Case Law Details
Mahendra Mohiniraj Gandhe Vs ACIT (ITAT Pune)
Section 68 can be invoked only when sum is credited in the books in the relevant previous year- Pune ITAT
An amount of Rs.10 Lakhs was found to be the opening balance of assessee during Financial year 2015-16. During scrutiny assessment, it was found that the said amount was credited in the books during the Financial year 2011-12 in respect of loan. This was added to income of assessee in Financial year 2015-16 on grounds that it was treated as unexplained cash credit u/s 68. Ledger Account was reproduced by the AO in the assessment order which shows the amount as opening balance of Financial year 2015-16. On appeal, CIT had confirmed the addition.
As per sec. 68, only if such sum is credited in the books in Financial year 2015-16, addition can be made. It is evident in this case that such sum was shown as opening balance in Financial year 2015-16, which implies it was credited in books before said Financial year.
ITAT held that AO had no jurisdiction to invoke sec. 68 when such sum is not found credited in the books during Financial year 2015-16 & merely forms part of opening balance.
Hence addition was deleted & appeal of assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal filed by the assessee is against the order of ld.Commissioner of Income Tax(Appeals)-2, Pune passed under section 143(3) of the Income Tax Act, 1961; dated 21.01.2020 for Assessment Year 2016-17. The assessee has raised the following grounds of appeal :
“1. The Ld. Commissioner of Income Tax (Appeals) has erred in not deciding the legal objection taken by the assessee vide para 2 to para 2.3 of the written submission dated 05-21-2019 submitted on 01-012020 before the Ld. Commissioner of Income Tax (Appeals), that the Assessing officer has made the addition of Rs.18,05,281/-u/s 41(1) of the Income Tax Act on account of alleged cessation or remission of trading liability and Rs. 10,00,000/- u/s 68 of the Income Tax Act, by transgressing the issue for which the case was selected under ‘limited scrutiny’, without obtaining the necessary approval from the Pr. Commissioner of Income Tax.
2. The Ld. Commissioner of Income Tax (Appeals) has erred in holding that the Assessing Officer was justified in treating the amount of Rs.18,05,280/- as cessation of liability within the provisions of section 41(1) of the Income Tax Act and adding the same to the total income of the assessee.
3. The Ld. Commissioner of Income Tax (Appeals) has erred in holding that the transfer of the liability of Rs.18,05,280/- on account of office rent payable to Mr. M.D. Gandhe from the balance sheet of his proprietary concern to his personal balance sheet, amounted to cessation or remission of liability as contemplated in section 41(1) of the Income Tax Act.
4. The Ld. Commissioner of Income Tax (Appeals) has erred in holding that the Assessing Officer has correctly treated the amount of Rs.10,00,000/- as unexplained cash credit u/s 68 of the Income Tax Act and has correctly added the same to the total income of the assessee.
5. The Ld. Commissioner of Income Tax (Appeals) has erred in upholding the addition of Rs.10,00,000/- as income of the Assessment Year 2016-17 u/s 68 of the Income Tax Act, on account of unsecure loan/deposit received by the assessee from Mr. R.B. Kakane in the Financial Year 2010-11, which was carried forward as opening balance as on 01-04-2015.
6. The Ld. Commissioner of Income Tax (Appeals) has erred in holding that the affidavit of MR RB Kakane filed by the assessee before the Assessing Officer in support of the genuineness of the credit appearing in the books of account of the assessee has no evidentiary value.
7. The appellant craves leave to add to or amend/modify or delete any or all of the above grounds of appeal.”
Brief facts of the case:
1.1 The present appeal was heard first by ITAT Pune on 28.11.2022 and order was pronounced 23.12.2022. However, Assessee filed a Miscellaneous Application MA No.115/PUN/2023 stating that the Ground No.5 was not adjudicated by ITAT vide order dated 23.12.2022. The Miscellaneous Application was allowed vide order dated 07.02.2025 and the ITAT order was recalled for limited purpose for adjudicating Ground No.5, which is as under :
“5. The Ld.Commissioner of Income Tax (Appeals) has erred in upholding the addition of Rs.10,00,000/- as income of the Assessment Year 2016-17 u/s 68 of the Income Tax Act, on account of unsecured loan/deposit received by the assessee from Mr. R.B.Kokane in the Financial Year 2010-11, which was carried forward as opening balance as on 01-04-2015.”
Submission of ld.AR :
2. Ld.AR for the assessee filed a paper book. Ld.AR also relied on the order of ITAT Pune in ITA No.846/PUN/2015 dated 12.12.2019 in the case of ITO Vs. Sant. Satramdas Infrastructure Pvt. Ltd. Ld.AR took us through the ld.AO’s order to demonstrate that ld.AO has reproduced the ledger account which categorically shows the loan of Rs.10 lakhs as opening balance. The said loan was obtained in FY 2011-12 which is mentioned in para 5.5 by the Assessing Officer. The Ld.AR also submitted that Affidavit of Lender was filed during the Assessment Proceedings which has been mentioned by the Assessing Officer in the assessment order. Thus, the Lender Mr. R.B.Kakane had admitted giving hand loan to the assessee in FY 2011-12. Ld.AR submitted that all these facts are mentioned in the Assessment Order. Ld.AR submitted that the AO had added this Loan of Rs.10,00,000/- u/s 68 for AY 2016-17 which is bad in law as the Loan was admittedly taken during FY 2011-12. Ld. AR relied on the decision of ITAT Pune.
Submission of ld.DR:
3. Ld.DR for the Revenue strongly relied on the order of the Assessing Officer and ld.CIT(A).
Findings & Analysis:
4. We have heard both the parties and perused the records. We have to decide only the Ground No.5. Admittedly, Mr.R.B.Kakane had given loan to assessee during F.Y.2011-12. Mr.R.B.Kakane has also filed an Affidavit stating the same and Assessing Officer has referred the said Affidavit in the assessment order. The Assessing Officer not challenged or disputed the fact that loan was given by Mr.R.B.Kakane during F.Y.2011-12. Section 68 of the Act is reproduced here as under :
“Cash credits.
68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year :
84[Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless,—
(a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
Provided further that] where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless—
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
85[Provided also] that nothing contained in the first proviso 86[or second proviso] shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.”
4.1 Thus, the Section 68 can be invoked when sum is found credited in the books of an assessee for the previous year. In this case, admittedly, Rs.10 lakhs was credited in the books of the assessee during F.Y.2011-12. This fact is evident from the copy of the Ledger Account reproduced by the Assessing Officer in the assessment order, which shows Rs.10 lakhs as opening balance as on 01.04.2015, it means it was definitely credited in the books of the assessee before 01.04.2015. It means, the said amount of Rs.10 lakhs was not credited in the books of the assessee in the previous year 2015-16 which is the previous year for A.Y.2016-17. Therefore, AO had no jurisdiction to invoke section 68 for the impugned amount of Rs.10 lakhs for A.Y.2016-17. Accordingly, we direct the Assessing Officer to delete the addition of Rs.10 lakhs, thus, the Ground No.5 of the assessee is allowed. We have decided only ground no.5 which has been reproduced by us in Para 1.1 of this order. Accordingly, ground raised by the assessee is allowed.
5. In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 21st March, 2025.
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