The Raipur Bench of Income Tax Appellate Tribunal (ITAT) has held that Section 263 of the Income Tax Act, 1961 could not be invoked on mere non reference of cash transactions.
The Principal Commissioner of Income Tax (PCIT) on a perusal of the record, it was found that the assessee, Anjay Surana, who was a partner in a partnership firm, Rajat Builders had a negative opening balance. It was further observed by him that the assessee had thereafter further overdrawn during the year under consideration, as a result whereof his negative/debit capital balance in the firm was increased.
The PCIT held that though the Clause 5 of the partnership deed of the aforesaid firm, Rajat Builders contemplated payment of interest @ 12% per annum in case of “debit balance” in the account of any partner but no such interest was paid by the assessee to the firm.
He was of the view that the failure on the part of the A.O to carry out adequate enquiries on the aforesaid issue, which revealed a set of transactions carried out by the assessee in clear violation of the mandate of Sections 269SS and 269T of the Income Tax Act.
S.R. Rao, appeared on behalf of the assessee and M. Parmar,on behalf of the revenue submitted that the A.O has failed in making necessary enquiries and recording his observations as regards the raising/repayment of loans by the assessee in violation of the prescribed modes as contemplated in Section 269SS and 269T of the Income Tax Act.
The two member Bench of Ravish Sood, (Judicial Member) and Arun Khodpia, (Accountant Member) allowed the appeal filed by the assessee holding that, even if the aforementioned cash transactions were to be brought within the meaning of cash loans that were raised/repaid in contravention of the prescribed modes contemplated in Section 269SS and 269T of the Income Tax Act, a mere non reference of the same by the A.O in the body of the assessment order would not render the assessment order as erroneous in so far it was prejudicial to the interest of the revenue under Section 263 of the Income Tax Act.
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