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2025 (3) TMI 1221 - AT - Income TaxAddition u/s. 68 - unexplained cash deposits in the absence of maintained books of accounts - HELD THAT - Here in the present case it is clear that the AO himself is satisfied that no books of account was maintained by the assessee and therefore addition cannot be made u/s. 68. The coordinate bench of ITAT has explained the books of accounts in the case of DCIT vs GSNR Rice Industries S(P.) LTD REPORTED 2021 (6) TMI 696 - ITAT CHENNAI held that if there is no books of account maintained no addition can be made u/s. 68 of the Act. The above judgment is squarely applicable in the present case on hand. Addition made by the AO towards interest payment u/s. 37 - In this case the very purpose of reopening of the case is not sustainable then subsequent addition made by the AO which are not part of the very basis for reopening or part of the reasons recorded therefore during the course of reassessment proceedings any further addition is made by AO is also not sustainable. See Asha Kansal 2014 (4) TMI 931 - ITAT AGRA . Thus we delete the addition u/s. 37. Decided in favour of assessee.
ISSUES PRESENTED and CONSIDERED
The core issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS Validity of Notice under Section 148 The relevant legal framework involves Sections 147 and 148 of the Income Tax Act, which allow for the reopening of assessments if there is "reason to believe" that income has escaped assessment. The Court examined if the notice under Section 148 was justified, given the reliance on statements recorded during a survey rather than a search. The Court found that the notice was correctly issued under Section 148 based on the survey conducted at Xentrix Studios P Ltd, not on a search under Section 132. The procedural requirements, including obtaining approval from the Pr.CIT under Section 151, were met. Application of Section 68 Section 68 pertains to unexplained credits in the books of accounts. The Court noted that the assessee did not maintain any books of accounts, a precondition for invoking Section 68. As the AO acknowledged the absence of books, the addition under Section 68 was deemed unsustainable. The Court referenced the ITAT Chennai decision in DCIT vs. GSNR Rice Industries, which clarified that without books of accounts, Section 68 cannot be applied. The Court concluded that the addition under Section 68 was invalid due to the absence of maintained books. Disallowance of Interest under Section 37 Section 37 disallows expenses not incurred wholly and exclusively for business purposes. The AO disallowed interest payments due to non-deduction of TDS and questioned the genuineness of the payments. The Court found that since the reopening was invalid, any subsequent additions, including those under Section 37, were also unsustainable. The Court referenced the ITAT Agra decision in Asha Kansal, which held that if the basis for reopening fails, subsequent additions not forming part of the original reasons for reopening are invalid. Reopening Procedure under Sections 147 and 151 The Court examined the procedural correctness, noting that the AO had recorded reasons for reopening and obtained the necessary approval from the Pr.CIT. The reasons were communicated to the assessee, fulfilling procedural requirements. The Court emphasized that the reopening must be based on valid reasons. Since the primary reason for reopening (unexplained cash deposits) was found invalid due to the lack of books, the entire reopening process was deemed infructuous. SIGNIFICANT HOLDINGS The Court established several principles:
The Court concluded that the appeal for AY 2013-14 was partly allowed, with the invalidation of additions under Sections 68 and 37. The judgment underscores the importance of maintaining procedural and substantive integrity in tax assessments and reassessments.
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