Case Law Details
Navodit Singh Vs Prakhyat land Developers Private Limited (ITAT Mumbai)
Wrong invocation of section 68 instead of section 69C is a curable defect under section 292B, but the addition can survive only if the conditions of the correct charging provision are independently satisfied: ITAT Mumbai
Summary: The Mumbai ITAT held that an addition cannot automatically survive merely because the Assessing Officer invoked the wrong provision of law, but the matter must still be examined on merits. The dispute arose when the Assessing Officer treated a difference in unsecured loan repayment as unexplained cash credit under Section 68 based on mismatch between the assessee’s books and lender confirmation. The assessee explained that the difference represented an unpresented cheque issued towards interest liability, which was later reversed and paid in the subsequent year. The CIT(A) deleted the addition holding that Section 68 applies only to credit entries and not expenditure or repayment transactions. The Tribunal agreed that Section 68 was wrongly invoked since no fresh credit was received during the year, and also observed that the Assessing Officer failed to verify the accounting treatment of the entry. However, the ITAT restored the matter for limited verification of subsequent payment through banking channels before deleting the addition finally.
Core Issue: Whether a difference of ₹2,73,43,083 between loan repayment disclosed by the assessee and the amount confirmed by the lender could be added to income when the Assessing Officer invoked section 68, though the amount represented an unpresented cheque towards interest liability and not a fresh credit.
Facts: The assessee-company engaged in real estate development reported repayment of unsecured loan of ₹25.31 crore to Khush Housing Finance Pvt. Ltd., while the lender confirmed receipt of ₹22.58 crore; the difference of ₹2,73,43,083 was explained as six cheques issued towards interest liability which were not presented during the year, were reversed in the next financial year, and were subsequently paid through banking channels.
AO and CIT(A) Finding: The Assessing Officer rejected the explanation, observed that the assessee had sufficient bank balance, and treated ₹2,73,43,083 as unexplained cash credit under section 68 taxable under section 115BBE; the CIT(A) deleted the addition holding that section 68 applies only where a sum is found credited in the books, whereas the impugned amount related to expenditure or repayment of an existing liability and not to any fresh credit.
ITAT Finding: The Tribunal held that the CIT(A) was not justified in deleting the addition merely because the Assessing Officer invoked section 68 instead of section 69C, since a wrong reference to a statutory provision is only a technical defect curable under section 292B where the assessee was fully aware of the issue and no prejudice was caused. On merits, however, the Tribunal found that no fresh loan or credit had been received during the year and the disputed amount represented only an accounting entry relating to an unpresented cheque issued towards interest liability in a running loan account; therefore, the basic condition for invoking section 68 was absent. The Tribunal further held that even section 69C could not be applied because the Revenue failed to establish that any unexplained expenditure had actually been incurred during the relevant year, particularly when the assessee had furnished ledger accounts, bank statements, subsequent-year records, and TDS documents supporting its explanation. The Tribunal also noted that the Assessing Officer had not examined the accounting treatment of the amount, namely whether it was debited to the Profit and Loss Account or carried as a liability in the balance sheet, which was essential for determining applicability of either section 68 or section 69C. Nevertheless, as the assessee’s claim that the cheque was reversed and subsequently paid required factual verification, the matter was restored to the Assessing Officer for the limited purpose of verifying the reversal entry and actual payment through banking channels in the succeeding year; if substantiated, no addition would survive. Accordingly, the Revenue’s appeal was partly allowed for statistical purposes.
Cases Relied: Jignesh Chimanlal Jobanputra v. ITO.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the Revenue against the order passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the CIT(A)”] under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] dated 31.10.2025, arising out of the assessment order passed by the Assessing Officer under section 143(3) read with section 144B of the Act dated 29.03.2025 for the Assessment Year 2023–24.
Facts of the Case
2. The assessee is a company engaged in business of builders and developers and had filed its return of income for the year under consideration on 30.10.2023 declaring a business loss of Rs. 1,57,67,659/-. The return was processed under section 143(1) of the Act and thereafter the case was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS) on account of specific risk parameters including large squared up loans, large investment in property as compared to income, and claim of large refund. Notices under section 143(2) and 142(1) were issued and duly complied with by the assessee.
