2018 (7) TMI 2066 - AT - Income Tax

Addition u/s 68 - unexplained cash credits - AO had added assessee s customer s advances by terming the same to be both non genuine as well as suppressed revenue receipts cessation of liability u/s 41(1) - HELD THAT - There is no dispute that the assessing authority had nowhere invoked section 68 so far as the impugned customer s advance are concerned in particular. He had made this addition by holding that corresponding liability towards the customers had ceased to exist in the impugned assessment year. It is therefore clear that the CIT(A) has applied section 68 of the Act qua the remaining advances which could not be explained in the remand proceedings. The assessee has nowhere been put to notice before invoking section 68 during course of lower appellate proceedings. There is no further issue that section 41(1) applies in the case of outstanding advances carried forward from the preceding assessment years which are either remitted as a case of cessation of liability in the impugned assessment year. We therefore find no merit in the impugned addition converted from cessation of liability to unexplained cash credits for this assessment year. The same stands deleted accordingly. There is no dispute that the assessing authority had nowhere invoked section 68 so far as the impugned customer s advance are concerned in particular. He had made this addition by holding that corresponding liability towards the customers had ceased to exist in the impugned assessment year. It is therefore clear that the CIT(A) has applied section 68 qua the remaining advances which could not be explained in the remand proceedings. The assessee has nowhere been put to notice before invoking section 68 during course of lower appellate proceedings. There is no further issue that section 41(1) of the Act applies in the case of outstanding advances carried forward from the preceding assessment years which are either remitted as a case of cessation of liability in the impugned assessment year. We therefore find no merit in the impugned addition of 9, 77, 500/- converted from cessation of liability to unexplained cash credits for this assessment year. The same stands deleted accordingly. Section 40 (a)(ia) disallowance - Assessee s only argument before us is that section 40(a)(ia) as amended by Finance Act 2014 w.e.f. 01.04.2015 prescribing such disallowance to be restricted to 30% only than the entire amount of 1, 79, 800/-; applies with retrospective effect - HELD THAT - We find no force in Revenue s instant arguments as a coordinate bench of this tribunal in Shri Rajendra Yadav 2016 (3) TMI 358 - ITAT JAIPUR already concludes the above amendment w.e.f. 01.04.2015 to be retrospective effect being curative in nature. We therefore direct the Assessing Officer to restrict the impugned disallowance to 30% only to be followed by necessary computation as per law. This latter substantive ground is treated as partly accepted in above terms.

Summary

Issues involved:
1. Addition of customer's advances and disallowance of expenditure under section 40(a)(ia) for A.Y. 2011-12.

Detailed Analysis:
1. Addition of Customer's Advances:
The appeal pertains to the CIT(A)-7, Kolkata's order upholding the Assessing Officer's action of adding the customer's advances of ?9,77,500 as well as disallowance of expenditure claimed of ?1,79,800 under section 40(a)(ia) for the assessment year 2011-12. The Assessing Officer had added the customer's advances of ?51,76,237, terming them as non-genuine and suppressed revenue receipts. The CIT(A) observed that an amount of ?41,98,737 represented the opening balance of the customer's advances, and concluded that the addition of outstanding advance could not be made in the impugned assessment year. Regarding the ?9,77,500 advance received during the year, the Assessing Officer invoked section 68 to treat it as unexplained cash credits. However, the CIT(A) found no merit in treating this amount as unexplained cash credits and deleted the same, as the assessing authority had not invoked section 68 for the initial customer's advances. The assessee was not put on notice before invoking section 68 during the lower appellate proceedings.

2. Disallowance under Section 40(a)(ia):
The second issue pertains to the disallowance of ?1,79,800 out of the total claim of ?3,05,364 under section 40(a)(ia). The appellant argued that the amendment to section 40(a)(ia) by the Finance Act 2014, restricting the disallowance to 30% only, applies retrospectively from 01.04.2015. The Departmental Representative opposed this argument, claiming that the proviso does not have retrospective effect. The tribunal referred to a previous decision and concluded that the amendment is retrospective and curative in nature. Hence, the Assessing Officer was directed to restrict the disallowance to 30% only, following necessary computation as per law. This latter substantive ground was partly accepted by the tribunal.

In conclusion, the appellate tribunal allowed the appeal for statistical purposes, pronouncing the order on 20.07.2018.