of provision of law to the facts and circumstances of the case regarding a particular assessee tantamounts to non-application of mind by the quasi-judicial authority. This itself vitiates and makes the addition void ab initio, since there is no application of mind, much less than any satisfaction arrived at by the A.O as well as by the Ld. CIT(Appeals)/NFAC. As decide in Sanjeev Kumar c/o M/s Raj Kumar & Associates [2023 (10) TMI 1027 - ITAT DELHI] source of cash deposit during demonetization to the bank account of assesses is properly explained by the assessee by way of self speaking documentary evidence and explanation. Secondly, the AO has made addition u/s 69 of the Act which pertains to unexplained investments, whereas the assessee has not made any investment either in movable or any immovable property during the relevant period by way of using cash amount. Addition made by the AO by mentioning incorrect and irrelevant charging section is not sustainable and valid being bad in law. Unexplained money u/s. 69A - cash deposits - Assessee has explained the cash balance, rental income and interest income and the net agricultural sale receipts which accumulates to the total cash available and this was the continuous accumulation of cash for three years. Both the quasi-judicial authority had made/sustained the addition only on the basis of guess work and surmises without bringing any cogent evidence against the assessee. CIT(Appeals)/NFAC has not conducted any independent enquiry and had simply rejected the contentions raised by the assessee without assigning any reasoning for its decision as per record. The findings are not in terms with Section 250(4) & (6) - CIT(Appeals)/NFAC had not brought on record any comparative study for the extent of the addition as sustained by it. The assessee on the other hand had duly explained the nature and source of the cash deposits. Therefore direct the A.O to delete the additions from the hands of the assessee while giving appeal effect of this order. Decided in favour of assessee. Issues: (i) Whether the addition made by the Assessing Officer and sustained by the CIT(A) under Section 69A of the Income tax Act, 1961 is vitiated where the dispute relates to a loan and the proper charging section is Section 68; (ii) Whether the cash deposits of Rs.11,61,000 were satisfactorily explained by the assessee and the sustained addition of Rs.6,61,000 is liable to be deleted.Issue (i): Whether the addition made under Section 69A of the Income tax Act, 1961 is sustainable when the transaction is a loan and the correct provision is Section 68 of the Income tax Act, 1961.Analysis: The Tribunal examined the nature of the transaction (loan) and the statutory scope of Section 69A (unexplained money, bullion, jewellery or valuable article) vis a vis Section 68 (unexplained cash credit). The Tribunal found that the Assessing Officer applied Section 69A instead of considering Section 68 and that such misapplication amounted to non application of mind. The Tribunal relied on precedents holding that additions made under an incorrect charging section are vitiated and directed that appeal effect be given to this finding.Conclusion: The addition sustained under Section 69A is not sustainable; the matter is vitiated by application of an incorrect charging section and the ground is allowed in favour of the assessee.Issue (ii): Whether the assessee satisfactorily explained the cash deposits aggregating to Rs.11,61,000 and whether the partial addition of Rs.6,61,000 sustained by the CIT(A) should be deleted.Analysis: The Tribunal reviewed the cash sources presented (opening cash balance, rental income, interest income and agricultural receipts) showing cumulative cash available. The Tribunal found that both the Assessing Officer and the CIT(A) sustained the addition based on surmise, without independent inquiry or cogent contrary evidence, and that the CIT(A)'s reasoning did not comply with the requirements of Section 250(4) and (6) of the Income tax Act, 1961. On this factual and legal appraisal the Tribunal set aside the impugned addition and directed the Assessing Officer to give effect to the order.Conclusion: The addition of Rs.6,61,000 is deleted and Ground No.2 is allowed in favour of the assessee.Final Conclusion: The appeal is allowed on the substantive issues decided: the addition made under an incorrect charging section is vitiated and the cash deposits were satisfactorily explained, resulting in deletion of the impugned additions and direction for appeal effect.Ratio Decidendi: An addition made under an incorrect charging section vitiates the assessment where the nature of the transaction requires application of a different provision, and unexplained cash additions cannot be sustained in the absence of cogent contrary evidence and proper compliance with the appellate recording requirements of the Income tax Act, 1961.