2.1 During the course of assessment proceedings, the Assessing Officer examined the books of account and noticed that the assessee had reported repayment of unsecured loan amounting to Rs. 25,31,97,810/- to M/s. Khush Housing Finance Pvt. Ltd. in its audit report filed under section 44AB. However, in response to notice issued under section 133(6), the said lender confirmed receipt of only Rs. 22,58,54,727/-. The Assessing Officer, therefore, called upon the assessee to explain the difference of Rs. 2,73,43,083/-. In response, the assessee submitted that the difference represented a cheque issued for Rs. 2,73,43,083/- towards interest liability which was not presented for payment during the year due to shortage of funds. It was further stated that the cheque was subsequently reversed in the following year. The assessee also submitted details of financial statements, loan accounts, bank statements, and other relevant records during the course of proceedings.
2.2 The Assessing Officer, however, did not accept the explanation of the assessee. It was observed that the bank statement of the assessee reflected a balance of Rs. 5,08,13,508/-on the date of issuance of cheque, thereby negating the contention of insufficient funds. The Assessing Officer further noted that as per the lender’s confirmation and bank verification, the actual repayment was only Rs. 22,58,54,727/-. It was also observed that evidence of TDS of Rs. 61,43,344/- was neither furnished nor reflected in the bank account.
2.3 The Assessing Officer held that the assessee had failed to substantiate the excess repayment claimed in its books. The explanation regarding unpresented cheque was rejected on the basis of bank balance and absence of evidence. The claim relating to co-borrowers was also rejected for want of supporting details. Consequently, the difference of Rs. 2,73,43,083/- was treated as unexplained cash credit under section 68 of the Act and taxed the same under section 115BBE., with consequential initiation of penalty proceedings under section 271AAC(1). Accordingly, the assessment was completed determining total income at Rs. 1,15,75,424/- as against the returned loss.
2.4 Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). During appellate proceedings, the assessee reiterated that the impugned amount represented an interest liability for which a cheque was issued on 13.01.2023 but remained unpresented due to insufficiency of funds and was reversed in the subsequent year. It was contended that the said amount was in the nature of expenditure and not a credit entry, and therefore provisions of section 68 were not applicable. It was further submitted that no fresh loan or credit was received during the year and the transaction related to repayment of an existing liability. The assessee also submitted that the interest component was subject to TDS and had been voluntarily disallowed in the computation of income. It was contended that the Assessing Officer had misapplied the provisions of section 68 without examining the true nature of the transaction and without verifying the accounting treatment in the books of account.
3. The CIT(A), after considering the submissions of the assessee and the assessment order, held that the addition made by the Assessing Officer under section 68 was wrong and not sustainable. It was observed that section 68 applies only where a sum is found credited in the books of the assessee, whereas in the present case the impugned amount was in the nature of expenditure debited to the Profit and Loss account and not a credit entry. The CIT(A) further observed that the Assessing Officer had not examined whether the amount was debited to the Profit and Loss account or shown as liability in the balance sheet. 3.1 It was held that the discrepancy in repayment and the explanation regarding unpresented cheque required verification from an appropriate perspective and not by invoking section 68. Relying on judicial precedents, the CIT(A) concluded that the primary condition for invoking section 68 was absent and accordingly deleted the addition of Rs. 2,73,43,083/-. The appeal of the assessee was thus allowed.
3.2 Aggrieved by the order of CIT(A), the Revenue is in appeal before us raising following grounds of appeal:
i. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in directing to delete the addition of Rs.2,73,43,043/- only on a substantive defect in the mentioning of the wrong section 68 of the Act, when intention of the addition to be made was on account of unexplained expenditure and to be made u/s 69C of the Act?”
ii. Whether on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that no prejudice was caused to the assessee, and the same is curable u/s 292B of the Act?”
iii. The appellant craves leave to add, amend, supplement, alter and/or delete any of the above ground of appeal.
4. The learned Departmental Representative (DR), drawing our attention to the findings recorded by the learned CIT(A), contended that the learned CIT(A) has deleted the addition merely on the ground that the Assessing Officer had invoked section 68 of the Act, whereas the substance of the addition was on account of unexplained expenditure. It was thus argued that the defect, if any, in invoking section 68 instead of section 69C is only technical in nature and does not vitiate the addition. The learned DR further submitted that the intention of the Assessing Officer was to bring to tax the unexplained outflow of funds reflected in the books of the assessee, and therefore, even if the provision was wrongly quoted, the addition ought to have been sustained under the correct provision, namely section 69C of the Act.
