2013 (5) TMI 355 - AT - Income Tax

Unexplained investment/ credit - set off of addition - rectification of order u/s 154 - held that - CIT(A) in the first round of appeal, had clearly given a direction to adjust against the addition of Rs.30,45,000/-, peak cash credit which was also available outside the books of account and assessed to tax once it was recorded in the books of account. The directions of the CIT(A) are clear. He has directed that the peak credit taxed in the earlier years should be reduced from the addition of unexplained advances of Rs. 30,45,000/-. There is no ambiguity in it. While giving effect to the order of the CIT(A), the AO has to merely follow the directions. It is not for the AO to sit on judgment over the correctness of the directions either in adding the advances or in directing the deduction of the peak credit added in the earlier years. Much less in an order of rectification of the order giving effect to the order of the CIT(A). We agree with the conclusion of the CIT(A) and dismiss the Revenue s appeal. - Decided against the revenue.

Summary

Issues:
1. Appeal against the order of CIT-VI, Hyderabad for the assessment year 2003-04.
2. Addition of Rs. 30,45,000 as advances to farmers without proof of source.
3. Set off of peak cash credits against the unexplained investment.
4. Rectification order u/s 154 withdrawing the set off.

Analysis:
1. The appeal was filed against the order of CIT-VI, Hyderabad for the assessment year 2003-04. The case involved a search and seizure operation leading to the discovery of incriminating material. The initial assessment order did not add any amount for unexplained investments. However, on appeal, an amount of Rs. 30,45,000 was added as advances to farmers for which the source was not proven.

2. During the appellate proceedings, the Assessee requested to set off the addition of Rs. 30,45,000 against the peak cash credits assessed for the years 1998-99 to 2003-04. The CIT(A) agreed with this contention and directed the AO to reduce the addition by the peak credit amounts assessed in the earlier years.

3. The AO initially gave effect to the CIT(A)'s order by reducing Rs. 19,44,000 from the addition. However, a subsequent rectification order u/s 154 was issued withdrawing this set off. The Assessee appealed against this rectification order, citing a violation of natural justice and principles of law.

4. The CIT(A) analyzed the contradictory stands taken by the AO and emphasized the need to follow the conclusive directions given earlier. The CIT(A) observed that the AO failed to grasp the essence of the previous directions and merely repeated the facts without understanding the spirit of the order. The CIT(A) upheld the Assessee's plea and directed the AO to allow the set off of peak cash credits against the unexplained advances.

5. The Tribunal concurred with the CIT(A)'s decision, emphasizing that the AO must adhere to the directions given by the appellate authority. The Tribunal dismissed the Revenue's appeal, affirming the order to set off the peak cash credits against the unexplained advances, as directed by the CIT(A).

In conclusion, the judgment highlights the importance of following appellate directions and upholding principles of natural justice in rectification orders, ensuring fair treatment and adherence to legal procedures in tax assessments.