The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition of Rs. 3.86 crores under Section 69 of the Income Tax Act, 1961 determining that the alleged increases in short-term loans and advances were duly explained.
The assessee M/s. Manohar Dealcom Private Limited was a private limited company. Return for Assessment Year 2014-15 furnished on 26/11/2014 declaring income of Rs.1, 776/-. The case was selected for scrutiny through CASS. Notice under Section 143(2) of the Income Tax Act issued by the ITO, Ward – 2(2),by affixture.
Subsequently, notices under Section 142(1) of the Income Tax Act were also issued but there was no compliance by the assessee. The Assessing Officer (AO) based on verification of audited balance sheet noticed that there is a loan and advance of Rs.3,86,00,00/- during the year and in absence of relevant details the Assessing Officer invoked provisions of Section 69 of the Income Tax Act investment and made addition of Rs.3,86,00,000/-
The AO observed that the assessee has claimed expenditure of Rs.75, 837/- but for lack of verification about the genuineness of the expenditure, adhoc disallowance of 40% was made at Rs.30, 335/-. Income assessed at Rs.3, 86, 32,111/-. Aggrieved the assessee preferred appeal before the CIT (A) and apart from raising grounds on merits also challenged the jurisdiction of the Assessing Officer issuing notice under Section 143(2) of the Income Tax Act. However, the assessee failed to succeed on any of the grounds.
Mr. Sunil Surana representing the assessee filed a paper book containing 35 pages which includes copy of notice under Section 143(2) of the Income Tax Act, 1961, copy of affixture of notice, audited financial statement and written submissions filed before the CIT (A). The assessee also filed written submission wherein submissions have been made regarding validity of the reopening proceedings on the ground that no valid notice under Section 143(2) of the Act was issued by the jurisdictional Assessing Officer.
The bench noticed that the same covered investments which are not recorded in the books of accounts. In the instant case, the Assessing Officer has made the alleged additions based on the figures appearing in the audited balance sheet. It is an admitted fact that the private limited companies are required to get their books of accounts audited irrespective of any income criteria and the copy of such audited balance sheets are to be filed both with the Ministry of Corporate Affairs as well as the Income-tax Department. Now, the source of the addition taken up by the Assessing Officer is from schedule (vii) under the head short term loans and advances.
The two member bench of the tribunal comprising Sanjoy Sarama ( Judicial member) and Dr Manish Board ( Accountant member) found that firstly it was not a case of unexplained investment because the entries are duly recorded in the books and, therefore, invoking the provisions of Section 69 of the Income Tax Act was in itself bad in law and secondly, the alleged increase in the short term loans and advances by Rs.3,86,00,000/- was duly explained from the fact that the assessee has sold the investments held by it in the preceding financial year.
Therefore, since the source of investments was explained as being part of the audited balance sheet and secondly since the provision of Section 69 of the Income Tax Act are not applicable in the instant case, ITAT set aside the finding of the CIT (A) and deleted the addition of Rs.3.86 Crores made under Section 69 of the Income Tax Act. Accordingly, this ground raised by the assessee was allowed.
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