4.1 It was contended that no prejudice whatsoever has been caused to the assessee, as the nature of the addition and the underlying issue were clearly put to the assessee during the course of assessment proceedings. It was thus argued that the defect, if any, in quoting the provision is merely technical and curable in terms of section 292B of the Act, which provides that no assessment, notice or proceeding shall be invalid merely by reason of any mistake, defect or omission, if such proceeding is in substance and effect in conformity with or according to the intent and purpose of the Act. The learned DR, in support of the contention that the defect in invoking an incorrect provision is not fatal, placed reliance on the decision of the co-ordinate bench in the case of Jignesh Chimanlal Jobanputra vs. ITO in ITA No. 4008/Mum/2023 dated 18.04.2024. Referring to the said decision, it was submitted that the Co-ordinate Bench has categorically held that an addition cannot be deleted merely on the ground that the wrong section has been invoked by the Assessing Officer and that the matter has to be examined on merits.
4.2 It was thus contended that the impugned order of the learned CIT(A) deserves to be set aside and the matter restored for adjudication on merits, or in the alternative, the addition be sustained by applying the correct provision of law.
5. The learned Authorised Representative (AR), on the other hand, strongly relied upon the order of the learned CIT(A). It was contended that no loan was received by the assessee during the year under consideration and, therefore, the question of examining the identity, creditworthiness and genuineness of any creditor does not arise at all. Inviting our attention to the ledger account of M/s. Khush Housing Finance Pvt. Ltd. as reproduced by the Assessing Officer in the assessment order, the learned Authorised Representative submitted that the entire issue pertains only to reconciliation of repayment figures and not to any fresh credit in the books. It was submitted that the Assessing Officer has misread the entries appearing in the ledger and erroneously treated the difference as unexplained cash credit. The learned AR further submitted that the amount of Rs. 2,73,43,083/- represents 6 cheques issued towards interest liability, which, due to certain reasons, were never presented for payment during the relevant financial year. It was explained that the said cheque entries were reversed in the subsequent financial year in accordance with accounting practice, and thereafter a fresh payment of Rs. 2,73,43,083/- was made in the succeeding year. In support of the above contention, the learned AR submitted that the ledger account of the subsequent financial year, evidencing reversal of the earlier entry and actual payment thereafter, was duly placed before the learned CIT(A), who has taken the same into consideration while granting relief. The learned AR also placed the said ledger account on record before us.
5.1 The learned AR, with regard to the observation of the Assessing Officer, as pointed out by learned DR, concerning default on account of non-compliance of TDS, submitted that the said finding is factually incorrect. It was contended that the assessee had duly complied with the provisions relating to deduction of tax at source on the interest component payable to M/s. Khush Housing Finance Pvt. Ltd. In support of the aforesaid contention, the learned AR placed on record Form No. 16A issued to the lender evidencing deduction and deposit of tax at source.
6. We have carefully considered the rival submissions, perused the orders of the lower authorities and the material placed on record. The issue arising for our consideration is twofold. Firstly, whether the learned CIT(A) was justified in deleting the addition solely on the ground that the Assessing Officer invoked section 68 instead of section 69C of the Act. Secondly, whether on merits the impugned addition of Rs. 2,73,43,083/- is sustainable in the facts of the case.
6.1 At the outset, we find merit in the contention of the learned DR that the deletion of addition cannot be sustained merely on the ground that the Assessing Officer has invoked an incorrect provision of law. It is a settled principle that the substance of the transaction and the real nature of the addition has to be examined, and a mere technical defect in quoting the provision does not invalidate the assessment, provided the assessee was made aware of the case it had to meet and no prejudice is caused. Section 292B of the Act clearly provides that no assessment shall be invalid merely by reason of any mistake, defect or omission, if the same is in substance and effect in conformity with the intent and purpose of the Act. The co-ordinate bench decision relied upon by the learned DR has also held that an addition cannot be deleted solely on the ground that the wrong section has been invoked, and that the matter requires examination on merits. Therefore, to this extent, we are unable to concur with the approach adopted by the learned CIT(A) in deleting the addition only on the technical ground of wrong invocation of section 68. The legal ground raised by the Revenue is accordingly upheld.
