2024 (5) TMI 856 - AT - Income Tax

Rectification u/s 154 - Substitution of addition u/s 269SS with 69A - unsecured loans - assessee engaged in banking business - Enhancement of tax liability u/s 115BBE - Initiation of penalty proceedings u/s. 270A of the Act in respect of the addition made u/s. 69A - HELD THAT - While rectifying the order, the AO should have confronted the assessee in consonance with the application of 69A in respect of unsecured loans which the AO has failed to do so. The rectification order is simply making it a typographical mistake but the assessee has made clear in application u/s.154 of the Act that it is a typographical mistake but the very applicability of section 269SS in assessee s case will not/should not have been applied. Thus, the rectification while giving the scope of 69A has not taken into any evidences as regards credibility of the loan, the source of the fund of the loan, identity of the parties for which the details are required and merely on the basis of PAN, voter card, form no. 16 and Addhaar card of the details of depositors will not suffice the said addition. These inquiries and verifications have not been done by the AO while making the said single line observation in the rectification order. These aspects were totally ignored by the CIT(A). Thus, it will be appropriate that whether the applicability of section 69A is justifiable or not in assessee s case and whether the assessee proves the nomenclature of unsecured loan and its proper demarcation in his profit and loss account, we are directing the AO to verify the same after calling upon the evidences to that effect. Needless to say, the assessee be given opportunity of hearing by following the principles of natural justice. Thus, is partly allowed for statistical purposes.

Summary

Issues:
- Validity of invoking provisions of section 154 without notice to the appellant
- Substitution of addition under section 269SS with section 69A
- Applicability of section 115BBE for enhancing tax liability
- Rectification application by the assessee challenging the application of section 269SS
- Assessment order discrepancies and rectification process

Analysis:

1. The appeals were filed against the order passed by NFAC for the assessment year 2017-18. The first issue raised was the confirmation of Assessing Officer's action under section 154 without notice to the appellant. The appellant argued that the action was not permissible for rectification under section 154. The second issue involved the substitution of addition under section 269SS with section 69A, which the appellant contested as not satisfying the conditions of section 69A.

2. The assessee, a cooperative bank, declared total income but faced scrutiny due to cash deposits during demonetization. The Assessing Officer made additions under section 69A, which the appellant challenged through rectification applications. The CIT(A) dismissed the appeals, leading to further arguments by both parties regarding the application of different sections and tax rates.

3. The Assessing Officer's decision to invoke section 115BBE for enhancing tax liability was contested by the appellant, citing the inapplicability of the section to the income in question. The rectification application by the assessee challenged the applicability of section 269SS to cooperative banks, emphasizing the need for proper verification and evidence.

4. The Tribunal observed discrepancies in the assessment order and rectification process, noting typographical errors and lack of proper verification by the Assessing Officer. The rectification order was deemed to be based on a typographical mistake without sufficient evidence regarding the applicability of section 69A. The Tribunal directed the Assessing Officer to verify the applicability of section 69A and the credibility of the unsecured loans, ensuring the principles of natural justice were followed.

5. Consequently, one appeal was partly allowed for statistical purposes, while the other was remanded back to the Assessing Officer for further review. The Tribunal emphasized the importance of proper verification and adherence to natural justice principles in tax assessments.

6. In conclusion, the Tribunal's decision highlighted the need for thorough verification and proper application of tax provisions, ensuring fairness and adherence to legal principles in tax assessments.