2015 (3) TMI 1422 - AT - Income Tax

Rectification of mistake u/s 154 - Addition u/s 68 - HELD THAT - Section 68 stipulates that any unexplained sum found credited in the books of the assessee for any previous year, then the same may be taxed as income of the assessee for that previous year. Section 68 can only be invoked if the loan has been taken or the sums have been credited in the books in the relevant previous year for which assessment is being made and not the loans taken in the earlier years. From the income tax records, it is evident that this loan is coming forward from last several years and is reflected in the balance sheet of the assessee filed for the earlier years along with the return of income. All these records are available with the assessing officer. The mistake apparent from record does not mean the assessment order itself but the records which are available with the assessing officer. Though the assessee could not furnish the confirmation of the loan and other evidences but such a loan could not have been added in the A.Y. 2005-06 as the same was taken in the earlier years and is being carried forward. In this year it is appearing balance of the current year. Legally such an addition could not sustained in this year and therefore addition made by AO u/s 68 is a legal mistake, which can be rectified within the ambit and provisions of section 154. The grounds raised by the assessee is treated as allowed.

Summary

Issues:
1. Rectification u/s 154 regarding addition of unsecured loans under section 68 for A.Y. 2005-06.

Analysis:
The appeal was filed by the Assessee against the order passed by Ld. CIT(A) Mumbai related to the addition of unsecured loans under section 68 for the assessment year 2005-06. The Assessee, an individual running a communication center and Cyber Caf'e, had received unsecured loans from their brother and sister. The Assessing Officer added the loan amounts under section 68 as the Assessee failed to prove the identity, capacity, and creditworthiness of the loan creditors. The Assessee then filed a petition for rectification u/s 154, stating that the loans were taken prior to A.Y. 1997-98 and were reflected in the balance sheet and returns filed since then.

Before the Ld.CIT(A), the Assessee argued that the loans were taken in much earlier years and were duly reflected in the balance sheets of those years. However, the Ld.CIT(A) upheld the AO's decision, stating there was no apparent mistake within the meaning of section 154. The Assessee then provided details of the loans during the assessment proceedings, mentioning the loan amounts and the creditors' details but did not submit confirmations or other evidence. The Assessing Officer added the loan amounts under section 68, leading the Assessee to file a petition for rectification u/s 154, emphasizing that the loans were old and reflected in previous years' records.

The Tribunal observed that section 68 could only be invoked if the loans were taken or credited in the relevant previous year being assessed, not for loans from earlier years. The Tribunal noted that the loan in question was carried forward from several years, reflected in the balance sheets and returns of earlier years. The absence of confirmation and evidence did not justify adding the loan in the A.Y. 2005-06, as it was taken in earlier years and carried forward. Therefore, the addition made by the AO under section 68 was deemed a legal mistake and rectifiable under section 154. Consequently, the appeal filed by the Assessee was allowed, and the addition of the loan amount was overturned.

In conclusion, the Tribunal's decision highlighted the importance of considering the timing of loans and the relevance of past records in determining the applicability of section 68. The judgment emphasized the need for a clear connection between the assessed year and the credited sums to avoid erroneous additions under the deeming provisions of the Income Tax Act.