7. Having held so, we now proceed to examine the issue on merits.
7.1 On perusal of the assessment order, it is evident that the addition has been made on account of difference in repayment of loan as per the books of the assessee and the confirmation received from M/s. Khush Housing Finance Pvt. Ltd. The Assessing Officer treated the difference of Rs. 2,73,43,083/- as unexplained cash credit primarily on the ground that the assessee failed to substantiate the repayment and that the explanation regarding unpresented cheque was not acceptable.
7.2 However, from the facts brought on record, including the ledger account of the lender as reproduced in the assessment order and the submissions made before the lower authorities, it emerges that no fresh loan or credit has been received by the assessee during the year. The impugned amount represents a cheque issued towards interest liability, which admittedly was not presented during the year and was subsequently reversed. The ledger account indicates that the transaction forms part of a running account of loan and interest, and not a fresh inflow of funds.
7.3. It is well settled that the provisions of section 68 can be invoked only where a “sum is found credited” in the books of the assessee and the assessee fails to explain the nature and source thereof. In the present case, the transaction in question does not represent a credit entry but rather relates to an alleged repayment or discharge of liability. Therefore, the basic condition for invoking section 68 is not satisfied.
7.4. Even if the case of the Revenue is considered from the perspective of section 69C, the addition can be sustained only where the assessee is found to have incurred expenditure and fails to explain the source thereof. In the present case, the assessee has consistently explained that the cheque was not realized and was subsequently reversed, and that the actual payment was made in the subsequent year. The Revenue has not brought on record any material to demonstrate that the assessee had in fact incurred unexplained expenditure during the year under consideration. The Hon’ble Courts have consistently held that additions under deeming provisions such as sections 68 and 69C must be based on cogent material and cannot be sustained on mere discrepancies or accounting differences without establishing actual receipt or expenditure. The burden initially lies on the assessee to explain the transaction, which in the present case has been discharged by furnishing ledger accounts, bank statements and subsequent year records. Thereafter, the onus shifts to the Revenue to rebut the explanation with evidence, which has not been effectively done.
7.5. We further note an important factual infirmity in the assessment order, as rightly observed by the learned CIT(A), that there is no examination by the Assessing Officer regarding the accounting treatment of the impugned amount of Rs. 2,73,43,083/-. The assessment order is completely silent as to whether the said amount was debited to the Profit and Loss account as expenditure or reflected as a liability in the balance sheet in view of the cheque not being presented. In the absence of any such verification, it is not discernible as to how the Assessing Officer concluded that the said amount represents either a “cash credit” or an “unexplained expenditure”. The nature of the entry, whether it is a debit towards expenditure or a liability carried forward, is foundational to the applicability of sections 68 or 69C. Failure to examine this basic accounting aspect renders the conclusion of the Assessing Officer unsustainable in law, as the charging provisions under both sections are contingent upon the character of the entry in the books. This lapse further strengthens the case of the assessee that the addition has been made without proper appreciation of facts.
7.6. At the same time, we find that the assessee has contended that the cheque of Rs. 2,73,43,083/- was not presented during the year and that the same was reversed and subsequently paid in the next financial year. Though such contention has been accepted by the learned CIT(A), the verification of actual reversal and subsequent payment through banking channels requires factual examination.
7.7. In the interest of justice and to bring finality to the dispute, we deem it appropriate to restore the matter to the file of the Assessing Officer for a limited purpose of verification. The Assessing Officer shall verify whether the cheque amounting to Rs. 2,73,43,083/- has been realized in the bank in the subsequent year. If the assessee substantiates the same with documentary evidence, no addition shall survive.
7.8. Accordingly, while we uphold the legal contention of the Revenue that the addition cannot be deleted merely on account of wrong mention of section, on merits we find that the addition is not sustainable subject to the above limited verification.
8. In the result, the appeal of the Revenue is partly allowed for statistical purposes.
Order pronounced in the open court on 07.05.2026.
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