2022 (11) TMI 358 - AT - Income Tax

Addition u/s 69C r.w.s.115BBE - Payment of credit card by cash as a unexplained expenditure - case was selected under CASS for limited scrutiny purposes to verify large cash payments made for credit card purchases - HELD THAT - Addition made by AO without any adverse comment on the cash-book of the assessee (business cash book and personal cash book), additions made will be counted in the category of guess work and without application of mind. The order of Ld. CIT(A) is also absurd may he observed It is intriguing to note that why the appellant has an easy and convenient mode of payment to pay his credit card bills in the form of net banking, why would he get into a cumbersome mode of withdrawing cash from the bank account by physically going or sending a person to bank branch and then again go physically to the City Bank Branch to pay credit bills . This opinion of CIT(A) would have considered appropriate, in case AO had examined the cash book of the assessee and furnished specific remarks about the cash book. The power of CIT(A)is coterminous with that of AO, but an AO can do or his supposed to do, can be done by Ld. CIT(A) also. Being superior authority, his duty is to improve upon the assessment order passed by the AO considering the facts of the case and applicable law. Sec. 69C falls under income from other sources and in the category of deeming provision. Without establishing conclusively, a section like 69C falling under the head Income from Other Sources and that is to, a deeming section, no adverse inference can be drawn against the assessee. We found the order of AO and Ld. CIT(A) are based on conjunction and surmises. Appeal filed by the assessee is allowed.

Summary

Issues involved:
1. Addition of Rs. 9,72,500 under section 69C r.w.s. 115BBE of the Income Tax Act, 1961.
2. Validity of the assessment completed for the A.Y 2017-18 under section 143(3) and penalty under section 271AAC.
3. Treatment of cash payment towards credit card as unexplained expenditure under section 69C.
4. Upholding of the order by the Commissioner of Income Tax.

Analysis:

Issue 1: Addition under section 69C:
The appellant contested the addition of Rs. 9,72,500 under section 69C r.w.s. 115BBE of the Income Tax Act, 1961. The appellant argued that the cash payment towards the credit card was not unexplained as all relevant information was disclosed, including the cash summary and payment details. Citing case laws like Mehta Parikh & Co. v. CIT and Gur Prasad Hari Das vs. CIT, the appellant emphasized that the explanation provided should be considered valid. The Tribunal found that the appellant had disclosed all relevant details to the authorities, and thus, the addition under section 69C was unwarranted.

Issue 2: Validity of assessment and penalty:
The assessment for the A.Y 2017-18 was completed under section 143(3), showing a tax liability along with interest, and a separate penalty notice under section 271AAC was issued. The appellant challenged the validity of the assessment and penalty. However, the Tribunal did not delve deeply into this issue in the judgment.

Issue 3: Treatment of cash payment towards credit card:
The assessing officer treated the cash payment towards the credit card as unexplained expenditure under section 69C. The appellant provided a detailed explanation, including the cash summary and past withdrawals, to justify the source of funds. The Tribunal noted that the assessing officer's addition was based on conjecture and lacked a proper examination of the appellant's cash books. The Tribunal emphasized that without conclusive evidence, adverse inferences cannot be drawn against the assessee under section 69C.

Issue 4: Upholding of the Commissioner's order:
The appellant's appeal before the Commissioner of Income Tax was upheld, leading to the current appeal before the Tribunal. The Tribunal found that both the assessing officer and the Commissioner's orders were based on conjectures and violated principles of natural justice. The Tribunal set aside the lower authorities' orders and directed the deletion of the addition made under section 69C, providing consequential reliefs to the appellant.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing the importance of proper examination of evidence and adherence to legal principles in tax assessments.