2019 (10) TMI 842 - AT - Income Tax

Unexplained cash credit u/s 68 - HELD THAT - We are of the view that u/s. 68 of the Act it is only the credit entry appearing in the books of account of an assessee for the relevant previous year that can be treated as unexplained cash credit in the absence of proper explanation by the assessee. Therefore the opening balances cannot be added u/s. 68. Closure of business of assessee in June 2015 was a sufficient cause for non-production of evidence before the AO and therefore the CIT(Appeals) ought to have admitted additional evidence in terms of Rule 46A(1)(c) of the Rules. The same reason would hold good for the assessee s claim with regard to discrepancies in the closing balance of sundry creditors as shown by the assessee in the books of account. The additional evidence sought to be filed by the assessee ought to have been admitted for adjudication by the CIT(Appeals). Set aside the order of CIT(Appeals) and remand the issue to the AO for fresh consideration with regard to the issue of addition u/s. 68 AO will consider the additional evidence filed by the assessee before the CIT(Appeals) and after giving opportunity of being heard to the assessee decide the addition u/s. 68 afresh in accordance with the law. As far as the refusal of the AO to allow set off of current year business loss against income added u/s. 68 of the Act by relying on the provisions of section 115BBE(2) which was inserted by the Finance Act 2016 w.e.f. 1.4.2017 it is not in dispute before us that the CBDT in Circular No.11 of 2019 dated 19.6.2019 clarified that the amendment sought to be relied upon by the AO is applicable only prospectively and therefore not applicable to AY 2015-16. Hence even in the event of addition being made u/s. 68 in the set aside proceedings the assessee should be given the benefit of set off of current year s business loss against the addition u/s. 68 of the Act.

Summary

Issues:
1. Treatment of unexplained cash credit under Section 68 of the Income-Tax Act.
2. Refusal of set off of current year's loss against income added under Section 68.
3. Admission of additional evidence before the CIT(Appeals) under Rule 46A of the I.T. Rules, 1963.

Analysis:

1. Treatment of Unexplained Cash Credit:
The appeal concerned the treatment of unexplained cash credit under Section 68 of the Income-Tax Act. The Assessing Officer (AO) added a sum as unexplained cash credit due to outstanding creditors representing purchases on credit by the assessee. The AO proceeded with the addition as the assessee failed to provide satisfactory explanations regarding the nature and source of these credits. However, the Tribunal held that under Section 68, only credit entries in the books of account for the relevant previous year can be treated as unexplained cash credit in the absence of proper explanation by the assessee. Opening balances cannot be added under Section 68.

2. Refusal of Set Off of Current Year's Loss:
The AO refused to allow the set off of the current year's loss against income added under Section 68, citing Section 115BBE(2) of the Act. The AO relied on provisions effective from 1.4.2017, disallowing deductions or set off of losses against income added under Section 68. However, the Tribunal noted that the CBDT clarified the prospective applicability of this amendment in Circular No.11 of 2019, making it inapplicable to AY 2015-16. Therefore, the Tribunal held that the assessee should be entitled to set off the current year's business loss against the addition made under Section 68.

3. Admission of Additional Evidence:
The CIT(Appeals) refused to accept additional evidence filed by the assessee, citing Rule 46A of the I.T. Rules, 1963. The rule outlines specific circumstances under which additional evidence can be admitted, including situations where the AO refused to admit relevant evidence or if the appellant was prevented from producing relevant evidence. The Tribunal held that the closure of the assessee's business in June 2015 constituted a sufficient cause for non-production of evidence before the AO. Therefore, the CIT(Appeals) should have admitted the additional evidence to allow proper adjudication of the issue. The Tribunal remanded the issue to the AO for fresh consideration with regard to the addition under Section 68, considering the additional evidence provided by the assessee.

In conclusion, the Tribunal partly allowed the appeal, directing a fresh consideration by the AO regarding the addition under Section 68 while granting the assessee the benefit of set off of the current year's business loss against the addition made under Section 68, as the relevant provisions were not applicable for the assessment year in question.