2014 (6) TMI 15 - HC - Income Tax

Revision u/s 263 of the Act - Addition u/s 68 of the Act as business income - Whether in the absence of any satisfactory explanation regarding the source of the creditor, can it be said that the credit is not a business income Held that - The AO has considered the entire issue and found that the unexplained cash credit is to be treated as income u/s 68 - This is not a case where the decision of the AO can be treated as erroneous - If two views are possible, the AO having adopted one view, it cannot be said that such an approach is erroneous Relying upon Lakhmichand Baijnath Versus Commissioner Of Income-Tax, West Bengal 1958 (11) TMI 3 - SUPREME Court - even if the explanation given by the assessee, as to how the amounts came to be received, is rejected as untenable, the credits were to be treated as business receipts which are chargeable - When such a view is possible, there was no reason for the Commissioner to have invoked Section 263 of the Act to arrive at a different finding. Setting off of brought forward business loss Held that - The Assessing Officer passed an order giving effect to order u/s 263 of the Act - the revenue has preferred an appeal before the Tribunal which came to be dismissed, against which the appeal is filed - the Administrative Commissioner could not have exercised jurisdiction to invoke Section 263 of the Act, the assessment order made pursuant to the order is rightly rejected by the appellate authorities and the Tribunal Decided against Revenue.

Summary

Issues:
1. Addition made under Section 68 of the Income Tax Act as business income.
2. Treatment of unexplained cash credit under Section 68 in relation to business income.
3. Set off of brought forward business loss against additions made under Sections 68 and 40(a)(ia) of the Act.
4. Jurisdiction of the Administrative Commissioner under Section 263 of the Act.

Issue 1:
The first appeal challenged the addition made by the Assessing Officer under Section 68 of the Act as business income. The Administrative Commissioner opined that the addition should be assessed as income on a stand-alone basis under Section 69 of the Act. The Tribunal, citing relevant case laws, concluded that the unsecured loan received by the assessee raised doubts, warranting the addition under Section 68. The Tribunal referred to judgments by the Gujarat High Court, the Supreme Court, and the Kerala High Court to support its decision that the addition under Section 68 could be considered as receipt from the business of the assessee. Ultimately, the Tribunal allowed the appeal, emphasizing that the Commissioner had no reason to revise the order under Section 263 of the Act.

Issue 2:
The second appeal involved the treatment of unexplained cash credit under Section 68 in relation to business income. The Assessing Officer added a significant amount under Section 68, which the internal audit party later objected to, stating that the carried forward business loss could only be set off against profits and gains from the business. The Commissioner's order under Section 263 of the Act was contested, and the appellate authorities rejected the assessment order made in response to it. The Tribunal dismissed the revenue's appeal, affirming that the Administrative Commissioner had no jurisdiction to invoke Section 263, leading to the rejection of the subsequent assessment order.

Issue 3:
Regarding the set off of brought forward business loss against additions made under Sections 68 and 40(a)(ia) of the Act, the Assessing Officer allowed the set off against the brought forward losses of earlier assessment years, resulting in a total income of nil. However, the internal audit party raised objections, contending that the excess set off against the addition made as unexplained cash credit under Section 68 was incorrect. The matter was further complicated by the Commissioner's order under Section 263, which was subsequently rejected by the appellate authorities and the Tribunal, leading to the dismissal of the appeal against the order.

Issue 4:
The final issue revolved around the jurisdiction of the Administrative Commissioner under Section 263 of the Act. The Commissioner proceeded on the basis that the Assessing Officer's decision to treat the unexplained cash credit under Section 68 was not justified. However, the Tribunal and the appellate authorities disagreed, citing relevant case laws and holding that the Commissioner had no grounds to invoke Section 263. The dismissal of the appeals was based on the finding that the Administrative Commissioner's exercise of jurisdiction under Section 263 was unwarranted, leading to the rejection of subsequent assessment orders.